Most college-bound teens unprepared for finances
Posted:08/23/2005
Many college-bound freshman have not received any budgeting or spending advice, according to a survey sponsored by USAA.
USAA’s “Freshman Finance 101″ survey found that 79 percent of students have not discussed how they should spend discretionary money with anyone.
Parents and students also differ drastically on how much control parents should have over spending, according to the study.
Stuart Parker, president of USAA Financial Planning Services, said parents should set boundaries so students can avoid racking up debt.
“College is an ideal time for young adults to build positive financial habits,” Parker said. “But with students graduating with an average of $20,000 in student loan and credit card debt, learning to budget and make wise spending decisions is crucial to long-term financial health.”
What Students Said:
- 21% anticipate spending between $200 and $500 a month on clothes and entertainment.
- 21% plan to spend $1,000 or more to furnish their new place.
- 27% plan to have their own credit card, and 23% will use that card for recreational spending.
- Perhaps overly optimistic, 80% expected scholarships and grants to be available for tuition costs.
What Parents Said:
- 71% believe they should help their teens decide how to spend the money parents provide.
- Parents and teens expect to accumulate around $15,000 in debt as a result of college costs.
- 35% of parents plan to pay their child’s credit card bill.
- On average, parents have saved around $10,000 for their child’s education, far short of the estimated $45,000 needed for a public university and $110,000 for a private university.
As young students struggle to manage their own finances, it becomes far too easy to turn to credit cards. This makes budgeting and credit lessons even more important, says June Walbert, a Certified Financial Planner™ practitioner with USAA Financial Planning Services.
“Parents and teens need to communicate their expectations for how money will be provided or earned, and how it will be spent,” Walbert said. “Communication is the key to making a budget work.”
Walbert offers these financial tips for parents:
Credit cards
Be sure to set a low spending limit, such as $500, to discourage splurging.
Let your teen pay the bill so they can get in the habit of paying it in full each month.
Consider a joint account so parents can help manage it and keep track of spending.
Keep in mind that late payments on a joint account could affect the parents’ credit rating.
Providing money
Pre-paid cards provide spending freedom, but – unlike credit cards – safeguard against overspending.
Consider a joint checking account with online access so you can see where money is going in real-time, rather than waiting for a monthly statement.
Create a budget
Sit down and talk about how money will be provided and how it should be spent.
Make sure the budget is realistic and includes some fun money.
More tips for student financial responsibility:
College Budget Worksheet
More freshman finance tips
Financial products for parents and students:
Fund a pre-paid spending card online, so there’s no waiting for checks in the mail
Credit card limits that grow slowly as your student gains financial experience
Fund your child’s checking account and watch spending online
Find out if you’re eligible for membership