For many students, college is the first major landmark on the path to independence. Moving away from home means no more curfews, no asking for permission and no parents looking over their shoulders. It also means that the liberty-seeking college kid is now free to make his or her own mistakes.
In such an environment, money management often becomes an issue. Knowing how to avoid these problems is the key to beating them. Here are ten common mistakes students make, and how you can avoid them.
- Making poor choices about which credit cards to get. Credit card companies set up booths on college campuses, offering T-shirts and other items to anyone who will sign up for a card. Although the deals can seem fantastic, students must look into the card’s repayment terms carefully. “When students get credit cards, two things can happen,” said Stephen Ferris, professor of finance at the University of Missouri – Columbia. “One, they don’t read the fine print and see what they’re paying. And they’re paying a lot. Or they use it until it’s maxed out.” It is absolutely necessary to pay your credit cards on time each month, added Ferris.
- Letting friends pressure them into spending money. College life is full of opportunities to spend money, finals week smorgasbord, an evening out with friends, road trips and vacations… Not knowing how to say “no” can cause students to spend money they just do not have. “If you can’t afford it, just say no”, says David Fingerhut, a financial adviser with Pines Financial in St. Louis.
- Not setting up a budget. If they have a set amount of money, they must plan ahead and know how much they can spend each month. “It has to work on paper before it works in real life,” Fingerhut said.
- Not seeking out the best bank rates. Banks offer many different kinds of checking and savings accounts, but some charge fees that others do not. It is essential for students to do research and not simply go with the closest, most accessible bank, Ferris said.
- Overpaying for schooling. When choosing a school, students need to determine whether the more expensive school is worth the price. Students who graduate in debt tend to be poor savers, said John Baker, a financial planning consultant in St. Louis.
- Not keeping track of bank account balances. Balancing a checkbook may be tedious work, but it beats bouncing checks and getting into trouble with the bank. Many banks charge a fee for each bounced check, which makes it even more difficult for the student to get out of the red.
- Lending money to friends. Fingerhut’s advice here is simple: do not lend to friends, or you will not have friends. The counselor believes that giving someone a loan will not fix that person’s inability to manage finances and if they don’t pay you back then the friendship could get very strained. He has met scores of clients who borrowed money from friends or relatives and then later faced problems paying back those loans.
- Failing to research product pricing before making purchases. Students must learn how to comparison-shop and economize. Daily items like toothpaste may be available elsewhere at lower prices than students realize. “Students have knowledge about things like cars, stereos and DVDs,” Ferris said. “They don’t take time to investigate other products.”
- Not planning for the future. While retirement may seem ages away, it is important for students to plan ahead. Money invested in retirement funds will grow with interest, and getting started early will pay off in your later years, Ferris said.
- Not having a job, even when they have time to do so. College can keep students very busy, but there are many opportunities for work both on campus and off. Not only can students earn extra money, having a job will also help them prepare for life after college.
© 2008, Young Money Media, LLC. All rights reserved.