August 6th, 2015
Recently, USA Today ran an article about a young woman in Atlanta who had $90,000 in a college fund from her grandparents. She spent all of it by the end of her junior year and didn’t know how she was going to pay for her senior year, so she called into a radio show to try to get the host to convince her parents to give her the money. Her parents felt she needed to take responsibility, and the young woman blamed her parents for not teaching her to manage money.
While many listeners were angered by the Kim’s attitude, her spending habits aren’t rare among college students. “Money Matters On Campus” — a 2015 survey conducted by financial aid company Higher One and an education technology company called EverFi — examined spending habits among college students. The study revealed insights into how students struggle with spending. While 62% of four-year students report checking their account balances, only 39% of four-year students use budgets.
So, the habits the students get while in college will impact their credit rating and ability to manage money in the future. This raises an important question – how do we teach our kids to budget money?
Some parents start early with an allowance that is supposed to cover clothes and extras. If the child blows $160 of the $200 on a pair of shoes, then they only get $40 for the rest of the clothes for the year. Even if you don’t let your kids have the actual money, it’s a good idea to talk about what you have budgeted for items like back to school clothes. It teaches the child to think through the consequences and the drive that they have to have the shoes, or the jeans, or whatever they recently saw advertised.
So, say you didn’t start early. What can you do to help your student before they go off to college? Or back to college. It never hurts to help your older kids have solid financial knowledge either.
CollegeInColorado.org has these steps as well as a worksheet.
Pick A Timeframe For Your Budget
Decide from the beginning whether your budget will be set for a month, a semester, or a school year.
List All Of Your Income
In your budget, include all of your potential categories and amounts of income. For college students, these typically include: financial aid(scholarships, grants, work study, and student loans), savings, contributions from parents, and income from a part-time job.
List All Of Your Expenses
Next, list all of your potential categories and amounts of expenses. Typical college student expenses include: tuition and fees, books and supplies, room and board / housing, groceries and snacks, personal care items, transportation or car expenses, health insurance, cell phone, clothes, and entertainment and activities. If you’re not sure what your expenses are, track them for a week, a month, or more. Recording everything you spend can be an eye-opening experience and a great way to find areas to cut costs.
Plan For Emergencies
The unexpected is a part of life. If your car breaks down or you have an unexpected medical expense, you’ll be way ahead of the game if you have money saved in an emergency fund and don’t have to rely on credit.
Save For Big-ticket Items
If you’re planning to move into your own apartment and you’ll need to buy furniture, or maybe your friends are planning a spring break trip, start saving for the expense as soon as you know about it. Revisit your budget to attempt to increase your savings amount. Even if you end up borrowing to pay part of the expense, borrowing less will save money in the long run.
Make Sure Your Budget Balances
Total your income, total your expenses, and then make sure that your budget balances. You want to either break even or have some money leftover. If your budget doesn’t balance, you’ll need to reduce your expenses and/or figure out a way to bring in more income.
This is the most difficult part for everyone. It’s easy to come up with a budget when you don’t know exactly what the expenses are going to be. The key is to review the budget and how well it’s working out. Perhaps the student found a farmer’s market and was able to purchase their veggies for cheaper then the supermarket. Perhaps the student health center will cover all the medical expenses and they no longer need to budget for that.
So, start with living on the budget for two months and then evaluate and make adjustments. However, it’s important to review the budget monthly to see if you’re staying on track. In addition, small expenses could be adding up. If you’re going to the movies twice a week, you should ask yourself if it’s worth the cost, or if going once a week or twice a month would be better. It’s easy to want to keep up with your friends who may have more money (but probably they’re not budgeting and blowing through their funds too quickly). Catch things before they become big.
And the big question is using credit cards. It’s easy to do. Whenever you pull it out, ask yourself how you’ll pay it off when it’s due. If you can’t, then don’t use it.
If you’ve gotten yourself into a hole, look into a part time job until it’s paid off. Just put your money towards the debt and don’t think of it as another stream of income.
And if you’re wondering what happened to Kim the college student, she agreed to get a part time job and her parents agreed to co-sign a loan. Thank goodness for radio phone-in shows.