The first year of life as an adult is a tough test that every college freshman must take. For the first time in their lives they must cook and clean for themselves, be responsible with their time, and be able to handle their own finances.
For many, managing their finances is a difficult task simply because there is not a lot of money there to manage. They will usually only be able to work part-time jobs, if any at all, which leaves them with little income. To avoid pressures from lack of funds, students sometimes go to extremes. Some students have been known to skip meals, charge friends for car rides, or even take money for dares.
KeyBank conducted a nationwide survey of 1,000 college upperclassmen in order to help younger students avoid the same money problems experienced by their older peers.* In the survey, juniors and seniors revealed their past financial mistakes and turned them into lessons for present and upcoming freshman.
Many student problems stem from overusing their credit cards, according to Andy Will, an executive vice president at KeyBank. He says that between 35-40% of college freshmen have their own credit cards. Being able to buy things on credit allows people to spend money without immediate consequences. However, it also presents the opportunity to spend more than a budget allows, creating more and more debt.
"Credit card purchases must be paid back," says Will. "Just because money does not slip through your fingers does not mean that you are not spending money."
Nearly 75% of those surveyed admitted they had made mistakes in handling their money. Most felt that overspending on food was the biggest reason, with others blaming overspending on entertainment, cell phone bills, gas, and other expenses adding to their credit card debt. With food expenses being a major drain on their wallets, students explained that eating out with their friends too often was the major cause.
Along with the questions about their past financial discrepancies, students were asked what specific advice they could give freshmen. Regarding credit usage, more than 40% of upperclassmen said credit cards should only be used for emergencies. Another 40% of respondents suggested that buying items on credit can be done as long as the balance is paid off every month.
"To keep control of credit card debt, know what your spending limits are and track your spending regularly," says Will.
Students were also asked what they would tell freshman about saving money on necessary purchases. Nearly 30% of those surveyed agreed that college students should buy used textbooks instead of new ones. Others said students can save money by not making fast food a staple, avoiding extra fees from debit cards and ATMs, and walking or using public transportation instead of driving.
The single piece of advice that more than half of those surveyed agreed on was that students should get a job while in college because it will help them become more responsible with their money. In addition to the advice that the college juniors and seniors had to offer, freshman can also benefit from reading "40 Money Management Tips Every College Freshman Should Know," a booklet created by the Denver-based National Endowment for Financial Education.**
It provides several solutions to problems addressed in the survey. The book stresses the importance of having a financial plan, and then presents ways that students can solve their money problems. Because eating out is one of the biggest strains on students’ budgets, they are urged to choose an economical school meal plan that is best for them and sticking to that plan.
The book also addresses use of credit as a spending option by breaking it down into three parts. First, students are encouraged to build good credit by paying bills early or on time and paying off loans as promised. Second, they should also avoid "credit card pushers" and overspending on credit cards at all costs.
Finally, students should open savings accounts that yield interest and then deposit a portion of money they receive from work or from their parents. The idea of "paying yourself first" refers to putting some amount of money, small or large, from each paycheck into a savings account before paying any other expenses.
"Think about a savings amount that you can stick with," Will adds. "Even if it’s not a large amount, starting small is better than not saving."
* 90% of the students surveyed were full-time students while 10% held part-time status.
** This booklet can be accessed online at www.scholarshipamerica.org/ss/files/40moneytips.pdf.
© 2008, Young Money Media, LLC. All rights reserved.