Co-Authored with Stuart Nachbar, Consultant and Publisher, Educated Quest
Let's face it -- most parents don't sit you down for a chat about money before you head off to college. Nor will it figure much in orientation sessions. You're on your own -- literally. To help fill this void, we'll share our top tips for money success, giving you a basic framework for handling your finances. We'll follow this up with recommendations on everyday spending.
1. You are a consumer of financial products -- ask questions and choose carefully. You'll need to open a checking account to receive grants, deposit checks, and make purchases. Compare features, prices, and reputation just as you would with a laptop, pair of shoes, or haircut. Take time to consider what you need and ask about special student accounts. Banks might include a monthly credit back to you for the cost of using ATMs outside their network, deposit and payment features from your smart phone, and alerts for when your balances run low (here's a checklist). Some may not be "free" if you don't maintain a minimum amount, and there can be big penalties if you try to spend more than you have in your account.
2. Start Saving: "Stuff" happens in life -- good and bad. Put some extra aside so you're ready. This includes everything from a $20 or $50 bill in your jeans when you're out at night to bigger ticket items like money for spring break, concert or playoff tickets, or an emergency car repair. Learning to save early can pay huge dividends that only grow over time. Two simple methods are: 1) put aside $10 a week and increase it by $3-5 increments - that's one latte or a slice of pizza; or 2) try the 52-week challenge: save $1 a week, and increase it by $1 every week - you'll save nearly $1,400 in a year.
3. Welcome to the World of Credit: Enter at your own risk. Just as you've learned that you create an electronic footprint on social media, once you establish yourself independently you also create a money "trail" that will include checking and savings accounts, credit cards and debit cards, student loans, and even your cell phone bill. A few cardinal rules are - 1) start small and learn the ropes, 2) don't overdo it and always leave room for emergencies, and 3) pay your bills when due - no exceptions. Over time you will get a "grade" -- called a credit score - based on your financial behavior. This is not Snapchat -- your credit score follows you for years. Banks, insurance companies, and even prospective landlords and employers may use it to decide whether you are responsible - giving you a discount for good behavior or showing you the door. The good news is that you can repair mistakes. The bad news is our digital world makes it easier than ever for others to access your information. Be sure to review accounts and bills regularly and keep your information as secure as possible.
4. Sort out the Plastic: Debit and credit cards are not created equal. Think about debit cards as an updated checkbook - you can spend what you have in your account by swiping the card and entering your Personal Identification Number (PIN). Colleges encourage and often issue debit cards because they are more secure than cash and replaceable if lost. Be aware that while debit cards might be convenient on campus, universities may have signed a special marketing agreement with a specific institution (the Consumer Financial Protection Bureau tracks them here). Fees on debit cards linked to a bank account can vary but are low or even free (with a minimum balance) - though like a check, you will incur charges - or be denied - if you try to spend more than you have. By contrast, credit cards work like a small loan - you can access up to the amount approved (your line of credit) and pay an annual percentage rate on what you borrow. If you pay your bill in full every month when due you have few fees, but if you carry over any balance to the next month, companies charge interest rates of 15-30% annually for that service, which compounded daily, means charging a $75 text book could cost you over $100 by the end of the academic year. And if you're late or miss a payment, you can get hit with penalties and a higher interest rate on any balances you owe. Don't forget to ask about policies for lost or stolen cards. Credit cards typically cover any fraudulent charges over the first $50 or $100; debit card policies can vary by bank and type of account.
5. Watch Your Debt Load. Student loan debt is the only form of consumer debt that has risen since the onset 2008 financial downturn. Fill your schedule with the classes you need to graduate in four years. Dropping a class without replacing it means you've just given your school thousands of dollars while getting nothing in return. Remember -- how much you borrow now may impact later decisions regarding graduate school or buying a home. Keep your debt as low as possible with grants, scholarships, part-time work, and low interest rate loans. Think of college as what you do-- and finish what you start. Your job is to study, meet people, try new things, and gain skills; hopefully this will help you discover a personal passion or interest you'll want to pursue. That in turn will enable you to apply for more grants, scholarships, and internships. If you drop out, you must repay all your loans - without the benefits of a degree to help you land a job.
This may all sound daunting, and you'll make mistakes - with your classes and with your cash. That's ok. Managing your money is not rocket science; it just requires some time, consistency, and focus. Kind of like college - unless of course you are studying astrophysics.