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YOUR MONEY: Credit card changes will force parents, college students to rethink expenses

Students headed to college this fall face a new financial landscape when it comes to managing money. Not only are families on tighter budgets, but the new credit card legislation passed this year begins to challenge how students handle credit, an...

Students headed to college this fall face a new financial landscape when it comes to managing money. Not only are families on tighter budgets, but the new credit card legislation passed this year begins to challenge how students handle credit, and that requires parents and students to rethink how to pay expenses.

Starting in February, credit card companies can no longer hand out cards to students under 21. The student must now have an adult co-sign or show proof of income. While an easy solution is to have mom or dad co-sign, the risk is high that any mismanagement or inattentiveness by the student, such as not paying the bill, will reflect on the parent's credit history and hurt a parent's credit score and ability to get credit in the future. If this is the only option, the parent should make the bill be sent not to the student, but the parent. This also helps monitor the student's expenses, and hold the student accountable to a budget.

Maybe this law is not such a bad idea in that it opens the conversation of budgeting between parent and child. Before heading off to campus, both should sit down and review monthly expenses. A student should know what is a responsible amount to spend on activities such as movies, campus events, equipment, food and clothes. If the parent of a new college student has an older child that has already experienced the cost of these needs, that child can provide input on what makes sense for the budget. The parent can also help by knowing current expense trends such as apartment costs and transportation costs.

This process also helps the student in learning how to budget. The learning can go further if the parent forces the child to present documented reasons why a certain expense is needed or why it shouldn't be reduced. Then the budget committee of mom and dad can make its final decision.

One final note is for students and parents to be aware that the credit card law mentioned above doesn't start until February, meaning the card companies have one last semester where they are allowed to give students sole ownership in a card. That may be OK for a senior about to need one to enter the real world, but parents should advise their child one more time of the dangers of not being responsible for debt.

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College is all about learning and financial knowledge is no exception. A child who develops good money management skills early is more likely to be successful with their finances throughout life.

(Serra is a financial planner with Strategic Financial Planning Inc. in Plano, Texas. E-mail him at serrafinance@yahoo.com or visit his Twitter page at www.twitter.com/danserra .)

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