What College Students Need to Know About Their Finances

Ann House, MS, CFCS, CPFC, CEPFUASFAA

April 17, 2012

For many students:• They will become well versed in Faulkner, microbiology,

or Mandarin – but not even a basic command of personal finances.

• Students start college with no real idea how much it will cost them to live, how much money they will have to live on and how to make up the difference and many report having the least amount of money in their lives.

Emily and New York University senior:“All I had to do was sign on to the Sallie Mae web site, check off a few boxes and wait for the money to be disbursed. The thought of repaying it never really hits

you until graduation is near.”

Countdown

http://www.youtube.com/watch?v=96KiSEMHy7Y

Reality:• 2 of 3 undergraduates leave with student debt• Half who start never finish with a degree, but

do have student debt• Student loan debt has surpassed credit card

and auto loan debt - threatening our fragile economic recovery

• Studies report that students want financial management information through their U

College Board Study, 2008College Students and Financial Literacy, 2006

Also reality:

Students today need our help

• What’s more expensive than college? Not going to college.– The typical income gap between the college

graduate and the high school dropout has never been higher. Today college grads earn 80% more than people who didn’t finish high school.

– $100,000 spent on college at age 18 would yield a higher lifetime return than an equal investment in stocks and bonds.

Hamilton Project

5 Money Management Tips for Students

1. We all have a money personality2. Students need a financial plan3. Students need to be organized4. Students need to build and keepuild and

keep good credit5. School is their first priorityWhat can we do?

1. We all have a money personality

• What are your financial habits?oWhat do you buy?oWhen do you buy?oWhy do you buy?oWhere do you buy?oWhat happens to your budget when you buy?oWhat effect does this purchase have on your goals?

*How did you get this way?*

The influence of family members is important and complex.Parents play a key role in students financial socialization. Parents’ politics and religious beliefs are most influential in their children's financial training. Most parents don’t know how to constructively talk to their children about financial management.

• Money is a reward• Money is control• Money is love• Money is happiness• Spending is

irresponsible• Money has no place in

polite conversation

2. Students need a financial plan

Define financial goalsMake plans to reach these goalsTake action to make the goals become a reality

GOAL $ NEEDED BY (DATE) HOW I WILL REACH MY GOAL

GOAL $ NEEDED BY (DATE) HOW I WILL REACH MY GOAL

Emergency fund $500 July, 2012 Open a savings account (mark it for emergencies) deposit $167/month

Books $450 Fall semester,2012

Save $90 per month

Car $4800 April, 2016 Open a long-term savings account (mark it for car) save $100/month

This financial plan includes a school/career plan:

• Many students do not complete school in 4 yrs due to failure to plan out required courses, add minors, switch majors, money & personal issuesStudents should meet with an academic advisor each

semester. Compromise – employers care more about skills than

specific majorIf working – studies suggest working on campus and

graduation are highly correlated

Unexpected Financial Problems?

http://www.youtube.com/watch?v=ETMkub3NwK0

3. Students need to be organized• Select a record keeping

format• Mint.com, paper, etc.

• Cash flow = • income – expenses• As detailed as you want

• Do as much as you can with automatic deposit

• The more control, the more money you have

Why people struggle with budgets:• No plan for expenses that don’t come every

week• Don’t track spending

1. To know how much to plan on 2. To keep to the plan

• No allowance for the unexpected• Vague expenditure categories • Don’t have an emergency fund

etc.Pay attention to deadlines (avoid late fees)Separate needs from wantsCheck out banks and credit unions, online banksSave and investMitigate risk – insuranceReceipts and warrantiesTaxes ID theft and fraud

4. Students need to build and keep good credit

More important than ever before• Used to determine the interest rate on a loan• Used to determine your auto insurance rate• Used by potential employers• Used by potential landlordsCredit information is used to see how you handle money and to evaluate your responsibility and integrity with your personal finances.

Why are employers checking credit?

• Shows if responsible, accountable, stable and honest on the job.

• Use of company cell phone or auto

• Differentiates students

5. School is their first priority

Students financial situation in college can affect their academic performance. (1 in 3 on the edge of dropping out due to finances.)School is the most important job right now and a college education will be a big payoff down the road. Students need to take advantage of school resources that their fees are covering (counseling, health, financial help, legal aid, career advice).

Lyons, 2003

Students need to be aware of loan and scholarship scams and deceptive offers.Students need to understand their financial aid:• “I don’t know if it is subsidized or not.”• “I thought I would buy a car with half my loan.”• “How do I find out how much I have in loans?”

“I asked about the ‘capitalized Interest’ and found out that it was the interest on the loan that was accruing while I was in school. WOW! $17,000.00 accrued while I was sitting in class trying to figure out how to get ahead in this crazy world. And

apparently- for the last several years, 90% of my payments have been going to interest. I really am ashamed to admit

this all, but I can't hide anymore.”

Students entering college today may very well be studying for jobs that won’t exist in a few years.o The top 10 in demand-jobs in 2010 were not even

jobs in 2004. (Jeremiah Owyang, Industry Analyst in Silicon Valley)

Without a plan, guidance, research, “putting your nose to the grindstone,” todays students may accrue much debt without a successful outcome.

http://www.youtube.com/watch?v=IcXRV6stU8U

What can we do?

• Utah does have financial literacy standards in HS and integrated into K-10Can colleges and universities build on this?

• Most of todays research on students and financial literacy refers to credit card useDo we need a broader definition of financial literacy?

• Need for educational resources for parents How can we deliver this?

• Need for financial education on campus“Financial education is not part of your bachelor’s

program, its part of your life.”Need for a GE requirement for personal finances?

• Holistic approach to student needs ResourcesFinancial counseling centers on campus

Cude, Lawrence, Lyons, et al., 2006