Personal Finance 101: A Core Course for College Students

Beyond the lectures, exams and term papers, beyond dorm living, cafeteria eating and choosing a potential career path, the college years are also about students gaining the know-how to make sound real-world financial decisions. And when it comes to acquiring that critical know-how, the best teacher is often hands-on experience outside the classroom, according to financial planning experts.

Given the prevalence of student loans in this era of ever increasing college tuition costs, for many college students the practical education in personal finances should begin with DEBT AND HOW TO HANDLE IT, said New Jersey-based Timothy A. Knotts, CFP®. “It’s important that (college students) know about debt, about how financing and interest rates work, and how this stuff gets paid back.”

As the father of four current or former college students, each of whom relied upon student loans, Knox knows the importance of helping college kids learn to manage debt particularly that associated with student loans. “As freshmen, if they have student loans, they need to understand what they are getting into. And seniors have to be prepared, because if they graduate in May, they’ll start getting those (student loan) bills come the following October.”

The following website www.studentloanborrowerassistance.org is a good source of student loan info.

The world revolves around credit, so college students also need a solid grasp of HOW CREDIT CARDS WORK, whether it makes sense to obtain one, and if so, how to identify one that’s most suited to a college student’s situation. Amid the many credit card offers college kids are apt to receive, it’s important to choose and use a credit card prudently, said Knotts. Obtain one with a reasonable interest rate and a low credit limit, so you won’t be tempted to run up a big tab. If possible, always pay off balances in their entirety the month they’re due, and don’t get in the habit of making only minimum payments.

While having too much plastic is an invitation to debt problems, college students should have at least one credit card to BUILD THEIR CREDIT HISTORY. Consistently paying credit card (and other) bills on time helps build a positive credit history, which will serve a person well when the time comes to buy a car, rent an apartment, buy a home and/or get a career-oriented job.

College is also a good time to start BUDGETING. “As they go into their junior or senior year, maybe they have a car now, or bills to pay for an off-campus apartment. That’s when they need to start tracking the money coming in and going out each month,” said Knox. “It’s a habit that will come in handy after graduation.”

For guidance on budgeting and spending plans, check out the worksheets available from the Financial Planning Association at http://www.FPAnet.org/ToolsResources/BrochuresGuidesWorksheets/Worksheets/.

Like it or not, college students also need a working knowledge of TAXES — chiefly, when and how to prepare and file their personal returns, both state and federal. “A simple software program like TurboTax is a great tool for teaching someone about taxes and taxation,” notes Knox.

While in most cases college students should prioritize paying down debt and managing cash flow, it’s also valuable for them to understand the vital role INVESTMENTS may play in building assets to meet some of life’s most important long-term goals, from buying a home to living comfortably during retirement. College students who already own stock (that they have inherited or received as a gift, for example) can learn by reading stockholder statements, annual reports, etc. Websites such as Bankrate.com, mint.com and Investopedia.com also provide solid, basic information for novice investors.

For newcomers, even the basics of personal finance can seem daunting. Thankfully, college students have financial planning “professors” to turn to for ADVICE AND GUIDANCE. CERTIFIED FINANCIAL PLANNER professionals can explain why personal financial responsibility matters and how all the pieces fit together — and they might be willing to do so at no charge to eager-to-learn college students. To find a CFP certificant in your area, visit the Financial Planning Association’s national network at www.FPAnet.org/PlannerSearch/PlannerSearch.aspx.

This column is provided by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA if you use this column in whole or in part.