Be The Head of Your Class in College! Manage Your Finances as Well as Your Courseload
NEW YORK, August 31, 2004 – As college students start the academic year, there are lessons to be learned that go beyond the classroom. One subject students can’t afford to fail is Personal Finance 101, according to the Insurance Information Institute (I.I.I.).
Nearly half of all incoming freshman will have a credit card in their own name when they arrive on campus, estimates Student Monitor, a research organization specializing in college student market. Most undergraduate students will have two or more cards by the time they graduate, reports Nellie Mae, a leading provider of student loans. In fact, the typical graduate leaves school with more than $20,000 in debt from loans and credit cards.
“A college education is a smart investment,” says Jeanne M. Salvatore, Vice President, Consumer Affairs, at the I.I.I. “But as college grads enter the workforce, their credit history will impact their lives every bit as much as their college record does. How a student manages credit cards, student loans and every day expenses is also an important part of the college learning experience. Students need to be able to hit the books and balance their checkbooks at the same time.”
“A person’s credit history begins with a first credit card,” says Linda Golodner, President of the National Consumers League. “Most young people are surprised to learn that their credit history will affect them for the rest of their lives — whether or not they will be able to rent an apartment, finance the purchase of a car and even get a job.”
Parents and students need to work together to develop a financial plan for college and a budget. Specific educational expenses, including tuition, room and board, books and fees, can be viewed as “good debt” and can be covered through student loans, grants and the like. Day-to-day college expenses, including personal needs, transportation costs, telephone and other incidentals, are the types of expenses that students more often than not charge on credit cards.
“In most cases, college is the first opportunity for young people to make independent financial judgments,” points out Salvatore. “They are preparing for life, but in the process, they shouldn’t be digging themselves into a financial hole that will engulf them for years afterwards.”
Consumer debt is much more expensive and needs to be carefully monitored. Carrying high, unpaid balances is one of the quickest ways to incur too much debt and fall behind in payments. If college students plan to use a credit card regularly, they should have limits and know ahead of time where the money will come from to pay the bill at the end of the month.
When deciding on a credit card, students should read the fine print and shop around for the best terms. Look for cards that:
- Have an annual percentage rate at or below 15%
- Offer a grace period of at least 25 days
- Feature no annual fee
As students use credit cards and start paying other bills, it is important to check credit reports at least once a year. In many states (CO, GA, MA, MD, NJ & VT), annual checks are free. In other states, the cost is up to $8 per report.
To develop good financial habits, the I.I.I. suggests that students:
Learn to stick to a budget. Living within a budget is an important skill to master.
Pay bills on time. Students who pay bills on time will start to build a solid credit history. Late payments can also be expensive since they include penalties.
Use credit responsibly. Remember, credit is a loan — one that will need to be re-paid with interest. Monitor monthly bills and make spending adjustments accordingly. Also, avoid spending up to the limit on credit cards. It is a good idea to have credit available for emergencies.
Keep in touch with creditors. If students change residences and forget to tell their creditors, a series of lost bills can result in a black mark on a credit report. It might stay there for several years and influence one’s credit score. Most students on campuses today will have a computer, which means they can take advantage of electronic billing and payment.
Consider credit counseling. Those who find themselves in a financial bind should consider credit and money counseling. Information is available from the National Foundation of Credit Counseling at www.nfcc.org or the American Center of Credit Education at www.acce.org. Students should also consider taking advantage of any financial literacy programs that are offered by many colleges and universities.
For more information on insurance, you can access the I.I.I.’s credit website at www.howcreditworks.org.
The Insurance Information Institute is a non-profit, communications organization sponsored by the property/casualty insurance business.