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When
Paul McGinnis
heads back to college in
Spokane, Wash.
, he'll be packing more than his CDs, laptop and
favorite sports posters. He's also carrying some
newfound financial awareness.
Money's
tight this year in the McGinnis family, and it's made
the 19-year-old college sophomore think twice before
whipping out his debit card for every little purchase.
Earlier this year, his dad, Greg, was laid off from a
20-year job in the building materials industry and his
mom, Nancy, took a pay cut from her administrative job
at Kaiser.
Everyone's
watching the wallet, including Paul, who will be living
in a dorm at
Whitworth University
.
"I'm
going to be cutting back on the little things, like
eating out when I can eat in the cafeteria for free, or
going to the mall to buy clothes I don't really
need," said Paul, wearing a T-shirt from the campus
radio station where he is a disc jockey.
He's seen
the financial impact at home and among his college
buddies. Six of his freshman-year friends — from
Montana
to
California
— aren't returning because of financial setbacks in
their families, he said.
To help
out with the
$38,000
tab for tuition, room and board at Whitworth, the
Elk Grove, Calif.
, teen is contributing
$5,000
of his own money, including savings from his summer job
at
California Public Employees' Retirement System
.
As
millions of students head back to colleges, they're
facing one of the tightest financial worlds in recent
years. College costs have soared, while job prospects
dimmed this summer. And for many, their parents are
confronting tough economic realities.
The Bank of Mom and Dad
may be running low this year.
It's hit
home. Seventy-five percent of teen boys — and 85
percent of teen girls — are stressed about the
economy, particularly paying for college, according to a
recent survey by
Bank of America
and
Seventeen magazine
.
And no
wonder. Total costs for tuition, room and board at
four-year public colleges was
$14,333
in 2008-09, the College Board said, up 5.7 percent from
a year earlier. College costs have consistently exceeded
inflation for the last few decades, the board noted.
With that
in mind, here are some money-saving tips:
HAVE THE
TALK
Financial
experts — and experienced parents — say it's best to
be clear about who pays for what. Don't wait till that
first sky-high cell-phone bill to discuss spending
limits.
Talk
about money — what parents will pay for (tuition,
rent, etc.) and what the student will pay for (social
life,
Starbucks
, etc.). Also talk about what happens, and who pays,
when mistakes occur, like overdrafts, bounced checks or
late payment fees.
Bill Hardekopf
, CEO of Lowcards.com and a father of three college-age
children, recommends that parents use their credit card
bill to explain the perils of paying bills late and
incurring penalties. They should explain when it's a
good time to use a credit card (textbooks, emergencies,
plane tickets home) and when it's not (clothes,
entertainment and burgers).
El Dorado Hills, Calif.
, resident
Natalie Ebinger
, who has two kids in college, said she didn't want them
to struggle financially in college as she did. Ebinger
and her husband started socking away
$100
a month when their
University of Arizona
son and UC Santa Barbara daughter were infants. They're
doing the same today for their 12-year-old twins,
through a 529 college savings plan.
Today,
the Ebingers pay all tuition, books and rent for their
college students — and a
$400
monthly allowance that "is theirs to do what they
want." But unusual expenses, like overseas calls to
friends studying abroad or a big shopping bill at
Nordstrom
are on their dime.
CONSIDER
A CONTRACT
It's not
for every family, but some financial planners recommend
signing a spending contract.
Bob Dreizler
, a longtime
Sacramento
financial consultant, says he's heard "too many
stories of parents resentful of their kids' college
spending" or horrified by the huge debt accumulated
by college graduation.
When his
own daughter, Sonya, went off to
UCLA
a decade ago, Dreizler and his wife typed up a simple
contract on the computer. It spelled out in basic, clear
terms how much they'd provide every year for four years
of college. Anything over that amount was to be paid by
their daughter. If she needed more, they'd loan her the
money at a nominal interest rate.
The
contract didn't go over well at first.
"I
didn't really like it," said
Sonya Dreizler
, now 29, "but in the back of my mind I knew it was
a good idea."
