College Students: Personal Finance

Proper education is necessary to gain financial independence in college.

It’s normal for parents to worry about sending their students to college, but it’s not just their academics that parents should worry about. They should also think about making sure their college student understands personal finances. Research from America’s Promise Alliance shows that a lack of transparency and simplicity in the application process can make paying for an associate’s or bachelor’s degree more difficult; at the same time, many students are showing poor spending habits. Experts say this could come back to haunt them when they must repay their student loans.

The report based on a discussion group comprised of 23 students, college financial aid advisers, high school counselors, researchers and business professionals showed that participants were worried about how much information on financial aid is available to students and their parents in both high school and college. At the same time, other recent studies have indicated that college students tend to have poor financial literacy. A survey by EverFi and sponsored by High One shows that 24% of college students feel others would be “horrified” if they saw their spending habits. An additional 20% said they have purchased items that they could not afford, while 60% said it is OK to have an overdraft fee if they could pay it off. However, despite these bad habits, almost 80% of students said they are worried about debt.

In an interview with the Boston Globe, Michael Goodman, an Associate Professor and Chairman of the public policy department at University of Massachusetts Dartmouth said, “The lack of financial literacy is a major problem in the United States. It affects not just people who are poorly educated, but also people who received some of the finest educations in the world.”

College is usually the first time that students acquire independence, yet some students remain dependent on their parents’ financial support and advice. Proper financial education is necessary to gain financial independence in college. Here are three things college students should know about personal finance.

1. Credit – For many college students, credit cards are a thing of mystery. They are pieces of plastic that get them money, but most times they don’t think about having to pay that money back. The first step to establishing a solid credit history is for college students to understand how credit works. Once they do, it may be a good idea to have a credit card in the student’s name (not the parent’s name) to encourage responsibility. Paying off the debt in full every month is an easy way to build a good credit history and get a student’s financial future on track.
2. Saving and Checking Accounts – Many students open savings accounts and checking accounts in high school, but some college students have yet to open an account at a bank or credit union. Managing a savings or checking account is a valuable learning experience, so it is better to start earlier rather than later.
3. Financial Aid – Many students are familiar with FAFSA by the time they enter their freshman year of college, however this isn’t always the case. Some students are unaware of the many options for financial aid or simply rely on their parents to fill out the forms. Proper knowledge of financial aid applications such as the FAFSA and CSS Profile can save thousands of dollars over the course of a four-year degree.

Basic training in personal finance will not only allow students to avoid common financial mistakes, but it will also help them become more financially independent in college and throughout life.

Westface College Planning can help you navigate the college saving and funding process from start to finish. To learn how we can help you call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.

Photo Credit: maxime.mcduff