Between packing for college, buying school supplies and recovering from sticker shock, parents may be too bogged down to remember to pass on some financial words of wisdom as their child leaves the nest. To help college bound students build a foundation of sound financial habits, Better Business Bureau offers the following advice for parents to bestow on their freshman.
Last year alone, approximately two million students graduated from high school and headed to college. While most were equipped with bedding and books, many were ill-equipped on the subject of financial literacy. According to a 2007 survey by Charles Schwab, fewer than half of teens considered themselves knowledgeable on how to budget money (41 percent), how to pay bills (34 percent), or how credit card interest and fees work (26 percent).
“College years are the time when many young adults establish habits they will carry with them for the rest of their lives and while it’s important that they tackle academics, its critical that they also learn everyday skills – such as how to manage their money – in order to become successful in life,” said Karen Nalven, BBB spokesperson. “Aside from leading by example, parents have an active role to play in ensuring their children are equipped to handle their own finances away from home.”
BBB recommends that before parents wave goodbye to their college bound students, they sit down and discuss four key rules for managing personal finances:
Be responsible with credit cards.
According to a U.S. Public Interest Research Group (U.S. PIRG) survey, two out of three college students report having a credit card, of which about two-thirds are responsible for paying their monthly bill. Overall, freshmen responsible for their own cards had average credit card balances of $1301.
While having a credit card is an important first step for a college student to start building a credit history, parents need to stress the importance of using credit responsibly. This includes having a minimal number of credit cards, paying off the balances every month and keeping a reign on spending.
For more information on managing credit cards visit BBB online.
Start saving money now, even if it’s just a small amount every month.
Developing good saving habits early on will help a college student reap the benefits throughout his or her life. Aside from the inherent benefits of saving money, starting early means taking advantage of what Albert Einstein described as one of the most powerful forces in the universe: compound interest.
For example, if a freshman saves $50 every month and puts it into a high interest savings account or money market account that earns five percent interest, by graduation, they’ll have saved more than $2660 including dividends. If they continue to save $50 every month at five percent interest, in 25 years, they’ll have saved nearly $15,000 and reaped another $15,000 in dividends.
For more information on creating a budget visit the BBB Web site.
Pay your bills on time.
U.S. PIRG found that more that 40 percent of college students who managed their own credit cards had paid bills late or paid at least one over-the-limit fee. Credit card companies often charge late fees as high as $40. Add to that any accruing interest, which can be upwards of 30 percent, and college students will quickly see how much can be lost by not paying a bill on time and in full.
Aside from the immediate benefits of paying bills on time – specifically, reducing needless spending on fees and interest charges – it is an important way for college students to begin building a healthy credit report.
For more information on managing credit and bills see BBB tips online.
Guard your personal information.
When comparing the age demographics of ID theft victims in the U.S., young adults between the ages of 18 and 24 were the second highest age group at risk for fraud according to an annual survey by Javelin Strategy and Research. Javelin also found that, in cases where the victims knew how their ID was stolen, 79 percent of the time it was stolen by someone they had contact with; therefore, preventing ID theft is important both online and offline. Parents should encourage their students to shred unnecessary documents that include personal information such as social security or bank account numbers and keep a close watch over credit and debit cards and checkbooks.
For other BBB advice on managing personal finances go to www.bbb.org.