College is an important time for young people to establish financial literacy skills and learn to make smart spending decisions, but many enter into this newfound independence unprepared – and vulnerable. Targeted by predatory credit card companies and tempted by consumer goods, many college students rack up extreme debt before they’ve even earned a degree.
If you’re a college student or the parent of a young person, it’s important to know where student spenders are going wrong. These five errors can drain your wallet and damage your credit for years to come.
Most students are offered the option of a dining hall meal plan, and some schools even require those who live in the dorms to sign up for a plan. The problem: meal plans are expensive and simultaneously limited, and students use them in inconsistent ways.
When signing up for a meal plan, students and parents should talk to each other about how the plan will be used. Will the student cook in their dorm sometimes or will they default to restaurants if they don’t have enough meals? Do they eat one or two meals a day, but snack the rest of the time? Most students don’t need a meal plan that covers three meals a day/seven days a week. Students can always eat cereal and make coffee in their dorm rooms – if they’re even awake that early.
Build A Budget
Budgeting is one of the most important skills for college students, but many don’t even consider it until they’ve drained their checking accounts. That’s why, before they head off to school, every young person should learn how to create and stick to a budget. It’s helpful to do this at home where an experienced adult can point out missing expenses and help identify the cost of common activities, like doing coin laundry or buying coffee at Starbucks versus making it at home.
Most students will need to adjust their budgets further once they get to school – it’s unrealistic to think you can account for all the costs of a new lifestyle, possibly even in an unfamiliar city – but that doesn’t mean you shouldn’t create a preliminary outline. Skip it and expect phone calls home asking for money or a student who is weighing the pros and cons of doing laundry versus buying that latte.
Use Student Services
College campuses are known for their extensive services, from high-end gyms to campus carnivals, with the fight to attract the best students now known as the college amenities arms race – but not all service offerings are about leisure. In fact, many aim to prepare students for post-college life and most schools offer at least some programming focused on financial literacy. Take advantage of this!
Financial literacy consists of a variety of habits and pieces of knowledge taken together, such as understanding how interest works and what inflation is, how to read bank statements, and why risk diversification is important for investing. Sure, most college students aren’t buying stocks, but all students should attend financial literacy sessions on budgeting, credit cards, and other core concepts.
Reconsider Credit Cards
There are a lot of good reasons for college students to have credit cards. They’re ideal for emergency expenses, especially for students who are far from home, can help parents monitor spending, and help students build their credit history so that they’ll qualify for a car loan or apartment in a few years. But as valuable as they are, most 18-year-olds with an acceptance letter don’t need a credit card just yet.
College students need clear guidelines regarding how and when to use credit cards and should be discouraged from using them for small leisure purchases that can add up. Or, if they are using credit this way, some experts recommend putting the same amount in a savings account each time.
The 2009 Credit CARD Act created some valuable safeguards that have prevented credit card companies from taking advantage of students, such as preventing students under 21 from getting a credit card without a cosigner or proof of income. It also restricts how credit card companies advertise at and around colleges, and formal disclosure standards. Still, credit card companies have made it a priority to convince parents their college-age students need credit cards in order to sidestep these regulations.
Get A Gig
According to college professors, the right amount of work for students is about 10-15 hours a week on campus – and most students today work at least that much. As of 2007, 45% of full-time, traditional students worked part-time. And the other 55%? Well, they should get jobs.
It’s important for students to work, even if they just pick up gig work like being a writing tutor or walking dogs. This helps students get used to paying taxes, budgeting their own money, and can help them build up their savings and pay for educational expenses independently. Young people are more likely to take proactive financial steps, like cutting back on leisure costs, when they have to pay for them out of their own paychecks.
Learning to make smart financial choices is at least as important as earning a college degree, and with student debt today, knowing how to budget and spend smarter can make all the difference down the road. Don’t graduate without at least a rudimentary knowledge of how budgets work and how to read a credit card statement. You’re going to need those skills to thrive beyond the campus gates.