Financial literacy or the education on the management of personal finances is enormously important. According to the Higher Education Services Committee (HESC), the State agency that helps people pay for college by administering the Tuition Assistance Program (TAP) and guaranteeing student loans:
- 75% of students are not ready to deal with the financial challenges ahead of them?
- 62% of final year students have 4 credit cards or more?
- Many students are accumulating debt at a record pace—final year students carry an average of $4,100 in credit card debt alone?
As a result, college students need to learn about the many financial products, services, and providers to make sound financial decisions. Decisions you make about handling your finances during college can have a huge impact on your future. Before making major financial decisions, educate yourself about the options at your disposal. Learning and practicing sensible financial behavior or “fiscal fitness” now can lead to a life-time of financial success.
Here at Pathways to Success, we’re committed to helping you become not only academically and professionally successful, but financially savvy. Swing by our office to learn ways you can develop your financial knowledge and personal money management skills. We’ve got workshops and connections to financial experts to get you on your way to financial security.
In the mean time, take this survey to test your financial literacy.
Also, read below for financial planning tips, establishing good credit habits, making the most out of your college financial situation, and taking advantage of valuable resources to get you ahead.
Your Personal Relationship to Money
Before we go into the details of financial planning, it’s important that you really think about what it is that you think of money. Do you believe that it’s the only measure of one’s success? Do you think money equals power? That it has no significance to your life? That money is a necessary, but unimportant aspect of your existence?
While you were growing up, how did the adults in your life use money? What did it mean to them to accumulate wealth? How has your upbringing, family, your community, and your culture influenced your relationship to money? Answer these questions for yourself, and you’ll be well on your well to understanding the true value of money in your life. Take a look at this article by the Harvard Business Review to see how others are relating money to the meaning of life.
While it’s nice to be spontaneous with your social calendar once in a while, it’s not advised to take this same approach with your finances. If you, like many, prefer a life of financial security—the ability to save and invest so that your money is working for you in a way that enables you to fulfill your life's goals, it’s advantageous to create a realistic financial plan.
A financial plan is simply a roadmap for how you will manage your money for both the short and long term. At its most basic, a financial plan involves defining your money goals, identifying the steps it will take to reach those goals, and then following through with those steps.
Speak with Pathways Counselior Advocate about a student financial plan.
What are some examples of good credit habits?
Given the increasing cost of tuition and college related expenses, taking out loans from a bank is a reality for many students. What many students don’t know is that your borrowing and repayment history is tracked by the financial industry to create your credit score. A credit score in the United States is a number representing the creditworthiness of a person, the likelihood that person will pay his or her debts. In other words, the better your credit score, the easier it will be for you to borrow money in the future and the better terms you will be offered (e.g. lower interest rates). A good credit score can save you thousands of dollars over your lifetime. For instance, if you want to start your own business or purchase a house down the line, what you do now can affect a bank’s decision to financially support these dreams. Here are some ways to build and maintain a good credit score (typically a score of 700 or higher) and avoid financial hazards:
- Credit cards can be evil. In college, you'll get tons of credit card offers. Your best move? Shred them. Don't sign up for a credit card just to get something for free. As attractive as easy credit might seem, credit card interest can put you in a very deep financial hole that can take years to dig out of. If you feel you need a credit card or you want to start building your credit history, apply for one credit card with the lowest interest rate available then charge only what you can afford to repay. Also, pay the balance in full to avoid interest charges. An interest rate is the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned to you.
- Always pay your bills and loan installments sooner than later. We can definitively say that this is a hard and fast rule with most things in life. Pay attention to due dates, as being late can get really costly. To avoid late fees, note the due dates for bills and installments as soon as you receive them. You can even look into setting up an automatic payment schedule with your bank. Keep a copy of all bills and loan payments you make for your records.
- Avoid bounced checks like the plague. Bouncing a check means writing a check for more money than you have available in your account. Aside from hurting your credit score, banks usually charge you a fee for every bounced check. The fees are automatically charged to your account, which can cause subsequent checks to bounce, leading to more fees, more bounced checks, etc. Bounced checks can lead to real money problems and even get you into legal trouble. A bounced check is one slippery slope to avoid at all costs! The good news is that with a little caution and diligence, you can prevent bounced checks altogether by being aware of the balance, or total amount of money in your bank account, and spending only what you have.
