ALABAMA A&M and AUBURN UNIVERSITIES

AUBURN, JUNE 4---The way you manage money in college will have a significant impact on your life during and after college. In addition to the skills needed for a career, an important, but often overlooked aspect of a college education is learning important coping or survival skills.

Managing your money is a vital survival skill, says Dr. Fred Waddell, Extension family resource management specialist  with the Alabama Cooperative Extension System.  If you don't learn how to manage your money while in college, the mistakes can make your life miserable during and after college, negatively affecting your career, your home life, your personal life, and even your health.

Many of the students who come to Waddell for financial counseling are sabotaging their lives and careers by allowing their personal financial lives to run amuck.

"Many students take out loans to help pay for college so they can get a good job.  They then turn around and take on so much credit card and other debt that they can't pay their bills on time, thereby screwing up their credit record and sabotaging the time and effort they spend to get a job after college."

"Most students are astonished when I tell them they are undermining their years of hard work by letting their personal finances get out of control.  They are surprised when I tell them more and more employers are checking credit records of job applicants, and if the employers find a record of non-payment or even slow payments on existing lines of credit by an applicant, they will not hire the applicant," Waddell says.
 
About 45 percent of undergraduates use student loans to finance at least part of their education. The average undergraduate borrower leaves college with student loan debt of $16,000 to $19,000. Those who also borrowed for an advanced degree owe about $38,000. Much attention has been paid to borrowers who default on college loans, but little to the impact of indebtedness of the 12.5 million students who, month after month, pay off their loans.

A recent study found 4 out of 10 graduates said they found their college loan payments easily handled, but 1 out of 4 said debt affected decisions on when or if to marry, and more than a third who did marry said it influenced decisions about starting a family.

Four in 10 graduates work two jobs or more because of their debts. More than  25 percent said their loans caused them to live with relatives, and 35 percent said they postponed needed health care because of their college debt. About 13 percent said their loans forced them to drop out of college -- leaving them perhaps worse off than if they had never gone. Many are still deeply in hock 10 years after graduation. And the debt burden is compounded when one student with debt marries another.

Educational loans notwithstanding, the misuse of credit cards and other credit can lead to serious, long-standing problems and constant worry. Credit cards are carried by 77 percent of college undergraduates. One in 5 students carry five or more cards. A recent study showed only 34 percent of these students understand the concept of buying on credit and the average outstanding balance for students is $2,226.

"If you have an 18.5 percent interest rate card, it will take you about 12 years to pay off this debt if you only pay the minimum balance each month, and you will pay interest charges of $2,153 on the $2,226," says Waddell.

"Students are working four to six weeks throughout the year just to pay the interest on their current credit card debts, without reducing the amount they owe by even one penny, says Waddell.  "They are speechless when I ask, 'What would you say if your employer asked you to work for four to six weeks without pay?"

This is essentially what students are doing by taking on so much credit card debt. And now, they're trying to get another loan to pay off these debts.  Basically, they are trying to borrow themselves out of debt, and this can't be done.

"In effect, you are turning over a big part of your life to creditors. Your creditors own you, or at least, a big piece of your life, because you are working primarily just to pay the creditors, and this will continue well beyond college graduation.  Sadly, students not only work  long hours and perhaps two jobs, to repay creditors, but worse, have sabotaged their ability to get the best job possible, because  of a  bad credit record," Waddell says.

In addition to the misuse of credit, some students Waddell counsels have written bad checks. Nearly half of college students nationally have bounced checks. As a result,  students paid huge bad check fees and also have had to go to court.

One student  wrote a bad check for 98 cents to buy a hamburger. The merchant filed charges, and the student paid a $15 fee to the merchant and $20 to the bank for the bad check, $83 to the court, $68 in county fees, and $45 in state worthless check-unit fees. The grand total, $231.98; this is a very expensive hamburger.

In addition to the cost, students complain of the inability to concentrate, constant stress, loss of sleep, and say worrying about their financial problems even interferes with their ability to have fun. In other words, letting financial matters get out of control will spill over into most other areas of your life as well, Waddell says.

Nationally, 42 percent of college students balance their checkbooks monthly, 27 percent record some checks, 10 percent use personal computer software, 10 percent let parents handle all their finances, and 9 percent leave it to fate. Only 52 percent of college students balance their checkbooks and 46 percent don't or let their parents do it.

"Letting parents manage your money is not going to teach you the survival skills that are so important to you now and in the future," adds Waddell.

