Students from kindergarten to college seniors are headed back to school this month. While a lot of focus is needed to help our younger children make an easy transition from summertime to school time, I think sometimes we forget our older children, who are now young adults, need some assistance in learning lessons that will help them throughout their lives. Specifically, teaching the importance of managing their personal finances and building a strong and secure fiscal future is a lesson not taught often enough.
In my humble opinion, money cannot buy happiness, but effectively managing your money can help alleviate some stress. College is the ideal time to start learning how to manage money. Students may have a small income, from either a part-time or summer job, and are also responsible for covering their expenses.
In that light, I have gathered a few tips and tricks from industry experts.
1. Be careful with credit: A credit card does not equal free money. It is also not worth ruining your credit for a free t-shirt or koozie by signing up for a high-interest credit card you don’t need. The International Journal of Business and Social Science found that 90 percent of student cardholders carried a balance from month to month. Fewer than 10 percent knew their card’s interest rate or what they would be charged if they made payments late or went over their limit. If you must get a credit card, do your research and find out which makes the most sense given your spending habits and paying ability.
2. Protect yourself from fraud: Javelin Strategy and Research found that it takes 18 to 24 year olds nearly twice as long to detect fraud compared to other age groups, which can make them fraud victims for longer periods of time. Take advantage of services that allow you to monitor your accounts regularly, such as online or mobile banking. Also, protect your personal identification numbers, such as your social security number, and only give them to secure and trusted sources.
3. Save early and often: Kiplinger magazine suggests that any money earned from a summer job or other work can be contributed to a Roth IRA. In 2012, the contribution limit for a Roth IRA is $5,000 or the amount of your earnings, whichever is less. In your 20s, you can take advantage of the great power of compounded interest. An example from dailyfinance.com demonstrates that if you save $3,000 a year when you are between 20 and 30 years old and put that savings into an IRA with a 7 percent average annualized rate of return, you will have $442,000 by the time you are 65! However, if you wait to save until you’re 30 and put in $3,000 each year until you’re 65, you’ll end up with only $283,000 at the same rate of return. That is 35 percent less than if you’d just saved the money in your 20s.
4. Take advantage of student perks: Participate in free campus activities, such as movies, go to the school’s gym and take fitness classes, use your meal plan, get involved in groups, support your school’s teams or attend a lecture series. Additionally, most student IDs can be used for discounts at local restaurants and other businesses when you need a break from campus.
Healthy personal finance is really a simple equation of spending less than you make. So, set limits, keep track of your spending and save money now to invest in your future. With careful consideration, you can leave college with strong credit and set yourself up for long-term financial success. For some personal finance 101 lessons, be sure to visit Secretary of State Lawson’s website at www.in.gov/sos/securities and on the left side of the page select ‘Indiana Investment Watch’, then select ‘Personal Finance 101’.