What College Students Need to Know About Money
Before heading off to school, brush up on some personal finance basics.
One of the great things about hiring summer interns is that you get to work with bright young people who can hit the ground running, contributing their talents and their enthusiasm. And as a bonus, they can also contribute their expertise when I write my annual column on what kids need to know about money when they head off to college. Here’s what this year’s Kiplinger interns -- Amanda Lilly, Deanna Pan and Michael Stratford -- had to say about key financial issues.
Budgeting. Amanda learned how to parcel out her money early on, when she was old enough to start shopping on her own. “I would sit down with my dad, and we would come up with a fair budget,” says Amanda, who recently graduated from George Washington University. “If I spent it all at the beginning of the month, I learned the hard way.” The same system carried over when she went to college.
Deanna’s parents taught her the importance of setting priorities: “Should I spend money on new clothes, or save to buy a new software program later?” That, too, carried over to college. “If students want to spend a semester abroad or in an expensive city like New York, they should save money by spending less on new clothes and eating out,” says Deanna, a student at Ohio State. “Whenever I consider buying something, I always think about the opportunity cost.”
Bank accounts. When Michael Stratford went to orientation at Cornell University, he stopped at the booth of a local bank that was offering a $50 gift card for opening a new account. Michael soon ran through that -- and much more -- by racking up $40 overdraft charges on small purchases. “It was my first parental bailout,” he says. To avoid any more, he opened an account at a major national bank with branches both at college and in his hometown so that his parents could make deposits if necessary. But it wasn’t necessary; Michael also signed up for text alerts to help him keep track of his balance.
Bank fees are creeping up (see How to Get a Better Deal at Your Bank) so pay attention to bank pitches that your student has been getting in the mail to find the best deal.
Credit cards. One of Deanna’s older siblings ran up serious credit card debt when she was in school, so Deanna manages her monthly allowance with a checking account and a debit card. Amanda’s parents gave her a credit card to pay for food, but she wishes they had made her keep track of her expenses. “They added up way quicker than I realized,” says Amanda. “It’s easy to get lulled into the mindset of endless money when your parents take care of your credit card.”
I’ve heard this refrain from so many students (and parents) that my advice is to hold off on a credit card until kids have learned how to manage a checking account and can pay their own bills (see Why I Don't Like Prepaid Cards for Kids).
Surprise expenses. Amanda found that her “fun” expenses were higher than she expected, possibly because she went to school in a big city. “You want to do what everyone else is doing as a freshman, but be careful not to overspend just to fit in. It’s sort of a balancing act.”
Always buy used, advises Michael. That includes everything from books to dorm room furnishings. Don’t bring anything but bare necessities (see 12 Things College Students Don't Need), and take advantage of yard sales at school after you arrive. E-mail your professors ahead of time to find out which books you really need so that you can order them used from Amazon or some other cut-rate source (see How to Cut Textbook Costs in Half -- or More).
All of this is great advice, but what also impressed me about these young people is that they had learned lessons that went beyond day-to-day money management. For example, unlike many students, Michael played an active role in applying for his own financial aid. By the time he was a senior, he “had a good grasp” of how the system worked and how to get the best deal on student loans. As a result, he was able to limit his borrowing to a manageable amount.
To hold down costs, Deanna’s parents required her and two of her siblings -- all Ohio residents and all in college at the same time -- to attend Ohio State rather than a private school. At first she was disappointed that she couldn’t “get out of Dodge,” but she’s happy with the outcome. “The most important thing I’ve learned is how extraordinarily lucky I am to have parents who will support me financially through college.”
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