As students head off to college this fall many of them may be managing their own money for the first time. Chicago’s Better Business Bureau offers these tips for how college students can better manage their money:
- Be responsible with credit cards.
According to a U.S. Public Interest Research Group survey, two out of three college students report having a credit card, of which about 66 percent are responsible for paying their monthly bill. Overall, freshmen responsible for their own cards had average credit card balances of $1301.
While having a credit card is an important first step for a college student to start building a credit history, parents need to stress the importance of using credit responsibly. This includes having a minimal number of credit cards, paying off the balances every month and keeping a reign on spending.
- Start saving money now, even if it’s just a small amount every month.
Developing good saving habits early on will help a college student reap the benefits throughout his or her life. Aside from the inherent benefits of saving money, starting early means taking advantage of what Albert Einstein described as one of the most powerful forces in the universe: compound interest.
For example, if a freshman saves $50 every month and puts it into a high interest savings account or money market account that earns five percent interest, by graduation, he or she will have saved more than $2660 including interest. If they continue to save $50 every month at 5 percent interest, in 25 years, they’ll have saved nearly $15,000 and reaped another $15,000 in interest.
Pay your bills on time.
U.S. PIRG found that more then 40 percent of college students who managed their own credit cards had paid bills late or paid at least one over-the-limit fee. Credit card companies often charge late fees as high as $40. Add to that any accruing interest, which can be upwards of 30 percent, and college students will quickly see how much can be lost by not paying a bill on time and in full. Late payment could ruin your credit for seven years and that may affect future purchases such as buying a home or a car.
Guard your personal information.
When comparing the age demographics of ID theft victims in the U.S., young adults between the ages of 18 and 24 were the second highest age group at risk for fraud according to an annual survey by Javelin Strategy and Research. Javelin also found that, in cases where the victims knew how their ID was stolen, 79 percent of the time it was stolen by someone they had contact with; therefore, preventing ID theft is important both online and offline. Parents should encourage their students to shred unnecessary documents that include personal information such as Social Security or bank account numbers and keep a close watch over credit and debit cards and checkbooks.
And from my personal experience I suggest setting a monthly or bi-weekly budget. If you know you get a set amount of money every two weeks and then limit yourself to spending that you won’t rack up credit card debt and it’s a good test of your self-discipline. It’s when you start living above your means that you get into trouble.
Budgeting may seem rigid at first but it can become a habit and actually frees you up to save for
your goals and stop wasting money.
College students who are big fans of computers may also want to learn how to use a money management software program such as Quicken. One of Quicken’s great features is its ability to calculate your net worth. As a student you may have a negative net worth due to a lot of student loans, but you’ll see this begin to change as you pay down debt.
Changing money management habits and seeing results can be really gratifying.
August 22, 2008