Parents across the region are preparing, many for the first time, to send their kids off to college.
But before they do, they should remember to have “the talk” — not about sex, but rather finances, according to Tony Walker of Walker Financial Services.
“(Last week), we talked over the phone about what she is spending and whether it is on things she really needs or not,” Walker said of his daughter, Lacey, who is a sophomore at Murray State University.
“This talk is right up there with talking about sex” in terms of importance, he said.
But don’t expect a one-time talk to do the trick. Walker said it’s important for parents to keep an eye on their students’ spending by being able to view purchases online, then to have normal conversations throughout the year with subtle reminders about why they are really in school.
While Walker is in the business of helping people plan their financial lives, he recognizes that what works for his family and children might not work for others.
Walker said he wants his kids to go to college and have the full experience without having to work, so he planned and is paying accordingly.
His daughter, however, did work this summer to have spending money in school and she has an apartment this year.
“Some people might think that’s a cheaper option,” he said. “But since there is more space, a bathroom, kitchen and a bigger closet, it requires more cleaning supplies, towels, clothes, fixtures and things like shower curtains. We are already up to $300 just buying knicknacks.
“Just remember that college is going to be a lot more expensive than you planned when they get there,” Walker said.
Books might be among the biggest sticker shock for parents, with some individual books costing nearly $200.
“For anyone who has been to college, deciding on whether to buy the books is a big dilemma,” Walker said.
He said when he was in school, he would try to find out if a professor gave tests based on the book or more on the lectures that he gave in class before he bought a book.
“But that’s always a gamble,” he said.
Buying used textbooks might be an option, but with many professors using an updated version each year, that’s not always the case.
The University of Louisville and Barnes & Noble Booksellers are partnering in a textbook rental plan through its campus bookstores. Students may save hundreds of dollars by renting the books as opposed to buying them, which Sallie Mae (the largest student loan lender) estimates is $823 a year.
Students who have to work to make it through school might have a better understanding of finances, but then again maybe not. The average student graduates with some credit card debt — some might have thousands of dollars racked up, sometimes from paying for school-related items, even tuition.
Sallie Mae estimated in 2009 that college students charge an average of $2,200 in direct education expenses. A full 82 percent of those surveyed reported carrying a balance from month-to-month that incurred finance charges.
Walker said his family has chosen not to send their kids to school with credit cards.
“I’m not saying they are bad,” he said. “But if a student gets one, you need to make sure it’s one with a low credit limit.”
Responsible use of a credit card can help a young person build a good credit history. At the same time, irresponsible use can make for a bad credit history.
Then there is debt racked up from student loans. The Project on Student Debt estimates that Western Kentucky University graduates in 2008 had an average debt of $15,042, with an estimated 57 percent of the class having some debt. About 35 percent of the class received federal Pell Grants. The state average of $15,951 is considerably lower than the national average of $23,200.
The Kentucky Higher Education Assistance Authority also recently offered its advice to college students and parents: Make sure they know how to balance a checkbook and do it regularly.
Walker said he councils parents to remember that “investing in your child’s college is an investment, but it is still a huge expense. If you pay $10,000 a year and they are in school for four years, you are out $40,000 plus the interest lost. You are not going to get that money back.
“What your hope is that you are investing in your children so they don’t come home some day and want to move in with you again.”
— For more advice on college from KHEAA, go to www.kheaa.com. For more advice from Walker, go to www.tonywalker.com.
Tips for a student who takes a credit card to school:
1. Limit yourself to one low interest rate (APR) card. Use cash or a debit card for daily use.
2. Charge only what you can afford to pay in full each month. Don’t end up paying interest on pizza and iPod downloads.
3. Don’t accept increases in your credit limit. Keep it modest.
4. Keep your card in a safe place where it’s not easy to use for impulse purchases. Keep your number in a safe place in case your card is stolen or lost.
5. Pay the highest interest rate card first. If you already have multiple cards, pay off your highest interest rate card first, while making at least minimum payments on the others.
6. Pay your bill before it’s due. Don’t wait until the last minute and accidentally incur a late fee.
7. Keep copies of sales slips and compare them to charges on your bill. If you suspect a mistake — or worse, identity theft — contact your card issuer immediately.
8. Remember that a credit card is a convenience — not a source of spending money. Ask “Do I need it, or do I want it?” If you don’t need it, don’t charge it.
Source: Sallie Mae