The average college student, now-a-days, graduates
with quite a bit of college debt... Almost $30,000
with a 4 year degree.
Add to that: credit card debt, masters programs or
professional degrees like an MD and debt can climb
to $100,000+.
But it is not just about debt.
Your college student is learning money habits that
could be lifelong.
Helping your student understand how to responsibly
deal with debt can mean the difference between a life
of financial pressure or financial freedom.
Minimum Payment Mania
Credit card companies target the college age population...and
"cards" can be a very helpful tool in the overall
money management picture.
Most college students are unfamiliar with the way
a credit card works. They falsely assume they can
spend up to their limit and make minimum payments.
That "thinking" can essentially double the cost of
what your student purchases on the credit card. The
student also has the psychological burden of the debt
plus the interest accumulation to deal with on a monthly
basis.
At graduation a college student could easily have
$30,000.00 in school debt, plus credit card debt.
They might be paying for impulsive and careless spending
for years.
Taming The Beast
I recommend a 2 prong approach to helping your student
understand and manage their debt.
First, I recommend using debit cards versus credit
cards.
There is a set amount of money in the account and
when it is gone, it is gone. Credit card debt just
builds and builds and it doesn't appear real to the
college kid, and it turns around and bites them when
they graduate from college.
They might not have that $100,000.00 per year job,
they may have a starting out $30,000.00 a year annual
salary before taxes and they've got a credit card
debt and they have their college debt that they have
to pay off. This can go many, many years into their
future
Second, have your student get a part-time job...even
if you can afford to pay all their expenses easily.
College kids need to have some participation in their
finances to learn about money as well as value their
education.
By getting a part-time job and earning just enough
to cover their cell phone and lattes, they learn to
make and manage money.
Let Them Wrestle
Sometimes they will make mistakes with their finances
and it can be good for them to wrestle with the problem.
If they get in too deep, you can help...but exercising
that financial management muscle is a good thing...and
feeling a little financial pressure now can help avoid
feeling it a lot later in life.
You will find they won't spend as much money if it
is their money versus their parent's money, or if
it comes from a source that they have no obligation
to pay back.
Author: Debbie Yohn of Collegeworks101.com
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