College Students and Money: It’s only a pizza…

This is the third in a series this week about financial decisions during the student years. Yesterday’s post focused on student loans. Today we’ll take a look at one factor that affects how much students end up borrowing.

As mentioned yesterday, one of the best things you can do to minimize the pain of paying back your student loans is to borrow as little as possible. When planning for college expenses, many students logically focus on room and board, tuition, and books. It’s important to also plan for another group of expenses I’ll call “discretionary spending.” As the name indicates, these are expenses that the student can choose, but are not essential to their education. This category includes clothes and non-essential transportation, but probably the biggest components are food and fun — from spring break, to a fraternity dance, to ordering Chinese food, and more.

Note: food (whether eating out or ordering in) is often a big component of a typical student’s budget — even students who have a meal plan. Ordering pizza to share with roommates doesn’t seem like a big deal. Not surprisingly, though, expenses that on their own “aren’t a big deal” can become a big deal when they happen frequently. Paying for 1/3 of a pizza one time is only a few dollars; if pizza night is twice a week for the whole school year, that can really add up.

Many students separate their discretionary spending from their school spending – I’ve heard students explain that the only money they spend for fun is the money they earn at their job. They believe their fun spending is completely separate from their student loans. In most cases, however, the truth is that every dollar they spend increases the amount they borrow. If they spend $50 (of their wages) on weekend fun, that means that in the long run they end up borrowing $50 more than they would have otherwise. If they hadn’t spent that money, they could have borrowed $50 less. 

I am definitely not suggesting that students shouldn’t have fun. It is perfectly okay – even important – to spend some money on fun activities with friends – that’s a wonderful part of the college experience. I do suggest, however, that students who decide on a limit for their discretionary spending (and stick within that limit) will benefit in two ways: 

  • They will accumulate less total college debt; and 
  • They will learn valuable “adulting” skills: planning ahead, deciding on priorities, and recognizing trade-offs (e.g. if I spend this money today, then I won’t have it for homecoming next weekend). 

How much should students’ discretionary spending be? I can’t answer that. Parents can’t (and shouldn’t try to) answer that. At the beginning, even the student may not know what to plan for. I’d encourage students to keep track of their spending for the first several weeks, then look that over. Based on that information, they can make an informed decision about how much they will allow for discretionary spending. Deciding on a limit also helps us resist peer pressure. Many students spend more than they want to spend, simply because they are pulled into their friends’ or roommates’ plans. Those activities are fun, but if there are no limits, the financial toll is substantial.

Realistic projection of discretionary spending will give more realistic projections when you use the Your Financial Path to Graduation tool from the Consumer Financial Protection Bureau. Tomorrow, we’ll share an example of how discretionary spending plays out over time. For today, I leave you with these reflections that relate not only to college life but to all phases of life:

  • Having fun and having a healthy social life is a very important part of life. It is not, however, necessary to spend a lot of money to enjoy social activities.
  • Friends who push you to spend more than you feel comfortable with may not be the ideal friends.
  • You may find that if you stick to a limit on your discretionary spending, your friends will be grateful too!

This is the third in a series on planning for financial decision-making in college or trade school. Tomorrow – an example. Friday – a quick look at three other important topics.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Spend Your Money Wisely

Looking for wise ways to save money?  Here are some ways to spend money wisely:

  • Drink tap water and pocket the $25.00/gallon monthly fee for bottled water delivery.
  • Shop your local farmer’s markets and prepare healthy meals at home to save money.
  • Survey your closets, see what clothes fit, and donate those you do not want to wear. Shop resale stores for bargains.
  • Cut transportation costs by using public services. Walk or ride your bike when possible.
  • Consider needs vs. wants – ask yourself if you really need a daily latte, premium cable, or a weekly manicure.
  • Go to local beauty/barber schools to get less expensive grooming treatments.
  • Visit your local library! Check out movies and books and read current magazines.
  • Barter to get your children piano, karate, or dance lessons.
  • Purchase prepaid phones to keep your family in touch and save on cell phone bills.
  • Delay your purchase. When you want to buy something, wait one week to see if you still think the purchase is really important.

Savings will come your way if you try some of these suggestions.

Susan

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

More Posts

Little Things Add Up

Have you ever paid attention to how much money you spend during a day? Do you make regular daily purchases, such as coffee or pop?

The little things add up quickly:

  • If a can of pop is$1.00, then a daily pop adds up to $365 per year.
  • If you eat fast food lunch each workday and spend $5 to $9, that totals $25 to $45 per week. As a monthly expense, that equals $100 – $180, and the yearly total is $1250 to $2250 (50 weeks).

You can trim your spending money by cutting back on cups of coffee or try more “brownbagging” for lunch.  If you decide to cut back or do without, you may save a lot of money!

Suggestion:  estimate your “little spending” by writing down your frequent expenses and estimating how often you make those purchases.  You may be surprised at the total. 

Here is an example:
Item              How often           Price            Potential savings/year
Magazine          1/week                 $5.00                $260.00

Try it for yourself – see how much you are spending on small stuff. See how much you can save.

Susan Taylor

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

More Posts

    

Subscribe to “MoneyTip$”

Enter your email address:

Delivered by FeedBurner

Archives

Categories