College costs: Have the talk about financial literacy now
| Sacramento, Calif.
Two kids, two college tuitions. Add it up: One very big college bill.
For families like John and Ellen Wong of Sacramento, paying for college is听no trivial expense. With two teenagers heading to campus this fall, their听total annual tab is about $66,000.
That鈥檚 roughly Ms. Wong鈥檚 entire annual salary as a public high school instructor.
鈥淲e鈥檝e been saving since they were babies,鈥� said Ms. Wong, who added that the couple are determined to get their kids through college without relying on student loans.
That鈥檚 no easy feat at a time when college tuition is soaring and student debt loads are crushing.
Not surprisingly, the financial burden is hitting even affluent families. According to a recent Wall Street Journal report, the largest growth in student debt between 2007 and 2010 was in upper-middle-income families, those earning $94,500 to $205,000 a year.
How to ease the pain? As thousands of college students nationwide head to campus this fall, here are some Finance 101 notes:
HAVE THE TALK
听 Sit down and talk clearly as a family about who will pay for what. What you want to avoid is a tearful phone call home that your freshman has drained the bank account or overdrafted the debit card.
In some families, Mom and Dad pay for basics (tuition, food, monthly allowance) while students cover the rest (off-campus meals, clothes, entertainment).
鈥淓ach family needs to have those discussions, depending on their finances and what they can afford. You need to be clear,鈥� said Donna Bland, CEO of Golden 1 Credit Union in Sacramento.
This summer, Ms.Bland had her son, who will be a freshman at DePaul University in Chicago this fall, start buying his own essentials at the grocery store, just to get a feel for what things will cost once he鈥檚 on his own.
鈥淚 want him to have a stake in it. There are so many basic things," she said, such as听 toothpaste and听 laundry detergent , "that a student will need to buy on their own.鈥�
For the Wongs, it鈥檚 a little dose of financial tough love.
Beyond paying for two tuitions, housing, and meal plans, 鈥淚 have no intention of putting more money into their accounts. If they suck it dry, they鈥檙e in trouble,鈥� said Ms. Wong, coordinator of the honors humanities program at C.K. McClatchy High School in Sacramento.
The Wong siblings 鈥� Nolan, 19, a University of California, Berkeley sophomore, and Delaney, 17, a University of California, Santa Cruz freshman 鈥� are expected to pay for their extracurricular expenses, whether it鈥檚 joining a fraternity or buying concert tickets. They鈥檙e also buying their own textbooks.
To do that, both got summer jobs. Nolan earned $10 to $15 an hour as a dog washer for a local pet groomer; Delaney took home $8 an hour 鈥� after taxes 鈥� as a birthday party host and snack bar attendant at a children鈥檚 park.
When they land at college this fall, they鈥檒l each have about $4,000 in their bank accounts.
鈥淏ooks are a priority; incidentals come second,鈥� said Nolan, who said his only indulgences as a freshman were off-campus burgers and baseball caps.
Last year as a freshman, Nolan paid for all his textbooks, including about $490 for his two chemistry classes. Whenever possible, he bought used books and compared prices online at Amazon.com.
This year, the molecular toxicology major is saving roughly $900 a month by living in off-campus housing with a minimal meal plan. He鈥檚 also bringing a rice cooker for making dinners with his roommates.
It鈥檚 all about one shared family goal: graduating in four years with no student debt. The Wongs are pulling together a combination of savings, work-study grants and a small amount of financial aid.
Last year, with only one child in college, the Wongs filled out the Free Application for Federal Student Aid (FAFSA) form, which determines a family鈥檚 eligibility for federal grants, loans, and work-study.
鈥淲e didn鈥檛 get one penny in federal financial aid,鈥� noted Ellen, whose husband is a high-school social sciences teacher.
This year, with two kids in college, the Wongs qualified for a combined $16,000, which includes a work-study campus job for Delaney, who鈥檚 majoring in environmental studies.
Altogether, the Wongs figure their out-of-pocket costs for college this year will run about $50,000.
MAKE A BUDGET
Creating a college budget doesn鈥檛 have to be a tedious, laborious process, said Joseph Audette, 29, vice president of financial literacy for San Francisco-based NerdWallet.com.
It can be as simple as 鈥渨riting it on the back of an envelope with pen and paper,鈥� he notes, or more sophisticated, using budgeting sites like Mint.com, where you can visually track your spending.
As a freshman at MIT, Audette used an Excel spreadsheet that listed all his monthly income (scholarships, savings, Mom and Dad) and his expenses (cellphone plan, off-campus meals, weekend entertainment).
Far from being a drag, the exercise 鈥済ave me confidence to know what I could spend, especially on weekends,鈥� said Audette. 鈥淜nowing when I could go out, and when it was better to stay in, actually made my life less stressful.鈥�
It also made him realize he needed to supplement his income, which including taking odd jobs as a DJ, a medical test subject and a campus administrative assistant.
Similarly, Delaney Wong has already applied for a seven-hour-a-week campus dining hall job for her work-study grant.
DEBIT OR CREDIT?
It鈥檚 one of the big debates, especially for freshmen new to money management. One side says a credit card 鈥� paid off monthly 鈥� is a great way for students to start building a healthy credit score. Others say credit cards can lead to freestyle spending, missed payments and a pileup of penalties, late fees and rocketing interest rates. Not to mention a beat-up credit history.
鈥淎 debit card allows them to spend what they have, not what they don鈥檛,鈥� said Golden 1鈥檚 Bland.
She advises college students to set up mobile texts or email alerts that let them know when their account balance is running low, thus avoiding overdraft fees.
As for credit cards, recent federal law aimed at protecting college students does not allow anyone under 21 to be issued a card unless they can show proof of repayment (i.e., a job) or have a parent co-sign.
鈥淭here鈥檚 value in having a credit card, but only for emergencies,鈥� Bland said, such as a medical emergency or a last-minute flight home.
Or as NerdWallet鈥檚 Audette put it: 鈥淵our first credit card should not be used for spending; it should be used for building credit history.鈥�
Which means: Use it sparingly and always pay off the monthly balance.
MISTAKES HAPPEN
As any veteran parent of a college student knows, there鈥檒l be some financial hiccups. The lost laptop, the overdrawn bank account, the late tuition payment, perhaps an off-campus speeding ticket that busts a budget.
Audette recalls one of his freshman financial bloopers: buying expensive speakers 鈥� in cash 鈥� that turned out to be shoddy but nearly broke his first-quarter budget.
鈥淚 learned to be very careful about 鈥榙eals,鈥� 鈥� he said, as well as to think twice before making impulse purchases.
DON鈥橳 DESPAIR
鈥淭here are valuable lessons to be learned from mistakes and this is the time to learn them, while in high school and early in college,鈥� said Golden 1鈥檚 Bland. 鈥淸Students] don鈥檛 have mortgages; they aren鈥檛 paying big auto loans. 鈥� It鈥檚 not Mom or Dad telling [them] how to manage [their] finances; it鈥檚 [them] learning in a controlled environment, with a limited budget.鈥�
