Frank conversation can set limits on college spending

SACRAMENTO, Calif. -- When it comes to getting ready for college, Annie Peabody's got it all together: colorful new bedding and bath towels, shower caddy and storage bins, an e-reader, a netbook and a bike.

SACRAMENTO, Calif. -- When it comes to getting ready for college, Annie Peabody's got it all together: colorful new bedding and bath towels, shower caddy and storage bins, an e-reader, a netbook and a bike.

And although she's heading to a pricey, prestigious university, the Stanford-bound freshman is no pampered princess.

Leaving home for the first time, the 18-year-old is clear on what college will cost and what she's going to contribute.

Peabody, or West Sacramento, Calif., and her parents -- Dad's a civil engineer and Mom's a high school math teacher -- had the talk already.

"My end of the bargain is that I pay for all my own expenses during the school year, like concerts, clothes and groceries," said Annie, who worked for minimum wage this summer for an ophthalmologist and in her father's engineering office. "They'll pay for the tuition, room, board and books."


And when she arrives at Stanford, the biomechanical engineering major will work a part-time job -- probably at a Starbucks, she figures -- as part of her financial aid package.

Adds her mother, Julie: "Once she gets there, we don't intend on giving her extra money. Anything extra she wants -- tickets to a football game or clothes beyond what she takes -- that's all on her."

That's the kind of family discussion that financial experts say should be mandatory before kids leave the nest.

Especially now. Despite the continuing cloudy economic forecast, one thing is crystal-clear: College costs continue to climb. And many students have become acutely aware of it. In a recent Fidelity Investments online survey of U.S. high school seniors, a majority said saving for education was "overwhelming." Good news for parents: 94 percent of students were willing to pay for at least some of their college costs; 56 percent of those said their share should be half.

This month, as thousands of college students leave home for the first time, financial experts say keeping a lid on costs begins with a conversation. And the approach is critical.

"It's a conversation, not a lecture," said Geoff Howard, a financial consultant with the Charles Schwab office in Roseville, Calif. Make it collaborative but focus on key points, he suggests. Among them:

--Talk about needs vs. wants: Needs are textbooks, tuition. Wants are snowboarding trips and the newest iPod.

--Decide who pays for what. It's personal to every family, but everyone should be clear so there are no bank account surprises mid-year.


--Drill down to specifics on expenses. Use a budget worksheet; many universities offer them online through their financial aid office, or go to websites such as or

"It's an eye-opener and if done right can be the first real conversation parents have with their children about money," said Howard. "It's a chance to start good habits right now."

For families like the Peabodys, it's meant not buying lots of fancy new college accessories. Annie's parents figure they'll spend about $18,000 for their daughter's freshman year at Stanford. That's after deducting her financial aid and a tiny scholarship from Stanford's annual $50,576 tab for tuition, room and board.

The $500 Annie and her mom spent on dorm life necessities was carefully doled out. They bought sheets on clearance at Pottery Barn. They used coupons and checked the specials at Target, Ikea and Bed Bath & Beyond. The Christian Brothers High School graduate got a bike as a graduation gift because she isn't taking a car to campus. Her Costco printer and laptop are several years old but "still work great." And she's planning to rent textbooks for her Sony e-Reader, rather than buy pricey hardbacks.

For any college-bound student, here are other money matters to consider:

--File it away: Creating a financial filing system is a must. Websites like let you create a budget and a financial record-keeping system. Or simply label a series of file folders: bank account, ATM receipts, bills, cell phone contract, health care.

When you need the paperwork, it's not buried under a pile of books or gym socks.

--Credit cards? Maybe: College students and credit cards have long been a hot topic. Eager to clamp down on aggressive soliciting by credit card companies on college campuses, Congress this year banned anyone under 21 from obtaining a credit card, unless there's a co-signer or the student can show his or her ability to make monthly payments.


If you're willing to co-sign and feel your student is responsible, it can be a great way to launch their credit history while they're still under your financial wing. And a credit card can be a lifesaver in an emergency -- the unexpected-flight-home type, not the late-night-pizza-run kind.

But a warning: If you co-sign and your adorable teen racks up too many overdrafts or late payments, your credit history can be dinged. And vice versa: Your bad habits could hurt your child's credit history.

Michael McClure, who's heading to Santa Clara University next month, figures he doesn't need a credit card. The 18-year-old worked full-time all summer at an auto tire distributor and saved about $2,000 -- which is tied to a debit card.

"It's working out fine because I can go online and know exactly how much I have. There's a cool app on my iPhone that tells me how much is in my account. ... When I wanted to buy concert tickets to Rock the Bells, I checked to see if I could afford it," McClure said.

Another option: prepaid, reloadable cards. They're like a credit card, but you can't overdraft or spend beyond your limit. Companies like American Express, Visa and MasterCard offer them. Compare several to check fees or restrictions, such as out-of-network ATM withdrawals.

--Just-in-case documents: It's the scenario no parent wants to envision, but your son or daughter may want to consider authorizing someone to make financial and health-care decisions on their behalf, in the event of an accident or hospitalization.

For students 18 and older, Sacramento estate planning attorney Trudy Nearn recommends three documents: a financial power of attorney, an Advance Healthcare Directive and the medical records release form known as HIPAA. The health-care directive states who can make medical decisions on your behalf; the HIPAA form says your medical records can be shared with whomever you designate.

The financial power of attorney would give a parent or other designee permission to make or postpone loan payments, talk with lenders and landlords or access bank accounts, if a student is incapacitated.


"It's just peace of mind for parents that they will be able to help their kids and be involved if something happens," said Nearn.

In most cases, she said, students designate a parent, but siblings, grandparents and family friends also can be named.

Leaving home for college is a life-changing event for kids and their parents. Doing a little financial prep can be healthy for everyone.

"You love your kids, and while they're at college, you want to minimize their stress and distraction, like a late bill or a bounced check," said Schwab's Howard. "Those are what will keep kids from focusing on their academic and their personal development, which is what college is all about."



Every year, Kiplinger's financial magazine posts its back-to-college list of items that students can live without. Here are some items from the 2010 list:

1. New textbooks. Buy used or rent your textbooks from the campus bookstore or websites like or Compare shipping, return policies. For used books, try sites like or


2. A high-end computer. Whether laptop or desktop, an inexpensive computer or netbook can suffice.

3. A printer. Not all students agree, but you can save $80 or more for a printer, ink cartridges and paper. Instead, use the campus computer lab. Check first on fees, page limits, etc.

4. A smart phone. Students may think an iPhone or Droid X is a necessity, but data plans can run as high as $200 a month.

5. A car. The cost of gas, maintenance, insurance and unexpected breakdowns or parking tickets adds up. Keeping the car at home lowers insurance premiums, too.

6. A credit card. Avoid the debt trap; a debit card is a good alternative to get started handling monthly spending.

7. Hefty bank fees. Be sure your student bank account allows ATM withdrawals that don't require an out-of-network fee. Or consider an online checking account with a bank that refunds ATM charges. Check on fees for transferring funds online to your student.

8. Overdraft protection. If you opt out of overdraft protection, the bank either will not permit you to withdraw funds if your balance is too low or ask if you want to pay a $25-$35 fee to let you proceed.

9. Big meal deals. Avoid loading a meal account with enough money to feed the football team. Some schools have a use-it-or-lose-it system; start low to see how much your student needs.


10. Campus health insurance. If your family health plan does not cover out-of-network costs, a campus health plan may be cost-effective. Some schools require them, but let you opt out. If the school policy has low maximums, you could get left with thousands in uninsured expenses.

For the complete list, go to:



Have the chat. Talk about money with your student -- what you'll pay for (tuition, rent, etc.) and what's the student's responsibility (social life, Starbucks, etc.). Discuss what happens -- and who pays -- when the inevitable mistakes occur, like overdrafts, bounced checks or late payments.



--Dull as it sounds, make a budget. Use an online student budget calculator, such as or Add up your monthly income, whether it's from parents, loans or jobs. Write down everything you expect to spend. Subtract your expenses from your income. If you're short, a budget lets you decide where to cut back. Use it as a starting point, adjusting as you go through the school year.

--Do your homework. When opening any new bank or credit union account, check the fine print for fees or charges. Be aware of overdraft options. Always shop around for the best rates.

--If using an ATM card, don't pop it out at every stop. Instead, withdraw a set amount of cash each week for spending. When it's gone, close the wallet.

--Don't forget "payment due" dates for bills. Sign up for e-mail reminders or write dates on a calendar.

--If using a credit card, always pay off your monthly bill. Otherwise, you risk late payment fees, plus the start of a lousy credit rating. Don't use credit cards for cash advances, which can trigger costly fees.

Student-friendly websites:







Source: Bee research

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