Let's consider two families with kids. The first mom and pop buy fancy cars, head off to Vegas, buy the biggest house they can afford. They take a lackadaisical attitude toward work and generally blow money.

The next mom and pop work hard and advance in their careers. They drive clunkers, vacation in Porchville, live modestly and sock away savings.

Guess which family is going to get the most financial aid when their kid heads off to college?

Hedonism has rewards beyond a good suntan, and they come in the form of college financial aid. The federal financial aid formula punishes thrift and hard work. So, let's see how a thrifty family can work this perverse system.

This column is too short to give a complete strategy. For that, try www.finaid.org, an excellent website. Click on "financial aid applications" then "maximize your eligibility."

Most colleges base aid awards on the Free Application for Federal Student Aid. Filling it out is as pleasant as a tooth extraction. After you submit it, Uncle Sam will tell you your "expected family contribution" — the amount you're expected to pay out of your family budget. Have a crying towel handy, or a stiff scotch.

Some pricey private colleges require a second headache-producer called a CSS Profile form. This column deals mainly with the FAFSA.

The FAFSA formula is complex and considers both your savings and income. Income counts much more than savings, so try to look poorer.

The FAFSA looks at the January-to-December calendar year before your kid enters college. So, that's not the year to cash out of your big stock market gains. If you've been thinking of taking a month off to finish that novel, do it the year before your kid enters school. If you expect a bonus, ask if you can defer it.

If you own your own business, you might cut your salary. (This doesn't work with partnerships, sole proprietorships and S corporations, says Finaid.)

Send mom or pop back to school. The formula boosts aid when multiple family members are in college, but some schools will want proof that you're really seeking enlightenment, and not just gaming the financial aid system.

If you make under $50,000, and can fill out tax forms 1040A or EZ, the formula will ignore your savings. If you're just a hair over the limit, try to get under.

The FAFSA penalizes thrift, but many parents escape the bite. The formulas used at most colleges exempt a lot of savings, depending on your age. A 48-year-old mom and pop might get a pass on about $50,000, says Mark Kantrowitz, publisher of Finaid and the Fastweb.com scholarship search site.

If you need to buy something big — a car, for instance — spend the cash before filing the FAFSA.

The federal formula will demand about 5 percent of the rest of your savings every year. That doesn't sound like much, but it adds up. Parents with two kids in college over eight years can see a big chunk of their nest egg disappear.

The bite on a kid's own savings is higher — 20 percent a year. So it's usually a bad idea to save money in a child's name. You'll save a little on income taxes, but lose a lot of financial aid. Use a tax-free 529 college savings plan instead, which is generally treated as the parents' asset.

If you have money in the kid's name, spend it on things she'll need for school, such as a car or a computer, before filing the FAFSA. You can't charge the kid for the groceries he devours, or other things parents normally supply.

Spend all of the rest of the child's money on first-year college costs, so the kid will look poorer to the government in her sophomore year.

The federal formula doesn't count your retirement savings or equity in your home (although some private colleges will count your home value). The FAFSA also doesn't go any easier on you because you've run up big consumer debts. So, use savings to pay down the mortgage and car loan and boost your retirement accounts.

"If you have high credit card debt and money in the bank, use the money to pay down the credit cards," says Kantrowitz. Of course, you should keep enough cash handy to carry you through a job loss or another emergency.

Fill out the FAFSA even if you don't think you'll qualify for scholarships. It's required for federally backed student loans. Scholarship funds run out, giving early birds an advantage, so file the form as soon as you can after Jan. 1.

A recent study by from professors Tansel Yilmazer at the University of Missouri-Columbia and Patryk Babiarz at Purdue University indicate that parents may be getting the message on FAFSA. They found no evidence that the student aid system caused people to save less overall.

But parents subject to FAFSA's penalty on savings tend to keep more of their money in retirement accounts and have higher home equity, both of which escape the formula.

Congress is now considering bills that would do away entirely with the penalty for savings in the FAFSA formula. Frugal families would cheer.

Some think Congress should go a step further. A system based on income tax returns would be much simpler for parents, and yield similar results.