5 Things That Every Student Should Know About Money Before Starting College
By Anisa Purbasari Horton
From reading the fine print to understanding how interest works.
For many college students, freshman year marks the first of many responsibilities. For some, that will probably include managing your money. Perhaps it’s the first time that you are in charge of paying your own bills.
It’s an exciting time to learn, experiment, and make mistakes you can learn from. And for some personal finance experts, college taught them some valuable lessons about money that continued to shape their attitudes and financial decisions today. Here’s what they wished they knew before starting college.
1. Debt is borrowed money
When Bola Sokunbi, certified financial education instructor and author of Clever Girl Finance: Ditch Debt, Save Money, and Build Real Wealth started college, she had very little knowledge about money, debt, credit cards, and student loans. As an international student from Nigeria, she had to figure out the U.S. financial system on her own. “I didn’t really understand how to plan out my money…When I got a part-time job, I didn’t know how credit cards worked. I didn’t know how interest worked. I ended up getting in trouble with it,” she says. At one point, Sokunbi had multiple credit cards. Her first credit card had a high annual percentage rate (APR), and she maxed it out without understanding that if she couldn’t pay it off in full, interest would accrue on the unpaid balance based on the high APR and would be added to her balance. This would in turn increase the amount she owed. Sokunbi wished that she understood that concept.
The same goes for student loan debt. Many students don’t know how their student loans work, what the interest rates are, and how interest will accrue, says Sokunbi. And because student loan debt typically involves big numbers, it can be challenging to wrap your head around what borrowing that amount of money can mean for you in the future. Five-thousand dollars might seem like a lot of money, but in the context of an average student loan (which was $30,062 in 2019, according to a 2020 article by US News & World Report), taking out an extra $5,000 loan might not seem like much.
According to Rob Bertman, a senior consultant at Student Loan Planner, a consultancy that helps people figure out how to pay off their student debt, the way to get your head around those figures is to think in three- to five-year chunks. That means understanding your repayment obligations for the next three to five years and start paying it off as soon as you can.
To get a start on this, check out the 1st Financial Bank USA (1FBUSA) Student Loan Repayment and Affordability Calculator, which can help you figure out what your loan payments will be based on the terms of your loan, including interest rate, and can also give you an idea of how much of your expected future salary will go toward paying off your loan(s).
2. Spend money on what’s important to you and save the rest
Cary Siegel, a retired business executive and author of Why Didn’t They Teach Me This In School? 99 Personal Money Management Principles To Live By, believes that college is a time when many people start building spending and saving habits that will prevail as they get older.
Siegel urges college students to have a budget, which he insists doesn’t need to be complicated. Start by figuring out how much money will be available each week, he says, then look at what you need to pay for. “They need to figure out what expenses they are going to have. Does it include books? Does it include healthcare? Let’s say mom and dad are covering everything but your personal social life. That can be a lot in college. To budget that accordingly is very important.”
Rather than adopt a rigid and restrictive mindset to budgeting, Siegel recommends that students take the time to prioritize their discretionary (non-essential) expenses. Students need to figure out what’s important to them, Siegel says, and “realize you can’t have it all.” He acknowledges that there’s a strong temptation in college to say yes to everything, but “you don’t have to keep up with what everybody else is doing.” Students should spend their money on the things that they value and save money on the rest. Otherwise, Siegel says, they might find themselves graduating with unnecessary debt in addition to their student loans.
3. Always look at where you can get the most value
Speaking of spending money on important things, Siegel says that another way that students can save money while enjoying what college has to offer is to ask themselves, “Where can I get the best value for my dollar?”
Vendors often have special deals or discounts for students. See 1FBUSA’s student blog for a comprehensive list of student discounts to use in college in 2021. In “8 Ways to Stretch Your College Dough,” CollegeData also recommends some helpful ways to save and spend less in college without sacrificing fun.
4. But be wary of deals that look too good to be true
At the same time, it’s important to scrutinize deals that look too good to be true. Sokunbi said that when she was in college, she would see company-sponsored booths at job fairs and other student events that were decorated with balloons and offered free t-shirts, pens and other giveaways for students who signed up for the company’s credit card. As she wrote in her blog, Clever Girl Finance, credit cards would be offered as providing “free money” that didn’t need to be paid back immediately. Sokunbi ended up succumbing to some of those deals.
Sokunbi signed up for a credit card without understanding how interest worked, and that’s something that she continues to see college students struggling with today. Many also don’t take the time to read the fine print, which can cause them to end up in precarious financial situations later on.
Before signing up for any deals or financial contracts, “do your research,” says Sokunbi, and be wary of anyone that offers “a deal that’s too good to be true. If there’s a financial service that you’re not comfortable with, don’t blindly trust someone.”
5. Learning about money can be fun and interesting
Both Siegel and Sokunbi acknowledge that learning about money can seem overwhelming and complicated, but they also insist that there are ways to make it fun and interesting. Both recommend that students start by picking a topic that piques their curiosity.
Sokunbi recommends that rather than learn everything at once, students should focus on one topic at a time. Perhaps you can spend a month learning about budgeting, and then the next month, you might want to understand how your student loan works, she says. There are many podcasts, blogs, and even YouTube series about money that cater to different interests and demographics, says Sokunbi. “It doesn’t have to be boring. If you find yourself at a site where you learn about money and it’s boring, you’re leveraging the wrong resources,” she says.
Both Siegel and Sokunbi admit that educational institutions can be better at providing basic financial education. Siegel, for example, believes that personal financial management should be a compulsory subject in high school. But they also agree that ultimately, it’s up to students to take control of their own finances. In addition to reading books, Siegel recommends that students seek out people in their lives who have done well (or not so well) with money, and ask them about what they learned in the process. For those whose parents might be reluctant to talk about money, he recommends they tell their parents, “I know this is something I need to know and understand. If you don’t want to talk about it, are there other people I can talk to?”
“Students need to focus on taking ownership and being owners of their future,” says Sokunbi. Because when it comes to money, “We live in a world where no one is going to give it to you.”
For more resources on how to manage your money wisely in college, visit CollegeData’s “Money Matters.”
Anisa Purbasari Horton is a freelance writer and editor who covers higher education, money, personal development, and the workplace. In addition to writing for CollegeData, Anisa regularly writes for a range of publications including Fast Company, Business Insider, and BBC.
The views, thoughts, and opinions expressed in this article belong solely to the author, and not necessarily to CollegeData, 1st Financial Bank USA or any other person or entity. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.