Econ 101: College is Time to Budget
If you don't curb the urge to splurge on campus, you may be faced with a lifetime of financial woes
The best way to rein in the urge to splurge is to make students responsible for earning their discretionary spending money, says Lewis Mandell, a finance professor at the University at Buffalo-SUNY. Studies show students who work up to 15 hours a week during the school year actually do better academically than students who don't work. Mandell recommends that some students, especially freshmen, be limited to no more than 10 hours of work a week to ensure plenty of time for study and to limit the amount of spare cash they have to spend. Even at minimum wage, that should put about $200 a month in the student's pocket, plenty for a cellphone, laundry, pizzas, and maybe even textbooks.
Sometimes, that actually works. Karl Sandberg, who runs a consumer credit counseling office near Dallas, insisted that both his daughters earn their own spending money at college. His oldest daughter, Rebecca, 23, took her budget to heart when she enrolled at Baylor University in Waco, Texas. "My friends would want to go out constantly, and I'm like: 'Let's go eat in the cafeteria and rent a movie.' "
But some students, such as Sandberg's younger daughter, Jennifer, 21, don't maintain that discipline. Within months of enrolling at Baylor, Jennifer signed up for a credit card and started "paying for other people's partying, picking up the bills, trying to impress people," says her father. It was only after the bills started piling up that Jennifer finally realized what her father had been trying to tell her about the dangers of splurging on credit. "It came as quite a shock that you actually have to pay for it," she says. And she's still adjusting. Now a senior, Jennifer recently called to ask her dad for $700 to cover bills, many of which were caused by several nights of celebrating her 21st birthday.
Sandberg decided to bail her out one last time to keep her focused on coursework that would allow her to graduate this winter, a semester early, cutting his tuition bill by almost $10,000. Sandberg is right to worry about graduation. Finances are the most common reason college students give for dropping out.
Though painful, bailouts can serve as important teachable moments for students. Manning, for example, recommends that parents dangle incentives in front of students, such as offering to pay off portions of debts for students who stay within an agreed-upon budget and get good grades.
However they do it, students should learn to live within a budget by the time they graduate, finance experts say, since overspending can hurt credit ratings, which employers are increasingly using in making hiring decisions. Those who learn too late discover that students who live like professionals while in college are often doomed to live like students when they are professionals.
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