- Don't ignore credit problems, get help today! In spite of your best intentions, you may find yourself in eel infested fiscal waters. Credit problems include missed payments, bounced checks, and credit card debt; these problems lead to a lower credit score and a more difficult time when borrowing money for bigger ventures in the future. Believing that if you ignore the credit problems long enough that the problems will go away will not help the situation, but make things worse. If it happens to you, get help immediately, nip credit problems in the bud and save yourself lots of stress. The Lehman College Financial Aid Office is a valuable free resource to help you get back on track.
Some Basic Financial Tips for College Students
- Organize your files. Creating a paper and/or electronic filing system will make paying your bills on time and meeting deadlines easier. Record keeping also helps avoid potential disputes-disagreements regarding whether the terms you agreed to with banks, stores, or friends have been upheld including timing of payment and amounts. You'll also want to keep records for tax purposes.
- Make a budget and stick to it. A budget is just a self-imposed guideline for how much money you can spend and what you can spend it on. You will be amazed at how much farther your money goes when you have a budget. Life is unpredictable, so don't forget to allocate money for unexpected expenses in your budget.
- Buy used books. Many students and their parents are shocked to learn how much textbooks cost. They can average $1,000 a year. Most campus bookstores sell used books that can help reduce this cost. You might also save money by buying or renting textbooks online.
- Don’t hang out with big spenders. Some students may have parents with deep pockets, while other students are well down the road to financial trouble. Hanging out with them can lead you to spend more than you can afford.
- Avoid getting a car for as long as possible. Cars cost more than just gas money. Don't forget about insurance, parking (and parking tickets!) and repair expenses. Walk, use public transportation, and/or ride a bike. You may also want to arrange a carpool with friends if public transportation isn't available.
- Watch the ATM fees. They can add up quickly. Look for a bank with free ATMs near your school.
- Save on snacks. If you can, avoid buying snacks at vending machines or convenience stores. Stock up at your local grocery store and keep them with you during the day to avoid more expensive and less healthy on-the-go options.
- Consider all the costs of living by yourself. Living on your own isn’t easy. Aside from rent, you will probably have utility bills and grocery expenses, at a minimum. You may also need to pay rental insurance and property maintenance fees. So before you decide to live on your own, learn what other expenses you'll be responsible for, in addition to rent and plan accordingly.
- Use student discounts to your advantage. It's common for movie theaters, concert halls, restaurants, insurance and travel companies to offer steep discounts with a student I.D. Just ask!
- A penny saved is a penny earned. A few dollars here and there can make a big difference later in life. Saving and investing your money puts your money to work for you. If you have a job, pay yourself first. Have your bank automatically deposit a set amount from your paycheck into a savings account.
- Go to class. Every credit you take costs money. If you skip classes and end up having to retake them, you’re essentially throwing money away, and possibly delaying your graduation, which means you’ll be further from getting your first paycheck. You’re in college to learn. Everyone skips now and then, but don’t make it a habit. What you learn and do now will have a profound impact on the rest of your life.
- Keep life in balance. Money management is important, but it's only a means to get you where you want to be in life. Strong values, good friends, and a solid education should all be part of your plan for success.
Valuable Financial Literacy Resources
The Web sites listed below provide information on managing personal finances and information on consumer protection.
- Financial Awareness and Consumer Training for Students (FACTS) [WEB] is a financial literacy curriculum for students. It is presented as modules, each targeted toward a different age level or concentration. The presentations are rich in content yet easy to understand. Created using straightforward language, they cover practical topics such as: How to Manage Credit; The Use of Credit Cards vs. Debit Cards; Spending Plans; Personal Financial Management Skills; and Identity Protection.
- MoneySKILL [WEB] is a free onlinereality basedpersonal finance course for young adults developed by the AFSA Education Foundation.This interactive curriculum is aimed at the millions of high school and college students who graduate each year without a basic understanding of money management fundamentals.
- MyMoney.gov [WEB] is the U.S. government's Web site dedicated to teaching you the basics about financial education. You will find valuable information on such topics as budgeting, credit management, saving and investing, financial planning, paying for education beyond high school, and managing loan obligations. The free "My Money" Tool Kit package covers publications on saving, investing, protecting, and getting the most for your money.
- 360 Degrees of Financial Literacy [WEB], sponsored by The American Institute of Certified Public Accountants, contains articles addressing such topics as "Freshman Finance 101: Money Management Skills for College Students" and "College students and credit cards: What you don't know can hurt you."
- FDIC Consumer News [WEB] provides articles on how to become a smarter, safer user of financial services that will protect and stretch your earnings.
- The Office of Financial Empowerment [WEB] is the first local government initiative in the nation with a mission to educate, empower, and protect New Yorkers with low incomes so they can build assets and make the most of their financial resources.
Adapted from ‘Student Aid On The Web’