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A few bumps, but debit cards for my teens were a success

Several months ago, I handed debit cards to my teenage sons. Their reactions were interesting.

My 15-year-old, Byron, loved the idea, particularly the fact that he would have $150 in allowance to put in his account the beginning of each month. My 17-year-old, George, on the other hand, was stricken with fear.

You see, I told them they would be responsible for their school supplies, clothes, books and any incidentals that might come up. I wanted them to learn how to budget and how to anticipate expenses. Byron saw a parade of Domino’s pizzas in his future. George worried that he would not have enough money set aside in the fall for clothes and school supplies.

What followed was even more interesting.

In the beginning, Byron used all of his money on takeout, pizza delivery and the Apple iTunes Store. In April, he ordered pizza three times and ate at restaurants five times. He was out of money by April 20.

I didn’t bail him out the rest of the month, even though he didn’t have money for our Saturday morning tradition of breakfast tacos at a local restaurant. There was some gnashing of teeth, but the point was made. In May, he started the month with $50 set aside for necessities, and he only ordered Domino’s twice. However, he was down to $3 by May 17, spending his money on tacos and iTunes.

June was better, with $28 in his account by June 29. Today, he has $152 in savings for necessities.

Meanwhile, George immediately set $50 aside for necessities (he set up a subaccount with that name), and ended April with $48. When he realized that he could actually save more than $50 a month, he set a goal of buying parts for his old laptop so he could rebuild it.

George decided to spend no more than $50 a month on “fun” items, and in June, he spent $130 on computer parts. Today, he has $213 in savings for school expenses.

As you can see, my boys have very different ways of approaching money. I’d rather that Byron didn’t spend so much of his money on restaurants, but he is living within his means, which is the ultimate goal. Investopedia advises that you let your teen budget his way, rather than the way you think it should be. Budgeting can be done with paper, online software such as Mint or commercial software such as Quicken, Investopedia says.

FamilyEducation.com has a teen budget worksheet that includes such items as hobbies, transportation and the all-important cell phone.

MoneyAndStuff.info recommends that you give your teen a monthly allowance, rather than a weekly sum. The site has a sample budget for the teen. Money and Stuff likes the idea of a prepaid debit card, although personal finance expert Dave Ramsey points out that they are riddled with fees. That’s something I like about my kids’ credit union accounts: There are no fees, and we opted out of overdraft protection. That means that when their checking account runs out of money, charges are simply rejected. The savings accounts aren’t dipped into.

Rejected charges have a bonus. My kids get to experience the “walk of shame” from the store counter after being told they have insufficient funds for a purchase. It just took George one time for him to make sure he has enough money in his checking account before he goes to the store.

Now that we have a record of their monthly expenses for the past few months, I think it’s time for the boys to develop a formal budget.

I think George will embrace it. He seems to enjoy the concept of having his finances under control.

Byron will be the challenge. He keeps a running tally of his expenses in his head, which I don’t love. So far, his way has worked for him, but I’d like both of them to at least know their options when it comes to budgeting. When the fall school year kicks in, I plan to teach them the basics of Excel and show them Mint, to see if there’s a system that appeals to them.

Or maybe they’ll discover their own system. That would be even better.

 

The Rules I Made as an Underemployed, Freaked-Out College Grad

Did you graduate from college in May? If you’re like a lot of new grads, this summer has been a tough one of job searches and inconsistent (or non-existent) work. According to a July 6 article in the Miami Herald, recent grads are learning the hardest lesson that personal finance courses can’t convey: How much life really costs.

The Miami Herald article is full of good advice about not only how to stay afloat, but how to make strides toward a healthy financial future — asking for a free consultation with your parents’ financial adviser, for example, and putting a few bucks at a time into an emergency savings or retirement account.

