College students are notorious for making mistakes with money, from misusing student loans to racking up credit card debt to treating their parents as ATMs. Let’s face it: most of us were irresponsible with money at some point, but we can help our kids avoid our mistakes. Here are some of the biggest financial blunders college freshmen make and what you can do to help your child avoid or minimize them.
Misusing student loans
Without student loans, your child might not be able to attend college or might have to attend a less academically rigorous school because of affordability issues. But student loans should only be used for essential education expenses. (Calculator: College costs)
A big financial mistake is that students use loans to pay for things they don’t need, said Andrew Josuweit, CEO of Student Loan Hero, a website that analyzes borrowers’ student loans and creates customized repayment plans, in an email interview. “Some students just say, ‘Hey, I can take out these student loans and use them for a spring break trip. I can worry about paying it back later.’”
Students using loan proceeds for expenses other than tuition but is generally not a good idea. Explain to your child that when you’re already living outside your means to afford college, you don’t want to burden yourself more than necessary. Also, if you take 15 years to repay $1,000 borrowed for a spring break trip at 6 percent interest, that trip really costs more than $1,500. (You can make them run the numbers here)
Not using the school meal plan
Colleges usually require any student living on campus to purchase a meal plan designed to cover most meals. Dorms offer limited kitchen facilities and it’s easier to not worry about cooking when you’re bogged down with schoolwork.
Stephanie Kinkaid, Title IX coordinator for the Wackerle Career and Leadership Center at Monmouth College in Monmouth, Illinois, said in an email exchange that college students should actually use their meal plans and avoid purchasing meals somewhere else.
There are plenty of opportunities to waste a student meal plan. Friends will want to eat at restaurants or order pizza. And at the end of the semester, campus food gets tiresome and it’s tempting to eat out. Make sure your child understands that you expect him or her to use the full meal plan and limit additional food expenses.
Using parents as an ATM
“Parents want their kids to enjoy college and not be stressed about finances, but I think that’s a huge mistake,” said Marcella Harkness, a Certified Financial Planner® professional with San Diego-based advisory firm Capital Growth, in an email exchange. For most people, life will be full of financial stresses, so why not have your child learn how to handle all the challenges of college, money included?
“Providing unlimited resources to college students does nothing to prepare them for financial independence in the future,” Harkness said.
Instead, be clear with your child about how much you’ll contribute to his or her tuition and other expenses and what you expect them to contribute from their savings and from working. Then, create a budget that shows how to make the money last.
Blowing the budget
Creating a budget for college expenses won’t help if your child doesn’t stick to it, though. In a single semester, college students can blow through an entire summer’s worth of earnings that are supposed to cover a year’s worth of expenses like laundry, snacks, and off-campus activities.
Harkness, the mother of one college graduate and one college freshman, said the result may be getting a job in the second semester and cutting expenses to make ends meet. If your child does make this mistake, at least it won’t have dire consequences. He or she will learn a lesson about budgeting that will benefit him or her long after they graduate.
When creating that budget, don’t forget about extracurricular activities. (Related: Budget basics)
Fraternities, clubs and organizations often charge dues that students need to budget for when calculating what they need to make it through the semester, Kinkaid said.
Getting into credit card debt
Even worse than ending up with a zero balance in your bank account or using student loans for spring break is taking on high-interest consumer debt.
“It’s relatively easy to get a student credit card and even easier to rack up a balance on it,” Josuweit said. “Credit cards allow students to buy things even if they don’t have the cash. It’s really easy to get behind on payments and then watch as the interest rapidly adds up.”
Parents can teach their kids to manage credit responsibly by helping them get a card with a low credit limit. Then, monitor spending and payments online to make sure the charges are reasonable and to make sure the balance gets paid in full and on time each month. (Calculator: Establishing financial goals )
As an alternative, stick to debit cards so there’s no risk of going into debt, Josuweit said.
Buying textbooks at the campus bookstore
New textbooks from the campus bookstore come at full price. Used copies come at a discount but might not be the best deal available.
Instead, buy books online using Amazon, eBay, Chegg and similar sites, Kinkaid suggested.
Some campus bookstores and websites even let students rent textbooks.
Hanging on to textbooks after students are done with them is another mistake, Kinkaid said. Unless students will need the books for future reference, they should sell them back to the bookstore or through one of the same websites they purchased them from.
It’s important for parents to foster a relationship where their children feel comfortable approaching them about any money problems they run into during college. This way, students can get help with any money issues while they’re small and manageable.
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