Typical of the students who come to Waddell for financial counseling was a young man he saw last year. The student was working and going to school. He was two months behind on his truck payments and received a letter from the bank saying that if he didn't catch up on the back payments within 30 days his truck would be repossessed. He would then still have to pay a deficiency judgment for the difference between what the truck was now worth and the total amount outstanding on it, plus court costs and attorney fees.

Waddell asked him to describe a typical day in his life.  The student said on a typical day, he gets up in the morning and gets ready for school. On the way to school he stops at a local convenience store and gets a cup of coffee and a roll (cost with tax = $1.85). After his first class, he gets a drink from the vending machine and some crackers (cost = $1.50). At lunch,  he usually stops at a fast food place and gets something like a hamburger, fries and drink  (cost with tax = $3.65). Then he goes to work. On his afternoon break, he gets a drink and some chips from a vending machine (cost = $1.50). Later, he gets another  drink from the vending machine (cost = 75 cents). Total cost per day = $9.25. He repeated this same spending habit six days a week, working a full day on Saturday.

His total cost each month just for breakfast and lunch, and daily drinks and snacks from a vending machine was $222. When Waddell pointed this out to him, the young man said, "I can't believe it, that's my entire truck payment." He began getting up a few minutes earlier each morning, fixing himself a quick breakfast and a sandwich for lunch, and taking several cans of cola and snacks with him. In just a few months, he was able to catch up on his delinquent truck payments. He continued making extra truck payments and paid it off sooner, thus saving himself some interest which he put into a savings account for unexpected emergencies.

"He called me right before he graduated to thank me and to tell me that making that minor adjustment  in  time and spending was no big deal. And, for the first time, he felt in control and not worried all the time about money. The young man has a bright future, not only because of his career but also because of the self-confidence he developed during this learning experience, " Waddell says.

Taking control of your money also means taking responsibility for and control of your life, adds Waddell.  You need to have actual experience in controlling various aspects of your life in order to get control of your life. Here are some tips to help you do this:

1. Draw up a written spending plan or budget. Begin planning your spending now, so that your money is spent for things most important to you rather than squandered aimlessly on things that aren't as important.

2. Remember that gross income and net income are two different things. If you are working, be sure to plan your spending on your take-home pay, not on your gross income.

3. Open your own checking account. If you live out of state, you should have a checking account at home and at school. At the time you write checks, faithfully record the amounts of the checks you write, the recipient of the checks, and the purpose of the checks.

4. Balance your checkbook every month. If you record your checks at the time you write them, balancing your checkbook is a simple task that can be done in five minutes or so. Five minutes is a small price to pay for peace of mind and a feeling of being in control of your life.

5. Watch your use of credit. Credit does not increase the amount of money you have to spend; it decreases it. Using credit cards regularly and carrying over a balance each month is like tacking on an 18 percent surcharge on everything you buy. If you don't have much money to begin with, living on credit cards is going to make it even more difficult to make ends meet. If you can't pay the total balance of your credit card statement at the end of the month, then freeze that credit card in an ice cube tray; leave it there until you have paid off the entire balance.

6. Count on the unexpected. Even with a spending plan, something unexpected will occur. Putting a few dollars aside in savings for emergencies will keep them from becoming major financial crises. Living from crisis to crisis is a dumb and painful way to live.

7. Take a course in Personal Finance or Money Management as an elective. Some colleges even offer a weekend workshop on personal money management. Take advantage of these opportunities; the time you spend in such a course will save you a lot of money and prevent a lot of grief while you are in college and after you graduate.

"Being in control of your financial life doesn't take time; it saves time. Not only
does it save time and money, it also prevents a lot of grief, and lets you focus more fully on
other important things, rather than worrying about how to deal with the next crisis. It
will keep you from sabotaging all of your efforts to get an education and to land the job you
really want. And finally, just as financial problems tend to spill over into other areas of your
life, the confidence you gain in knowing that you are in full control of your financial life
will spill over into other areas of your life as well. You'll have the confidence that comes
from knowing if you can control your financial life, you can do anything! Just do
it!"

SOURCE: Fred Waddell is an Associate Professor at Auburn University, and the Family Money Management Specialist with the Alabama Cooperative Extension System. He has published 7 books and training manuals, more than 150 other publications on money management and financial counseling, and trains between 700 and 1,000 professional financial counselors every year throughout the country. He can be reached by e-mail at: fwaddell@humsci.auburn.edu