That future-oriented advice is important, and young people should follow it if they can — but, if this year’s grads are anything like I was, they’re too freaked out about the present to even consider the fact that there’s life beyond the next month. At this point in my summer after graduation in 2006, I was lucky enough to be temping part-time and getting a small but weekly paycheck. Saving wasn’t on my radar — but staying afloat was. That mindset is reflected in the three “frugal living” rules I made for myself that summer — rules that I wrote down and hung up near my door.

1. After the 15th of the month, rent has to be in the bank: The words “in the bank” were underlined multiple times. The rule was simple. After the 15th of each month, my bank account balance had to be equal to or greater than my rent. It was not allowed to dip a penny under that.

Because I was sharing a one-bedroom apartment, my rent (which included utilities) was $300. That seems blissfully low. Yet, the second month after moving in, I found myself with rent due and $270 in the bank. My roommate covered me, and, luckily, my bank account didn’t have any minimum balance requirements. I was determined not to let this happen again. After I made the rule, if it was after the 15th of the month, and my bank account had $300 or less in it, I said “no” to dinner invitations and spent nights at home. The biggest perk of doing this was that I often found I had a little extra in the bank account by the end of the month.

2. Pay bills right away: This was seven years ago, so I was still getting paper bills in the mail. It was so easy to put the cellphone bill or the Internet bill in a drawer, go out with friends the next couple weekends and then find my account uncomfortably low when the bills were actually due. Sometimes I forgot to pay them entirely and had to pay late fees.

So I started tucking the envelopes with my bills into the top row of my computer’s keyboard, where they annoyed me until I paid them, nearly always within a few days of them arriving. Paying the bills immediately lowered my account balance — and that lower balance reminded me that I really couldn’t afford regular nights on the town.

3. Take a walk: My roommate was in the same boat I was. When we found ourselves bored and restless and tempted to spend money, we took walks. When our neighborhood got boring, we’d drive 10 minutes and walk around a different one. Just being on busy streets, taking in the scenery and being around the bustle of our city was enough to re-set our brains into frugal mode.

By the time summer ended, I’d gotten a full-time job offer. Yet I still followed these rules strictly for a few years. In fact, I still haven’t turned off the email reminder that shows up on the 15th of every month, prompting me to make sure rent is in the bank.

If you’re looking for more tips on the post-grad life, the personal finance blogosphere is full of them:

Frugal Toad advises against making any long-term financial obligations too soon after graduating, even if you have an income. Don’t get a new car and don’t consider home ownership just yet. Instead, if you have any extra money, put it into a 401(k) or an emergency savings fund.

In a guest post on iHeartBudgets, Jason from personal finance blog Work Save Live, emphasizes how important it is for recent grads to build their credit. Even if the only credit card you qualify for requires a deposit and provides no rewards, take it and use it wisely.

John from Frugal Rules recommends paying whatever you can toward your student loans, even if deferment is an option. John writes in his blog that he deferred his loans, and the interest that piled up when he deferred put him in a worse situation.

In a post for Forbes, personal finance writer Kerry Hannon proposes something many recent grads may balk at: moving back in with Mom and Dad. It may seem like a retreat, but if it’s an option, the money you save by not paying rent can help you pay down student loans and bulk up your emergency savings. When you do move out, you’ll be miles ahead financially than your struggling peers.

Once you do get that first post-grad job, sign up for your employer’s 401(k) even if you think you can’t spare a cent out of your paycheck. Shannon, blogger at The Heavy Purse, has been a financial adviser for 21 years, and she writes that no client has ever regretted investing in a 401(k).

Grads, what are you doing to stay afloat? Tell us in the comments. As for those of you who left behind the post-grad life long ago, what helped you survive that first summer?

 

Video: Experts Talk Student Credit

In addition to picking a major and adjusting to life away from home, many college students find themselves contending with financial independence — and credit — for the first time.

But we wouldn’t want students to have to learn everything the hard way. Credit mistakes can have major repercussions, after all. So we gathered a panel of experts, including Susan Knox (CPA and author of “Financial Basics: A Money Management Guide for Students”), Martin Dasko from personal finance blog Studenomics and Rebecca Barry from the University of Arizona’s Credit-Wise Cats, for a Google Hangout.