It
changed her approach to college, she said. "Once I
knew I was responsible for paying for a good portion of
my college, I applied for a lot more scholarships, the
kind I didn't have to repay."
Dreizler
picked up between
$500 and $3,000
in annual scholarships and took part-time jobs.
According to her father, she graduated in four years,
debt free.
And her
parents' financial lessons evidently rubbed off: The
English and Latin studies major is now a certified
financial planner in
San Francisco
. As for that college contract her parents handed her?
"It's something I'd recommend to my clients
today."
WATCH
THOSE TEXTBOOKS
Textbooks
are often one of the biggest sticker shocks at college,
especially for families in public schools who have never
had to buy books. With new textbooks costing
$100
and up, books can be a major budget-buster.
Students
like
Betty Lamptey
, a
California State University, Sacramento
, biology major, have learned to cut corners. During her
first semester last fall at CSUS, Lamptey said she
forked over
$600
for textbooks and supplies. Not anymore.
Now, she
looks for used books online at Web sites, like www.campusbooks.com
and www.textbooks.com.
"My
chemistry book last semester was
$150
new. I got a used one for
$35
," said the Natomas, Calif., resident.
Many
college bookstores, including CSUS, let students rent
textbooks online, instead of buying them.
CELEBRATE
MODESTLY
College
doesn't have to be a budget-buster if students are aware
of what they're spending. Dreizler recalls that many of
her
Southern California
college friends enjoyed unlimited spending accounts.
Those who didn't, like herself, gravitated to gathering
friends and entertaining at home, saving fancy drinks
and dinners out for special celebrations. "And we
went to the beach a lot, which was free."
Others
cut back where they can. At CSUS, Lamptey, a 29-year-old
single mother of four who commutes from Natomas, says
she saves by parking several blocks away and walking
onto campus. Instead of paying
$150
a semester, "I walk in and get some exercise."
CREDIT OR
DEBIT?
Should
college students carry a credit or a debit card? There
are two schools of thought, especially with credit
cards. Some financial experts believe in starting early.
Dreizler, for one, believes students should have a
credit card while still in high school so they can learn
from their mistakes while under the helpful eye of
parents.
Others,
like kids-and-money expert
Janet Bodnar
of Kiplinger's personal finance magazine, say college
students should wait until they have a job or income to
pay the monthly bill.
College
students have an average of 4.6 credit cards, according
to student lender
Sallie Mae
. And a recent study said the median credit card debt of
college freshmen in spring 2008 was
$939
, nearly triple from four years earlier.
Starting
next February, anyone under 21 must have a parent's
co-signature or proof of income to obtain a new credit
card. And companies will be prohibited from offering
free T-shirts, CDs and other trinkets aimed at enticing
college students to sign on the dotted line.
Students
who are considering a credit card should look for one
with the lowest interest rates, annual fees and best
rewards. Use one of the comparison Web sites, such as www.lowcards.com,
www.creditcards.com
or www.cardratings.com.
For the
bare essentials, college students need a
checking/savings account with a debit card they can use
to get cash withdrawals. They should use a bank or
credit union with branches in their college town, so
they won't get hit with out-of-network ATM fees.
Students
should consider signing up for e-mail or cell-phone
alerts that let them know when the checking account is
running low or a direct deposit has landed.
But they
need to pay close attention to the terms of any account
they are setting up, especially fees for overdraft
protection and other services.
Above
all, students shouldn't overly worry about the financial
stuff. Mistakes happen. They can learn from them.
Harlan Cohen
, author of the college advice book "The Naked
Roommate," said: "Financial circumstances can
be the same as a difficult roommate. It helps you to
persevere, to reach out for help and to appreciate what
you have. And there's nothing wrong with that."
———
ABOUT THE
WRITER
Claudia Buck
is the assistant business editor of
The Sacramento Bee
. Personal Finance Notebook answers questions about
money matters, tapping a roster of experts for advice on
navigating the often-confusing world of personal
finance. Submit questions to cbuck@sacbee.com
or P.O. Box 15779
Sacramento, Calif.
95852.
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