college

by Ryan W. Smith

Summer is winding down and the Dog Days are here, which of course means college classes are about to start again with a whole new crop of freshman on campuses across the nation. Paying for college has become one of life’s major expenses, alongside buying a house, buying a car and saving for retirement. However, even after a family has worked with a financial advisor to help their college student pay for school, filled out the FAFSA, filed loan papers, paid tuition, emptied out the 529 accounts, registered for classes and purchased textbooks there are a plethora of mistakes that she can make that can have long-term impacts on her financial future.

While analytical tools like AdvisoryWorld’s SCANalytics program can assist parents in finding the best investment plans to help make these large payments, there is no program that can help a new college student with day-to-day financial management. Freshman year is a year of significant change for most students. It marks the first steps into independence, the first time away from home, the first time she is being recognized as an adult. However, because entry into college also has so many social and academic adjustments as well, financial challenges often become overlooked even though financial decisions are made on a daily basis.

Multiple studies have shown that establishing good financial habits as soon as possible is very important. Since college is most likely the first time a student has had control over her everyday finances, early in freshman year is the perfect time to learn these good habits.

Here are some of the most common mistakes college freshman should try to avoid, like the egg salad sandwiches in the dorm cafeteria:

1) Not Creating a Budget

The vast majority of college freshman have never created a budget. They have never needed to pay bills, nor have they needed to make sure they have money for food and other necessities. They do not know, yet, how to stretch a dollar because payday isn’t for another week and a half. They have not yet learned to keep track of their expenses and keep their receipts. A budget helps this learning curve shrink dramatically.

This does not even yet factor in credit cards. Although laws have been passed at the federal level and by many states, credit card companies are still finding new and inventive ways to make sure that broke college kids are able to get plastic. And those freshman students without budgets, without experience, without resources, are typically the easiest targets. According to a 2013 Fidelity study, the average college graduate receives his diploma with $3,000 in credit card debt.

2) Overspending

Hand-in-hand with the dreaded “Freshman 15” where the first forays of independent food choices quickly lead to weight-gain, the first experiences with financial independence often lead to dramatic overspending. Even if a student avoids the tempting free t-shirts given with credit card applications, it is difficult to avoid spending too much money when first away at college.

Keeping receipts and tracking spending is most likely a new process for most incoming college freshman, but this simple habit can greatly assist in reducing spending and eliminating unnecessary expenses.

3) Too Many Credit Cards

It is inevitable, sadly, that college students end up with credit card debt by graduation. As mentioned above, 2013 college graduates walked away from school with their diplomas and $3,000 in credit card debt, on average. There are ways that students can utilize credit in a positive way, but without much high school financial education, without parental supervision and the ease to apply by which student can apply for and receive new credit lines, most students will not get the opportunity to see the positive side of credit until well after college.

4) Overlooking Discounts and Other Types of Free Money

There are many options for students already in college to obtain additional funding when work hours might not be available. Student Discounts are nearly as common as Senior or Military discounts and available on all kinds of items and services. There are also plenty of scholarships that are only available to students already enrolled in classes, though many students are not aware of them.

5) Not Using Online Banking

Online banking has effectively rendered going to a branch obsolete. For tech-savvy college freshman, online banking is a no-brainer. But many don’t realize the wealth of information available on most bank websites to assist inexperienced students with money management. Students can monitor spending history, pay bills at the site for easier tracking and also to deposit checks, all tools to make financial management easier to control.

6) Buying the Wrong Textbooks

One very common mistake that college freshman will make, especially if a college is located near an affluent area, is to buy only new textbooks. Most experts now agree that paying full price for textbooks is unnecessary. Used versions of the books can easily be found online. Some professors will ask students to only read a few chapters of a text book or to buy several books for a single class so a more cost-effective way to access that knowledge would be for the student to check that book out from the college library.

7) Using non-Bank ATMs

It might not dawn on most college freshman that bank fees are regularly applied to any non-brand bank ATM withdrawal, according to a study by Bankrate released in 2015. This same study also showed the ease by which students could use cash-back features at checkout counters to avoid these fees without having to go a bank branch to avoid fees for withdrawing their own money.

8) No Emergency Savings

Bad things can happen, even in the insulated world of college. Having an emergency fund is important for college students who often have expensive new computers and older vehicles to service. Those who are homesick might need additional money for a bus ticket home.

9) Being Afraid to Ask Questions or Advice

The first taste of real independence is a learning experience on all fronts, finances included. The more readily available assistance is, the more likely a student will ask questions. Parents, mentors, trusted high school teachers, friends, older siblings can all be valuable resources for first-time students.

Many students taste independence for the first time when heading off to college and the experience can be overwhelming. Having the freedom to choose is not necessarily the same as freedom itself. Without experience, knowledge loses power and without knowledge experience leads down dead-end paths. For students who utilize their resources effectively, college can be the experience of a lifetime or for those who don’t learn quickly enough, lifetime of debt and cascading poor decisions.

But no matter which direction they head in life financially, it is the first few months of freshman year where habits can be made, both good and bad.

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