With our moderator and CreditCardGuide expert-at-large Erica Sandberg, our panel tackled some touchy questions (Should you co-sign a credit card for a friend?), gave some solid advice (How do you know you’re really ready for a credit card?) and shared some wisdom for parents (What do your kids need to know about credit before they fly the nest?).

If you missed our live hangout, you can watch the video below, or on our Google+ page.

 

Questions About Student Credit? Join Us For A Google Hangout

A new world of financial responsibilities awaits young adults leaving home for college. For many students, that includes navigating the financial products marketed at them — such as credit cards. Unfortunately, mistakes made with that first credit card can set students up for years of financial problems.

That’s why we’re gathering some experts for a Google Hangout to talk about credit tips for college students. Have a question for our panel? Or just want to watch? Here’s everything you need to know.

Who: On our panel, we’ll have Martin Dasko from Studenomics, Rebecca Barry from the University of Arizona’s Credit-Wise Cats, and Susan Knox, author of the book “Financial Basics: A Money Management Guide for Students.” Our credit expert-at-large Erica Sandberg (you know her from our Ask Erica column) will be moderating.

When: Tuesday, June 18, at 4:15 p.m. EST. The video will remain viewable afterward if you miss the live chat.

Where: You can watch live by visiting our Google + page.

What we’ll be talking about: Some of the topics we’ll be tackling include:

  • How students can know if they’re really ready for a credit card
  • What parents should tell their kids about credit before sending them off to college
  • What college students find most confusing about credit
  • The risks of co-signing credit cards

Want to ask a question? You can send it to us in advance at editors@creditcardguide.com. During the chat, you can tweet at us using the hashtag #studentcredit or leave us a comment on our Google+ page.

We hope you’ll hang out with us. In the meantime, check out our Love and Money Google Hangout from February.

 

New CFPB Project Could Help Those Crushed by Private Student Loans

Paying off tens of thousands in student loans isn’t going to be easy for any recent grad, unless they win the lottery or land a high-paying job (which may seem as likely as winning the lottery these days). But some, namely those with federal loans, have it a bit easier than those with private loans.

Federal loan repayment generally has some flexibility. You can defer payment, ask for forbearance or even adjust your payments based on how much (or how little) you earn. When it comes to private loans, however, that kind of flexibility is rarer and varies widely, putting students at the mercy of their particular lender.

The Consumer Financial Protection Bureau (CFPB) is therefore trying to even the field when it comes to private loans. The consumer watchdog agency announced Feb. 21 that it’s taking suggestions for developing a framework for the regulation of private student loans. While the CFPB doesn’t actually have the power to create and enforce rules for private lenders, the plan is simply to gather suggestions from the public, colleges and financial institutions to make recommendations to policy makers. Anyone with skin in the student loan game can submit their ideas here.

So why would lenders be interested in helping those who borrowed too much for degrees and are now having a hard time repaying those loans? The CFPB’s news release points out that it aims to help those “willing to make good on their debts but seeking a more affordable payment, especially when navigating tough times.” In other words, the idea is to give borrowers more negotiating power so they can pay repay their lenders in a way that works for them, rather than simply defaulting.

And, these days, student debt and defaulting aren’t always a choice. Low-level jobs (such as file clerks and receptionists) that used to require a high school education are increasingly open only to those with bachelor’s degrees, according to this New York Times article. This means that skipping the college degree (and the debt that comes with it) before entering the workforce is less of an option.

Even after racking up debt for the requisite B.A., grads still may not be able to earn an income. The Washingtonian recently covered the phenomenon of the “permatern” (or, permanent intern). Recent grads, ready to work, are hitting big cities only to find unpaid (or barely paying) internships waiting for them. As a result, they find themselves working full-time hours for no income for years on end.

