In this lesson:
- Are You Financially Smarter than a College Student?
- Impact of Student Debt
- Financial Trade-Offs
- The Peer Pressure of Spending
- Debt, Mental Health, and Alcohol
The Student Loan Marketing Association, more commonly known as Sallie Mae, is the largest provider of private student Loans. Sallie Mae found that fewer than a third (31%) of college students answered all of the following questions correctly. Students who believed they had excellent money management skills actually received the poorest scores on the quiz.
Parent: "I discussed finances with both of my children, but probably not enough. Some things, however, just need to be learned by experience. I believe the problems my son had with credit card debt made an impression on my daughter. She is three years younger than he is and realized what he had done. She has been much more responsible with her credit cards than he ever was."
The prospect of a good job after graduation leads students to run up debt during their college years, believing that they can pay their bills when a steady paycheck is rolling in. It's hard to keep in mind that life will bring more expenses when they're in the working world and dealing with “real life”: car payments, moves to follow job offers, payback of college loans, maybe marriage and children. Often students are surprised as they approach graduation and realize the full extent of their debts and the amount they will have to pay each month just to stay afloat.
Parents, too, face the consequences of student debt. If the student is on a parent's credit card, problems like excessive charges, failure to pay a bill on time, or high debt levels can affect the parent's credit rating. Many parents don't want their student to suffer the consequences of debt, but too often, it is the parents’ retirement account that suffers, which leads to problems down the road.
Sometimes decisions must be made about whether to pass up one opportunity in order to take advantage of another. These decisions often have financial implications. A study abroad opportunity, for example, will provide the student with resume-building experience, but it might mean not working for a semester. Without that student-job income, is the international study feasible? Is it worth the loss in income? Are there scholarships to help offset the cost, or is there a short-term study abroad option that might be equally beneficial?
Similarly, unpaid internships can offer excellent training and may lead to job recommendations, a paid internship, or even a job offer. At the same time, though, the student may be giving up a paid job and incurring transportation and clothing expenses to take the unpaid position.
Tip: Students frequently tend to make the "safe choice," keeping a current job rather than going for the promise of benefits in the future. Parents can help their student by assessing the option with the student and discussing the options in terms of foregoing short-term benefits for long-term opportunities.
Once on campus, students may see their roommates and friends regularly buying concert tickets, new clothes, or the latest electronics. It is easy to be tempted to join the spending spree. A hard test, a research paper, or the stress of planning next semester's class schedule might be reason enough to go shopping and treat oneself to something new.
Some people call that “affluenza.” By any name, emotional spending is a condition that affects adults, teens, pre-teens, and college students, and it can lead to excessive debt by purchasing material belongings or entertainment opportunities that are not really necessary. The outcome can be a bad credit rating or long working hours to pay off credit card debt—and too many belongings to fit into a residence hall room or small apartment.
If your student is prone to being influenced by friends’ spending, remember these tips:
- Look at your own actions. Do you place too much emphasis on material possessions? Children look to your example, even when you’re unaware of it.
- Establish the idea that everyone has to learn to pay for what they want, and want is different than need. Teens and college students can work part-time jobs and earn their own spending money. When buying is easy, the purchase doesn’t mean as much.
- Talk about the cost and the value of items your son or daughter wants. Help them think about whether it’s necessary or whether there are other options. Is there even space for something new?
- Rather than buy unnecessary things for your children, encourage them to find low-cost or free experiences they can share with a friend. A Saturday hike or a reading at the campus bookstore offer time with a friend that can build a relationship without the cost of “more stuff.”
Tip: Share some guidelines for students when they feel pressured to keep up with roommates or friends--ask them to
- Think it over
- Consider if this purchase fits into their financial goals
- Determine how many hours they will have to work to pay for it
- Figure out if there are more satisfying alternatives
- Decide if they want to create savings or create more debt
Activity: Consider the following question.
Question: Is there any correlation between student debt and mental health? Student debt and alcohol use?
Answer: A study conducted by the University of South Carolina and University of California, Los Angeles, showed that young adults who had higher levels of debt from student loans reported higher levels of symptoms of depression than their peers without student loans.
Another study indicates that university students worrying about debt are at greater risk of experiencing depression and alcohol dependency). When debt concerns continue over time, mental health issues increase.
Tip: Most colleges and universities provide mental health services for students either on campus or through a community resource. To learn about your student’s options, visit ulifeline.org.