Lessons in money management for a semester-abroad student
Question: Our son has been accepted into a university language program and is planning a semester abroad in Paris, leaving in August and returning probably in late December. His advisor told him not to set up a personal bank account there. For his current studies in the States, we transfer money to his account so he can use his debit card, which is easy. Should he use his debit card to get euros while in Paris? Or is it better for him to use a credit card for everyday purchases? Should he try to get a college credit card? And how many euros should we pre-buy for him to take with him?
Answer: Handling money abroad doesn’t require a degree in economics these days, even for a longer-term stay.
The advisor is correct about not setting up a bank account. The Foreign Account Tax Compliance Act, or FACTA, which became law in 2010, is designed to catch U.S. tax cheats who have hidden their assets in foreign banks. This has complicated establishing a checking account abroad, and some foreign banks find the paperwork so odious that they won’t deal with accounts for U.S. citizens.
The good news is that financial tools any traveler would use abroad are the same ones a student should use as well. These are less complicated than dealing with FACTA but come with their own complications.
Cards are key, although experts don’t agree on whether one should use only credit cards, debit cards or some combination of the two. Here are some options.
Kevin Yuann, credit cards director for NerdWallet.com, a financial advice website, favors credit cards but with this proviso: The card you choose should not charge a foreign transaction fee (which can add as much as 5% of the cost of each transaction to the total charge). NerdWallet has a list of such cards at www.lat.ms/14YpGiV.
Yuann likes the security of credit cards (fraud is usually not going to be your responsibility) and suggests using them for cash advances as well, although fees for such advances can run 5% and interest rates can run as much as 25%. That’s a hefty price to pay for protection but may be worth it.
Caveat No. 1: You’ll probably want your student to have a credit card with a chip, or the so-called smart card. U.S. regulations that take effect Oct. 1 make merchants or banks (rarely, if ever, the consumer) responsible for fraud. This means that U.S. card companies probably will switch from the standard magnetic stripe card (what the U.S. uses now) to the chipped card.
By year’s end, about 70% of all credit cards in the U.S. will be chipped, and many companies have started sending replacements. If yours hasn’t, see whether your bank or issuer will send you one now. (Mine just did.)
Caveat 2: When using the card abroad, beware of dynamic currency conversion, in which the merchant asks whether you would like to have your total in dollars — easier for the U.S. citizen abroad — or the currency of the country you’re visiting, which is not as easy to compute but is the better choice.
Asking for your total in dollars allows the merchant to set the exchange rate, risky because the systems designed to monitor hornswoggling are ineffective or nonexistent.
Smart strategies: For students and parents, keep the telephone number for “lost credit card” at hand, just in case. If you’re the one paying the bills, also consider a card that not only doesn’t charge foreign transaction fees but also gives you cash back or other rewards.
These increasingly charge foreign transaction fees but generally give a good exchange rate. You can read about those fees and cards at NerdWallet at www.lat.ms/1tjqM4X.
Caveats: Remember to use automated teller machines at banks (less likely to be skimmed or hacked), to shield your PIN number and to make sure nothing appears amiss with the ATM, which would suggest number-thieving “skimmers.”
Smart strategy: I loved this tip from Lauren Goldberg, who is a travel agent with TheFamilyTraveler.com and sent her daughter on an exchange program to Estonia. “Since I had a good relationship with my bank, they actually went back into her account and waived the $5 fee they were charging each time she used the card,” she said in an email. “My daughter was able to use the card with ease.... I was able to monitor her usage and add to as needed by an electronic transfer from my account to hers.”
You don’t want to send your student abroad with wads of cash, but some euros and dollars (perhaps 200 of each) will come in handy, the former for immediate expenses and the latter for emergencies. Walking around with cash is rarely a good idea, but these fallback financial tools will let a parent (and presumably the student) rest easier.
Smart strategy: “If you do have to carry large amounts of cash, always wear a money belt,” Andrea Moran, a registrar at a Berkeley English language school for international students and formerly a contributing editor to GoOverseas.com, said in an email. “There are great, sleek designs that fit well under clothes, and it’s better to wear one and have that peace of mind.”
Among tips she shared for not wasting money: When she was studying in Amsterdam, she bought a bicycle for $40 and cut down on commuting costs. (Do this only in a city where bike traffic isn’t considered a nuisance or a target.)
Keeping kids and their money safe is a big job, but managing it nowadays is far less complicated as the world gets smaller, thanks to financial tools that know no boundaries. Just make sure your student knows your financial boundaries don’t include an all-expenses-paid stay at Hôtel Fouquet’s Barrière in Paris — unless, of course, you’re going to be there too. After all, if you’re doing all the arranging and worrying, there should be some rewards, n’est-ce pas?
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