Another reason to help? The CFPB argues that, by helping struggling grads, we are helping ourselves. Young consumers floundering in private student loan debt can’t start businesses, buy homes, get car loans and start families — and help give the economy a much-needed jump start.

If you’re struggling with student debt — or any debt — check out our roundup of this week’s best personal finance blogs for inspiration.

Young Adult Money explains how to be indispensable at whatever job you have.

Boomerang Buck shows how a “money buddy” can help motivate you in reaching your debt repayment goals.

Work Save Live describes how an addiction to a certain lifestyle can leave you trapped in the debt cycle.

We Only Do This Once points out that you could probably survive on only half of what you earn.

The Free Financial Advisor provides some motivation for getting ahead when you’re behind on bills.

My Money Design has a beginner’s guide to Roth IRAs.

 

Government Watchdog Agency Zeroes in on Student Financial Products

The CARD Act of 2009 limited banks’ ability to woo college students with freebies to get them to sign up for credit cards. Yet other financial products offered to students, such as student IDs that double as debit cards and on-campus bank accounts, can be just as dangerous to those with limited financial experience.

That’s why the Consumer Financial Protection Bureau (CFPB) is taking a closer look at the relationships between colleges and universities and financial institutions. The government watchdog agency is asking students, families and anyone from the higher education community to send in comments about their experience with financial products aimed at students. Follow the instructions for submissions here.

CFPB Richard Cordray says the agency’s efforts are simply an attempt to make sure students are “getting a good deal.” And that brought back memories for me — because I didn’t exactly get a good deal when I signed up a checking account at college.

A major bank has a branch on my alma mater’s campus, and, at my freshman orientation more than 10 years ago, it had a table covered in freebies — T-shirts and key chains with bottle openers (got to give them credit for knowing their audience).

I wandered over to the table and started talking to a rep from the bank, who immediately asked me if I had a checking account. I did — at a bank that had branches in that very city. But that bank, the rep pointed out, was a bus ride from campus. Plus, if I wanted to use the ATMs on campus, I’d be charged a fee. So why not open an account at a bank that had a branch right above the student dining hall and an ATM right next to my dorm?

That sounded logical to me, so I filled out some paperwork and got my photo taken for an ATM card. When it came time to pick which type of account I wanted, the rep asked me if my parents would be depositing money in my account for emergencies, or if I’d be getting a job and want to have my checks direct-deposited.

My reply was something to the effect of, “Yeah, I guess. Sure.”

“Well, then you’ll want this account,” the rep said, and I circled it on the form. No, I didn’t ask any questions. Yes, I’m embarrassed to admit that.

I moved a few hundred dollars from my old bank to my new one and used my free ATM access to get cash for pizza.

A couple months later, I opened up my statement to see a few ATM withdrawals, a few deposited birthday checks and … a monthly fee?

Turns out, I’d chosen an account that required a money wire or direct deposit of a certain amount every calendar month. Because that didn’t happen, about $10 was getting sucked from my account every month — because I kept only a few hundred dollars in the account, that made a significant dent.

I went into the bank’s branch on campus that day and asked all the questions I should have asked in the first place. I got a new account that required me to maintain a higher minimum balance — but that didn’t require regular deposits. I monitored my balance carefully and was able to avoid fees.

I’m not blaming the bank. I was an adult, fully capable of asking questions. Yet perhaps campus financial institutions’ marketing techniques and their fee disclosures warrant a look. Although college students are on the cusp of adulthood, they often don’t have the know-how (or the motivation) to make good, thought-out choices about financial products.

To help students avoid the mistakes I made, the CFPB published a step-by-step guide on student checking accounts. The highlights include:

  • Research your account options before arriving on campus. That way, you won’t have to make a snap decision in front of the bank’s marketing people.
  • Ask about fees.
  • Be particularly suspicious of student financial products marketed as “free” and “easy.”

For motivation to make shrewd financial choices at any age, checkout my favorite personal finance blog posts of the week:

Drop that Debt discovers an unexpected perk of snow storms — you can’t leave your home and spend money.

