NEW YORK (MONEY Magazine) -
After years of saving for college (or scrambling at the last minute to come up with the dough), you've mailed the check for the first semester and are ready to pack your budding scholar off to school. Your college money worries are over.
Not so fast, Mom and Dad. The real financial aid crisis may just be starting. After years of spending under your watchful eye, your child is heading off into uncharted, unsupervised economic territory, marked by unexpected expenses, easy access to credit cards and near-infinite temptations to squander money.
It all adds up to perfect conditions for financial trouble -- misadventures that often climax in phone calls home begging for a bailout.
"I see students all the time who max out their credit cards, spend all their college aid, run out of money and are looking for emergency loans -- and it's only mid-semester," says Dorothy Bagwell, a Texas Tech professor who directs a peer-to-peer personal-finance program at the university.
This won't happen to your kid, of course -- at least not if you run through some basics about managing money and ground rules about spending, credit and the limits of parental aid before he sets foot on campus. This guide should help.
Do some home schooling
In an ideal world, you would have been teaching your children the rudiments of personal finance from the time they were small, giving them an allowance to build budgeting and saving skills, helping them distinguish between needs and wants and, as they got older, imparting technical expertise, like how to balance a checkbook.
At the least, teenagers ought to get a fixed weekly amount to buy their own food, entertainment and clothing, so they get used to living on a budget while still at home.
"If you don't give your kid freedom to make choices with money, including stupid choices, he'll make plenty when he gets to college," says John Gardner, a senior fellow at the National Resource Center for the First-Year Experience, which focuses on freshman life.
But maybe your child is enrolling at State U. this month and all you have time for is a crash course on the way to school.
Lesson 1: Don't spend more money than you have. Lesson 2: Divide spending into needs (say, quarters for the laundry machine) and wants ($1,800 for a spring break trip to Florida). Lesson 3: Don't pay for the wants unless you can cover the needs.
Get a grip on costs
Part of your challenge as a parent is figuring out just how much money your newly minted college student will really need for campus living expenses -- and how much of that total should come from your wallet. While every school publishes its tuition, room and board and other fixed fees, it's harder to get a handle on the myriad other expenses that pop up.
Books and supplies, for instance, will likely cost more than $850 a year. Health insurance, if your child needs it, could run $1,300. Put line items in the budget for clothing, phone and toiletries, as well as a computer, dorm room decor, entertainment, transportation and meals not on the dining plan. If your child will have a car, figure in the cost of campus permits, plus insurance, gas and maintenance.
All told, you're probably looking at a couple of thousand dollars a year or more on top of the college's sticker price.
The big question: Who pays for what? Often the most practical solution is to decide on a general amount you will provide for living expenses -- a number that reflects actual costs, your financial resources and your philosophy about your kid's responsibility for paying part of her own way. Then clarify with your child the bills you expect her to shoulder.
For example, when Pamela and Glenn Jenkins of Montclair, N.J. sent their daughter Tiffany to Howard University last fall, they gave her a $150-a-month allowance and agreed to cover the $30 a month to keep her cell phone on their family billing plan. But when Tiffany, 19, wanted a new phone and upgraded service, her parents told her that she'd have to pay the $30-a-month difference.
To hold up their end of the bargain, many students will need to get a summer job or a part-time job at school. Having to work for what they want is a good financial lesson -- up to a point. Jobs that require more than 15 hours a week interfere with academic work, studies suggest.
Certain jobs, though, can pay off in more ways than one. For Liz Seely, 23, a part-time job in the admissions office at Tulane as an undergrad led to a full-time job as an admissions counselor after graduation.
Stick to the plan
The biggest threats to budgets, say students and financial aid experts, are the innocuous little expenses that add up over time: snacks for the dorm room, dinner out with friends, a daily dose of caffeine. Imagine drinking a $4 latte five days a week, and spending $8 twice a week on pizza and drinks. That's $144 in one month -- and your child hasn't even visited the laundry room.
One way to help your child live within her means is to dole out the money you are providing piecemeal, either by sending a monthly check or making electronic funds transfers to her bank account. Unless you are confident in your child's self-discipline, packing him off to school as a freshman with a semester's worth of expense money is asking for trouble.
Also encourage your child to keep costs down by looking for deals. Spiral notebooks and other supplies at the local Staples may cost half as much as the logo-emblazoned versions in the campus store. You may find deeply discounted textbooks on eBay's half.com or other Web sites. You'll also find bargains in used dorm furniture and other gear at end-of-the-term sales by seniors, who are eager to shed possessions they no longer need.
Give credit where it's due
Given the challenge of keeping spending down, it's not surprising that many students end up with a mountain of credit-card debt (see the table at right). While your instinct may be to urge your child to just say no to plastic, a credit card can be a useful tool for a student -- to buy a plane ticket home, for example. Paying the balance in full each month also helps your child establish a good credit record.
A compromise: Greenlight a student card with a low limit, say $500. While the rates on student cards are usually high -- 15 to 18 percent -- you can find better deals, such as Sovereign Bank's Preferred Student card (877-768-2265), recently at 9.9 percent.
Another option is to add your child as an authorized user on your own credit card. That was the approach taken by Wendy Olk of St. Louis, Mo. for her son Nate, 24, and her daughter Molly, 22, both graduating from Indiana University this year.
Before using the card, each child had to get prior approval from Mom, who deducted any unauthorized charges from their monthly allowance. When Nate kept charging clothes and meals without warning, she kept her word. "He stopped surprising me," she says.
Prepare for disaster
No matter how carefully you plan, however, the moment will inevitably come when your child calls home to beg for more money. Before you hit the roof, consider the possibility that the budget may, in fact, be unrealistic.
Liz Seely, for instance, always managed to get by on the $500 per semester her father sent her at college in New Orleans. But the same amount proved inadequate when Liz spent a semester in London.
"I said, 'Dad, you don't understand that I'm buying less, but it's impossible not to spend more,'" says Liz. Dad sent her an extra $300.
The scramble for money, alternatively, may remind your child that the time to start living within one's means is now. Last December, University of Washington student Nicholas Fusso, 20, spent a lot of weekday talk time on his cell phone to line up off-campus housing -- and break up with two girls he was dating at the time. His bill for that month: $380. His mother Denise was sympathetic but not enough to pay the tab.
"It sucks to be you," she told him. "Next time, break up after 7 o'clock." Says Nicholas: "I haven't gotten even close to the limit since then."
Similarly, Pamela Jenkins says she didn't help her daughter out last year when an unpaid $200 bill led to suspension of Tiffany's cell-phone service.
"At one point or another, kids are going to get in over their heads," Pamela says. "If you bail them out constantly, they never learn how to work it out themselves." Not a bad lesson for a college student to learn.
Sending a scholar off to college? Check out our "Back to school" special report.
Still saving? Read the Ultimate College Saving Guide.