Personal Financing: Start Early, Save Often
It’s normal for parents to worry about sending their students to college, but it’s not only about academics. One of the key foundations to success is a command of 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. Combined with poor spending habits, students will fall into an unprepared spiral. Experts say this could come back to haunt them when they must repay their student loans.
This 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 high school/college students and their parents. Additionally, other related studies have indicated that college students tend to have poor financial literacy.
A survey by EverFi (sponsored by High One) reported over 25% of students feel they will be financially unprepared after high school. This directly ties into misinformation of finances or lack thereof.
With that in mind, they found the majority of participating students marked a good credit score at 500. That score equates to the lowest tier of bad credit. One-third cited a good score at 300. 83% agreed a personal finance course should be a required course for high school graduation, yet less than half implement any facet of personal finance into the curriculum.
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. To gain financial independence in college, students require and crave proper financial education. These three factors make up a solid foundation to support a student’s personal financing knowledge:
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: the honest to goodness basics adults tend to forget. 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.
Saving and Checking Accounts
Students either open savings accounts and checking accounts in high school or their parents even set one up early in life, whereas some college students have yet to open an account at a bank or credit union. Even if they open an account, the concepts of liquidity or interest rates may fall by the wayside. Managing a savings or checking account is inarguably a valuable learning experience, and better to start earlier rather than later.
Students are typically familiar with FAFSA by the time they enter their freshman year of college. However, this isn’t always the case. Some 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 also aid them to foster financial independence in college and throughout life.
Westface College Planning helps navigate the financial aid process from start to finish. To learn how we can minimize college cost, call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.
Photo Credit: Bunches and Bits
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