Square Pennies has some tips for fighting back against inflation.

Money Master Mom explains why she’s happier without a “nice” car.

iHeartBudgets warns against the budget-devouring consequences of dining out.

Money Smart Life provides some guidance for staying on track after paying off all your debt.

Frugal Beautiful has some tips for having frugal night in instead of an expensive night out.

 

Should a Personal Finance Course be a Graduation Requirement?

Did you have to pass a personal finance course, along with English and chemistry, to graduate high school? Chances are, you didn’t — and many experts in the education field think that needs to change.

In a recent a column for the Washington Post, Brian Page (a personal finance and macroeconomics teacher in Reading, Ohio) describes the consequences of grads’ lack of financial literacy.

For one thing, there’s the recent financial crisis, which was fed by consumers who didn’t know what to do with their money, trusting “experts” they shouldn’t have trusted. Then there are the consequences that don’t necessarily rock a nation’s financial foundations — but that can affect individuals and their families for a lifetime. Credit card debt. A lack of emergency savings. A lack of retirement savings. An inability to budget.

Navigating the financial world can be perplexing and, as Page points out, it’s a test most people never had to pass in school. They never had a teacher to correct their bad habits and don’t have enough knowledge about credit cards, debit cards, 401(k)s, IRAs, the stock market, compound interest and mutual funds to avoid common pitfalls.

While only a handful of states require high school personal finance courses, 82 percent of parents and 89 percent of educators think it should be a graduation requirement.  In the meantime, kids and parents can rely on a variety of helpful guides, including this one from the President’s Advisory Council on Financial Capability.

While my high school offered a personal accounting course, I never took it. My first formal personal finance education happened during my final semester of college, when I enrolled in an elective personal finance course. It didn’t count toward my major, and I didn’t take it for a grade. I admit that I skipped several class sessions and was a bit drowsy throughout the whole experience (the class was at 9 a.m.). Yet, I’d still call it one of the most useful classes I took in college.

The professor (who also worked as a financial adviser) was famous on campus for the lecture he gave the first class of the semester — a lecture that highlighted in frightening detail the real world consequences for ostensibly wealthy clients who had failed to save. There was the attorney who “had less sense than a squirrel because at least a squirrel knows how to hoard nuts for the winter.” And then there was the client who failed to get long-term disability insurance and exhausted his entire savings within the first year of becoming disabled.

I still struggle with the math and calculations that come with financial planning (it was a wise choice not to take that class for a grade). But thanks to the course my school offered, I had the basics of good money habits scared into me — and am now able to polish my financial future with the help of my own financial adviser.

With continuing financial education in mind, here are some of the best money blog posts of the week:

Wise Bread shares the secrets of self-motivation.

Good Financial Cents has some scary stats about retirement savings.

Girls Just Wanna Have Funds gives the lowdown on 529 Plans.

Bargaineering walks you through reading your Social Security statement.

The Dough Roller describes how to plan for your dream home’s down payment.

One Cent at a Time explains how to stick to a budget, even if you’re not good at it.

 

Banking Industry Worried About Mounting Student Loan Debt

 
Students aren’t the only ones worried about their student loan debt, according to a recent Fair Isaac Corp. (FICO) survey.
 
In FICO’s latest quarterly survey of bank risk professionals, 67 percent of respondents said they are seriously concerned about the debt loads students in this country are carrying and that they expected delinquencies to rise. That number was up 19 percentage points from the previous quarter. Only 8 percent of respondents expected a decline in student loan delinquencies.
 
Trouble in the student loan area has implications far beyond students.
 
“Evidence is mounting that student loans could be the next trouble spot for lenders,” said Andrew Jennings, chief analytics officer at FICO and head of FICO Labs, in a statement. “A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults.”
 
Private lenders and the federal government are expecting this money back with interest, and it’s an increasingly sizable chunk of Americans’ debt.  In 2011, student loans beat credit card debts, topping $1 trillion, according to Federal Reserve data.
 
