Diana Clement: Thrift is the best skill a student can learn

While studying, young adults need to develop ways to save money Every year thousands of tertiary students are in financial trouble within months. Photo / Thinkstock

Students are descending on Auckland and other university towns in their droves. Some are wet behind the ears, others have experience of student life.

New students in particular can struggle with the practicalities of managing their own money. They'll need to learn to stretch money further than a bungy cord if they want to come out the other end of their studies with a qualification and not too much debt.

If one thing is sure, thousands of them will be in financial trouble in months. Some will find they won't even have enough money left to buy food or pay for public transport to lectures, says Adeline Brighty, who leads the student financial services team at AUT University. "Sometimes it's noodles, noodles, noodles, rice, rice, rice."

Student services at AUT, like other tertiary institutions, have had evicted students arrive on their doorstep in need of somewhere to sleep that night. Brighty's office, which is part of support services, gives out transport and grocery vouchers to students in need every year. And AuSM (Auckland Student Movement) also gives out food parcels to students at AUT.

It's often the out-of-town students who are worst hit, having left the protective environment of small centres. "They have come from the safe haven of a small town into the big bad city."

These students often have no idea how to handle money and may, for example, get a $1000 grant for course-related costs, but spend it on incidentals rather than the books and other expenses it was intended for.

"A thousand dollars is a lot of money for a student to get at once," Brighty says.

Many new students have no idea how expensive life will be in Auckland and overcommit themselves. They may sign up for extras such as a mobile phone and even a gym membership, thinking they're affordable. Then when their part-time work hours are cut or a flatmate moves out they're suddenly in dire financial straits.

Even students living at home can run into trouble. Brighty has met students who are helping to fund living costs in their home, rather than being supported by their parents.

The Government is tightening access to money for many students. StudyLink is now charged with ensuring that students perform, or lose access to a student loan. Students are given two years grace, after which they must pass half of their courses to qualify to apply for student loans in the future. Most students will also be limited to the equivalent of seven years of borrowing in total.

The new rules are explained clearly on Studylink.govt.nz, which also has useful calculators including a student allowance rate calculator and cost of living calculator.

There is good information on the website about extra help available for things like accommodation, childcare, disability, health and emergency costs.

Here's some general advice for students who may have trouble making ends meet includes:

Budget: The big bad B-word sends many people running for cover. If you take the time to jot down your income and where you're going to spend it on a piece of paper, you'll find university life much easier in the long run. There's nothing like an empty tummy, the threat of eviction or the knowledge that a bailiff is on the way to take your concentration off studying.

Don't blow your student loan: Just because you've got a student loan doesn't mean you need to spend it unwisely. Eventually you'll enter the workforce and have to pay it off. Even though it's interest-free, there's no guarantee it will always be. It's widely believed, says Simon Hassan, financial planner and Massey University lecturer, that the Government will at some time in the future make student loans interest bearing. What's more, if you want to go overseas you'll be forced to make repayments. Aim to leave tertiary study with a small loan or it could become a noose around your neck.

Beware of cheap credit: Banks love to hand out overdrafts to students. The idea is that you'll be a high-earning individual in your later years and by then wedded to your bank. It's easy credit, but mighty hard to pay off. It's a bit like the proverbial fat on your hips, which is almost impossible to shift. Interest-bearing debt is "poisonous" says Hassan.

Don't fall for the debt mentality: Eating up your credit allowances with banks and other financial providers shouldn't be the norm. It's there for emergencies, not to bolster your lifestyle. View interest charges as fines for profligate spending and you'll go a whole lot further in life than your peers who believe that paying interest on debt is the norm.

Check your spending: Read a few blogs about frugal living for students to give some reality to your spending. You can live without a car, live in a suburb other than Ponsonby or Mt Eden, share with others, and do cheap activities around campus rather than expensive nights out in town. The most sensible comment I heard while researching this article came from Hassan, who said: "A key message to students is the habit of thrift is a far more valuable possession [in life] than the qualification you are borrowing to pay for." Brighty agrees: "Without the thrift, you won't get the qualification."

Check out scholarships: There are quite literally thousands of scholarships, awards and grants available to students. At the University of Auckland alone there are more than 600 separate scholarships and awards, says Margaret Allen, manager scholarships and graduation. One scholarship such as the Jubilee scholarship, which is for school leavers in financial need to attend university, may be paid out to multiple students. This year 150 students qualified for the scholarship, which pays $2500 a year for three years. Almost all scholarships are paid out at the beginning of the academic year, says Allen. Like other institutions, the University of Auckland also has an emergency fund, and other hardship grants and awards. "Additionally many of our smaller, donor-funded awards have a financial hardship component," she says.

Work: Many students and parents think there's not sufficient time to work as well as study. The reality is generations of students have worked and studied. Some work in near-fulltime jobs yet manage to make time to study and pass their exams.

How parents can help: Parents can help by instilling money values in their children. The only problem is that this needs to start in toddlerdom. If your teens have see-money-and-spend-it tendencies, you're unlikely to be able to talk them into changing their ways. Only a short sharp shock will do that.

Many parents will pump money down the umbilical cord to their children until they finish university. This doesn't always result in them being better off than their peers if they simply spend the money on a better lifestyle.

Some children need to be cut loose and have the money tap turned off. If they feel entitled and consider you to be the bank, then it's probably too late for you to change their ways.

There are parents who believe that once children leave home they're on their own. That's what these parents experienced and it did them no harm.

It is a difficult tightrope to walk. Children need to learn to stand on their own feet financially. The sooner they do the better.

Conversely, you don't want them getting a black mark on their credit rating.

That could, as we're seeing in the news this week, stand against them renting property. It can also prevent them from getting certain jobs in the future that require a clean credit record.

If your relationship with your tertiary-aged offspring is good, you could help them work out a budget, reflect on how they are coping after a few months, and discuss the financial implications of the education they're getting and the debt they're building up.