August 21, 2017

Kid off to college? Teach Budgeting 101

All across the country, college-bound students and their families are running through the move-in day checklist:

Sheets and towels? Check. In-room refrigerator? Check. Shower caddy? Check.

First-year-away-from-home-budget? Probably not even on the list.

Believe me, I understand the process, having moved two kids into dorms.

However, it's no secret higher education is an increasingly expensive investment that can affect students' and families' personal financial situation, from the first attempts to save for college through eventually paying off student loans.

Most families who are actively involved with helping to pay for college have already come to terms with the big-ticket items of tuition and fees. (According to the College Board's most recent survey of college costs, tuition and fees at a two-year public school average $11,520. That tab soars to $45,370 for a private four-year college.)

But late-stage sticker shock can still set in as everyday miscellaneous expenses start adding up, given that the average student spends about $5,000 on additional expenses:

• Laptop or tablet, with accompanying software updates

• Everyday essentials such as laundry and cell phone service

• Entertainment, whether it's coffee-shop caffeine and snacks to fuel an all-nighter (and dorm meals missed while recovering from same) to on-campus shows to off-campus adventures

• Travel to and from home

Wants and needs

First, take a hard look at all anticipated expenses. Then, break those costs out between needs and wants.

The “needs” expense column includes costs such as books and supplies, mandatory fees such as lab and dorm fees, and travel expenses for trips home during the school year.

The “wants” expense column can quickly fill up with small items — the occasional meal out, a weekend trip to the movies, passes to school sporting events — and then more expensive ventures, such as social group membership fees or accompanying a friend on a spring break vacation.

But even those “wants” have a solid place in the budget, given that building relationships is a big part of the college experience, and that starts with shared experiences such as social events and impromptu off-campus adventures.

The bottom line is this: Think through what it will cost to cover the things your college-bound child will need. Drill down into the details so there are no fiscal surprises. Then have a frank conversation with your college-bound child about what he or she can spend on items in the “wants” column.

It's an important exercise for the future, too, as doing a deep dive into wants and needs is a first step toward financial wellness. At KeyBank, financial wellness means having the confidence to dream big as the result of knowing your current financial situation and your financial goals and then having access to tools and insight to attain those goals.

Armed with a complete and realistic financial picture, families can develop budget and spending plans to help the students become savvy money managers.

Budget basics

When you think about it, there's no real difference between a real-world budget and one for college students. Budgets are based on income and expenses — and the occasional incentive for boosting the former and sticking to the latter.

The key to a successful budget, especially for a college student, is to keep it simple, realistic and goal-oriented. First, review expenses — what your student needs and what your student might want. Then, determine available income, which can be money from summer jobs, graduation gifts, a parent-provided regular allowance or proceeds from a part-time job on campus or in the community.

Finally, add in savings goals so students learn the value of exercising restraint on today's spending to create future financial flexibility.

For example, that student budget could include a savings incentive — a special senior year vacation, a new (or new-to-them) vehicle or gift cards to help the new college grad settle into their first post-college apartment.

Yes, saving a significant amount of money can seem insurmountable. But consistent savings efforts really do add up over time. Saving $5 a week every week for four years adds up to more than $1,000 tucked away at graduation. Parents could help support the savings incentive by matching their students' savings goal.

Remember, the primary purpose of college is to help students gain an education that will prepare them for a fulfilling career with great earning potential. By helping college-bound offspring make strong financial decisions throughout their college experience, parents can have the peace of mind that they have given their college student a solid head start on financial wellness.

Carol Nelson is KeyBank's Pacific Region executive and Seattle market president.