This semester, Catherine Solheim will stand in front of 100 or so students and teach them the money smarts they'll need to get through college -- and life. Solheim, associate professor of family social science at the University of Minnesota, teaches a personal and family finance course. She is one of the many college employees in the state who are trying to help Minnesota's 400,000-plus students stay out of financial trouble. If only they could reach everyone.
For students who don't have access to a money class, this column's for you. I asked a handful of professors, financial aid directors -- even a personal finance textbook author -- what every college student should know about money going into this school year. Here's their list:
Know yourself. Nathan Dungan literally wrote the textbook on personal finance and speaks at colleges nationwide. What does he think is most important for students to understand? Themselves. "Know your money temperament ... the lens through which you view and do money," he said. If having money makes you want to spend it, it's best to know that and figure out a way that works for you to keep that natural tendency in check.
Know where your money goes. Most financial experts suggest you grab a pen and paper to track every penny you spend. But who are they kidding? You're a busy college student, with homework to do and parties to attend. Fortunately for you, free online tools such as mint.com, greensherpa.com and wesabe.com do the work for you, categorizing your debit card and credit card spending into categories such as food and entertainment and sending you alerts when bills are due or you're perilously close to an overdraft fee. And with the tools' mobile applications, you can check your balance before you swipe your card.
You can't have it all. Stuart Perry, director of financial aid for St. John's University in Collegeville, Minn., said students often come from households where "they've lived pretty well" and it can be hard to get used to spending money on necessities, not frivolities. To Chris Austin, an economics instructor at Normandale Community College in Bloomington, it boils down to choices and trade-offs. "No one gets everything they want. We all have to make choices in terms of how we use our financial resources and how we use our time. [In college], you're giving up things now to have a higher standard of living later on," Austin said." The people who get in trouble are the ones who try to do it all."
Proudly live the poor college student lifestyle. There is a lot of peer pressure on campus. One financially damaging form is what Dungan calls "of-the-moment pressure," when the moment takes you out on the town and you drop $30 you don't have.
It can be hard to be the one to stand up and say "'I really can't afford to do that,'" Solheim said. But if you don't say it today, you'll be saying it down the road as you struggle to pay off that college debt. Given what's been going on in the economy and the renewed acceptance of thrift, I'd think college students should find it easier to speak up about spending less.
Keep money out of reach to stay out of trouble. Each year, Solheim asks students about a bad financial experience. "I have quite a few that will say ... 'The first time I got my financial aid I just had a good time ... and then was stretched at the end to make ends meet,'" she said. If you're a student receiving a lump sum from the Bank of Mom and Dad or the financial aid office, figure out how much you'll need each month and put the rest in savings. That way you won't feel artificially flush when you see that big bank balance.
Think before you apply for credit. If you and your parents determine that you can responsibly manage credit, now may be a good time to apply before new credit card rules go into place next February that will require anyone younger than 21 to have a co-signer for a credit card or show proof of income. Don't get me wrong, I think the reforms are long overdue, but if you can handle credit, why not avoid the extra hoops and start building a credit history today? On the flip side, however, "If the person isn't ready, just doing it to get under the wire, I'm not sure it's a good choice," Dungan said. "Are they at least attentive? Do they at least have some sense of how credit works, that it's a loan, that it impacts your credit rating?"
Know what you'll owe. Carly Eichhorst cringes when students ask her about borrowing every last penny for college, especially from private student loans with "disgusting" interest rates in the double digits. "Every $1,000 that you can save during the summer or that you can make through work study really reduces your debt in the long term," said Eichhorst, associate director of financial aid at Augsburg College in Minneapolis.
Speaking with a financial aid officer or using a repayment calculator like the ones found at finaid.org or mappingyourfuture.org is the best way to figure this out. But a rough estimate for federal student loans is that for every $10,000 borrowed, expect to pay $100 a month for 10 years, Eichhorst said.