Better budgeting for college students

Credit cards can teach students financial discipline and help build a good credit rating that will become important after graduation, when a car and, later, a house become important. But play it safe: Put a low limit on the card. Talk to the bank and make sure that the credit limit isn't automatically increased if the bills are paid on time. Be certain your student understands the importance of paying on time to avoid the 20% finance charge. Talk to the bank about boosting the limit each year — perhaps starting at $500 and increasing to $1,500 or $2,000 by senior year.

A debit card is a good choice for financially disciplined students. For those who haven't quite made the connection between a purchase and a falling balance, envelopes stuffed with cash and labeled "rent," "books" and "entertainment" are a good way to break down spending.

A prepaid spending card is a safe and convenient way to handle money. Parents can track their student's spending and replenish the card online.

There are many Web sites offering tips on planning and saving for college, including A.G. Edwards & Sons, T. Rowe Price, Merrill Lynch, Goldman Sachs and Morgan Stanley. Major banks also offer solid information, including Wells Fargo, JPMorgan Chase, Bank of America and Citigroup.

It's never too late to discuss financial basics and draft a budget with your student. (See "Consolidate Student Loans Now.")

"A college education is an investment in a kid's future," Walbert says. "Parents have a right to review their investment quarterly or at the end of each semester."

Here are a few key moves to get you and your student started on the road to being fiscally fit:

• Parents should work with their student to determine how much money will be needed to cover four years of college. The College Board says about $45,000 is needed at a public university and about $110,000 for a private institution.
• If your student is still young, consider long-term plans, such as a 529 College Savings Plan and the Coverdell Educational Savings Account. Look into scholarships, grants and student loans.
• Teach your student the difference between needs and wants. Your kid needs money for books and lab fees but wants to take a ski trip. Any kid who understands this basic distinction is light years ahead of most students — and many adults.
• Your home owner's policy may cover your student's belongings at the dorm. Check to be sure, and plug any gaps as needed. Talk to the campus police about tagging your student's laptop computer — and teach your student the basics about guarding against theft.
• Some students graduate with crushing debt. Planning can avoid overreliance on loans, but don't be afraid to take on some debt. Think of it as an investment in your student's future. The key is getting the right mix of loans, grants, scholarships and cash on the barrelhead from summer jobs.
• When discussing finances with your student, remember that you're the one with experience and wisdom — share it with your student. Make it clear that your student can always ask questions and mistakes are forgiven, as long as they're honest goofs and not repeated.

MORE FROM FORBES

Forbes Section Front

World's most expensive homes Will Ferrell is Hollywood's most overpaid star Dirtiest vehicles on America’s highways The worlds most powerful people The key to dealing with lousy boss: negotiation IRS rules for medical deductions are sickening Tailgate much? These are the rides you need What automakers have in store for 2010 Top-earning dead celebrity? Not Jackson Need to fire someone? Here’s what to do Forbes Section Front