Pocket money: College’s most under-calculated cost
An opportunity to teach financial literacy
By Robin Noble
A latte a day whittles the bank account away.
It’s a lesson worth considering as you and your high school student devise a spending plan for the college years.
Cost-of-living estimates for college students are notoriously off kilter, no matter how many net price calculators you consult. A collaborative study by professors at Seton Hall University, Stony Brook University and the University of Wisconsin-Madison found that fully one third of colleges provide cost estimates that are at least $3,000 lower than what many experts think is realistic.
For pencil-sharp parents and students trying to make plans, that’s a big number. What’s more, having a murky understanding of who is going to pay for what invites trouble (“You mean you won’t pay for my Gap card or Go Burger runs?!”).
Start the conversation now.
If you’re going to require your student to pay for any aspect of college, a forthright talk is due. Freshman year of high school isn’t too soon (nor is senior year too late). The earlier you’re clear on the subject, the sooner she can start building funds.
“Once students know that spending money isn’t going to be available from their parents on demand, they will resign themselves to planning and saving,” explains Steve Carr, Education Specialist for Premier Members Credit Union in Boulder, Colorado.
In any case, requiring your student to put some skin in the college game is always a good move. Giving her responsibility for ancillary costs is especially apropos because these are variable costs, and she is the main variable.
Take an honest look at the numbers.
Mr. Carr suggests you begin by helping your student open a free credit union checking account with a debit card, and asking her to discontinue cash spending. Now there will be no questions about where the money goes. Your student’s monthly statement will track any and every cha-ching: transportation costs, eating out, clothing, movies, sports tickets, club fees, travel, etc.
A lot becomes clear when it’s in black and white, all lined up in nice, neat columns. Review those monthly statements together. The goal isn’t to nitpick about who will be responsible for each line item come college. You simply want to shed light on the everyday outlays that add up so quickly.
Once you do this, add in travel costs if your student is considering out-of-state schools. Gather up any other regular bills your student incurs. From here, you can credibly forecast an annual out-of-pocket amount that is based on reality, and then determine what your student can afford to contribute.
This is the amount she should aim to accrue.
How she saves the money can follow any number of paths and will probably include summer jobs and after-school employment (as long as it doesn’t impact school performance). She might go after more scholarship money or plan for on-campus work when she gets to college. Knowing her expected contribution is the key.
Many students feel stumped about how to raise money. Like anything else, it’s one step at a time. Mr. Carr suggests having your student open a savings account at the same credit union where her checking account resides, and contributing to it methodically.
“Having a savings account teaches students how to pay themselves first,” explains Mr. Carr. “It’s a safe place for the money they can live without.”
With every paycheck, holiday check or grandparent birthday bonus, your student can put a portion of those funds into her savings account. The more the better. Selling unwanted items is another way to build the account. Think dusty electronics and collections she doesn’t care about any more. She can organize a garage sale that will stock her account while decluttering your basement. What could be better?
Building reserves teaches good savings habits.
“Good savings habits lead to good credit habits, and good credit always costs less,” Mr. Carr says. “That’s a lifetime lesson.”
With a clearer view of her spending habits and focus on savings, your student will probably start spending differently. Those $4 lattes might appear less often on her monthly statement.
“Suddenly this year’s $600 cell phone doesn’t look all that much better than last year’s $100 model,” Mr. Carr says. “They are learning that small savings add up quickly.”
The best time to start saving was yesterday, but go ahead and get going.
High school freshmen who are saving have a distinct advantage over their senior classmates, but everyone should start.
Beyond the costs of tuition, room and board, a litany of often under-calculated costs stands in the mix. If you’re on top of it, these costs offer a huge opportunity to teach our kids the value of a dollar.
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