At the same time, salaries are decreasing, and college costs — along with living expenses — are soaring.

Full-time undergraduate students borrowed an average $4,963 in 2010, up 63 percent from a decade earlier after adjusting for inflation, the
College Board reports. That’s no surprise, with the climbing costs of higher education. An increasing number of colleges are charging more than what the average American earns in a year.
 
College Board data show the number of colleges and universities with tuition and fees totaling more than $50,000 for one year rose to 123 for the 2011-2012 school year — up from 100 in the previous year. The national average wage for an American worker is less than $42,000, according to the Social Security Administration.
 
Accumulating loan debt may keep students from wanting to make major purchases, such as a home or even a car, and may result in them putting off life stages such as marriage and building families — all of which have implications for the economy as a whole.
 
Worse yet, those debts follow a student through life. Unlike some other debts that can be discharged through bankruptcy, student loan debt can’t be wiped clean.
 
At least interest rates linked to those loans won’t be bumped up soon. The Federal Reserve has said it will keep its benchmark lending rate low through at least 2013, which means borrowing costs as a whole should stay reasonable.
 

Never Too Early When Researching Student Credit Cards

Credit Card for College StudentsAs another semester ends on college campuses there are two groups of people that when it comes to their credit foundation are on opposite ends of the spectrum. On one side, over the last few weeks and for weeks to come these students have or will receive their diplomas and will be heading out into the work force. For many of these graduates, it will now be the time for them to continue building on the credit foundation that they may have started years prior. On the other side it is quite different as they have begun preparing for the newest chapter in their life which is entering the college or university of their choice.

 

With those getting ready to start college, millions will choose a credit card to help make payments for university related purchases as well as others. While it will be a couple of months before classes start it is never too early to start researching student credit cards as they may not all be right for you. When looking at student cards in detail a great article entitled, “7 Tips for Applying for Student Credit Cards” can help you get understand what to look for. Some of the tips include the following:

  • Be wary of 0% balance transfer offers
  • Find cards with purchase APRs
  • Think rewards credit cards
  • Never fall behind on payments
  • The lower the balance the better

Within this article there are many great tips to help students (and those that may be co-signers) know and understand what to look for when looking for plastic. In all there are plenty of great cards available that can help those under the age of 21 start off on the right foot when starting a credit history. When looking for cards you will see that many are quite and offer unique features that are geared for multiple finances and lifestyles.

 

The Reality of Getting a Student Credit Card

As controversy continues to build since the CARD Act was implemented, it now seems that the focus is that of student credit cards. While it appears that it would be harder to get plastic if you are a student, it looks like that is not quite the case. That is because of a small loophole that has been revealed that could have those that would generally be protected from accruing card debt at an early age getting plastic without having the appropriate funds or a co-signer.

 

According to an article entitled "The Real New Student Credit Card Rules", a simple lapse in judgment whether accidental or intentional has created a loophole which allows some that would not qualify to get plastic to apply and be approved.  That lapse deals directly with both evaluating the amount of income needed to be extended credit as well as the verification of such income. As it stands now issuers are allowed to include other sources of incomes besides wages earned such as scholarships, grants and parental contributions when deciding if one qualifies to get a card without having a co-signer. When it comes to verifying that such income exist it is solely based on the issuer to take the applicant’s word on the application at face value or follow up to see if the stated income truly exist.

 

With any regulations set forth on an industry especially in such a short period of time there will always be things that get overlooked. In this case it could very well be the one thing that would keep some cardholders who are not qualified from receiving cards without the income to support potential purchases. Even with such loopholes regulating the credit card industry, on many accounts is up to the student on whether or not they are willing to use their plastic wisely. When used correctly, especially at a younger age, credit cards can be a powerful tool when it comes to building a strong credit foundation. Hopefully before applying for plastic the student will do their homework as it is something that could a major impact on their financial future both positively and negatively.

 
 
     


 
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