Now that students have returned to school, parents should consider how to prepare their children for financial success. Have they learned the financial lessons needed to be independent adults after graduation? Students should understand how to build credit, create budgets, and plan for their future careers. While parents should focus on understanding the tools available to save for tuition and other school expenses.
Our experienced financial professionals are here to provide insights that students and parents can use when considering the path ahead. Financial Advisor, Sean Satterfield shared the following responses to common questions parents might discuss with their children about establishing healthy financial habits.
Should students be building credit while in school? How?
Establishing credit in college is a good idea for students. There is a misconception that you’re only going to need good credit way down the road (for example buying a first home). However, credit can impact students now. If you are going to consolidate loans after graduation or if you’re taking out a student loan, building good credit may affect your interest rate. Employers may also look at an individual’s credit report when making hiring decisions. Establishing credit can be as simple as applying for a credit card with a reasonable limit. Pay attention to key terms, such as APR (annual percentage rate), and fees – including application, annual and processing fees. Pay your credit card on time, every time, and if possible in full.
What advice do you have for balancing a budget? What are the pitfalls students usually fall into?
College students are typically on a tight budget, so keeping track of your income and expenses is the first step to developing a balanced budget. Once you establish your income and expenses, look closely at your expenses and cut costs when possible. For example, if you live in a city that has excellent public transportation, use that rather than driving. Many students may want to consider getting a part-time job and establishing credit. Studying and working part-time will help fine tune your time management skills while providing a sense of perspective and motivation.
Students need to avoid borrowing too much money, and remember to keep spending strictly to tuition and housing. Take into consideration that you will need to pay the money back after you graduate from college. Additionally, credit card debt can be expensive for a student in the long run. So try to avoid upgrading your credit card.
What is the best way to save and make plans for college?
There are many ways to save for college and one of the best ways to do that is through a 529 plan. This plan allows your investments to grow tax deferred and if you use the funds for education the growth will be tax free. Not all 529 plans are created equal, so it is important to understand the rules and options before investing in them.
What advice do you have for students as they prepare for their future careers?
As an underclassman, keep looking for scholarship opportunities. Most scholarships are for incoming freshman, but there are many scholarships for upperclassmen. As you approach graduation, try to pay off your student loans as quickly as you can. Carrying too much debt can be overwhelming if not kept in check.