8.24.2013

How Your College Student Can Learn Money Management

College students have racked up about $1 trillion in student loan debt in the U.S. Considering college provides some of the most formative years in a person's life, establishing good money management processes while in college is crucial to alleviating that future debt. Parents are key role models who are critical in mentoring and modeling responsible cash management strategies during these crucial life skill-building years.

Managing the Extra Essentials of College Life

Beyond the typical costs of education -- tuition, books, fees -- students have added expenses for dormitory or off-campus lodging, meals and entertainment. Students living on campus will probably see an increase in meal plans this year. Universities such as Minnesota State University are offering creative alternatives to the standard three squares a day, according to MNSU.edu. MSU offers flexible spending meal plans, which give students the option of spending part of the meal allowance on snacks outside the dining common and hot take-out meals, occasionally. Students are in charge of proactively managing their money, and taking advantage of social activities without extra spending. Programs such as these, which encourage flexible spending plans for students, are prime ways to practice credit management.

Credit Cards

Living within a budget is the first step to establishing solid credit building behavior. Parents might suggest students skip the meal plan altogether. One option for controlling spending is with parent-sponsored prepaid credit cards. Parents authorize or fund prepaid cards with money that would have paid for the meal plan. This allows students to control what they eat and when, within a budget.

Another option is to co-sign for one of the cash back credit cards or a similar service. If you employ this method, you must ensure the student is responsible enough to make timely payments every month. Even though these types of cards typically have higher interest rates, paying the balance on time each month builds credit while providing a small cash return.

Most major credit card companies offer cash back incentives. Offers vary from one percent cash back on any purchase, to as much as five percent back on select purchases for gas, groceries and home furnishings. Offers.com reminds consumers that excellent credit scores (minimum of 720) allow lower interest rates. Rates can easily jump from 10 to 24 percent (or higher) with only one late payment.

Spending just $5 each day on discretionary items -- such as sodas, coffee and movie rentals -- adds up to almost $8,000 over a four-year college experience. Teaching kids to spend money wisely is crucial. Making purchases with a credit card and paying in full each cycle, lets students earn up to $400 on their discretionary items, rather than paying hundreds of dollars in interest.

Why Does Credit Matter?

Building a strong repayment history sets the stage for those insanely low auto rates currently offered by many credit unions. For example, Associated Credit Union offers rates as low as 1.75 percent with an exemplary credit history. The rate can go up to almost 12 percent as the credit score declines. Learning to manage credit isn't a requirement at universities, which is why working with your college student to pay off credit cards responsibly is a vital parental role -- even after your child turns 18 and leaves the house.

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