5 things every student should know about money
Last Friday, I was invited to speak at SUNY Westchester Community College (WCC) for the launch of their brand new (and beautiful!) Center for Financial and Economic Education. I was honored to be part of it.
Their new financial education center was created with a generous grant from the JP Morgan Chase Foundation—and what a wonderful initiative. The center will offer financial workshops for students, faculty, and the community at large, work with faculty to incorporate financial concepts into their curricula, and maintain a library of personal finance resources (Get a Financial Life is already on the shelf!).
So many students attended the launch event, and I was impressed, as always, by how earnest and interested they were in personal finance. They asked smart questions like “How do I know which websites to trust for financial information?” and “If I want to get my finances in order, where do I even start?”
To help guide them, I explained the five things every student should know about money:
Don’t get into credit card debt, and protect your credit score.
Know that a credit card is a loan. The typical American household has $7,000 in credit card debt right now. And if you only pay the minimum on that $7,000 balance, it will take you 17 years to pay it off, and you’ll pay more than $5,000 in interest along the way. Plus, missing payments brings down your credit score, which means you’ll pay more for things like car loans and mortgages.
Shop for a 4-year school like you would anything else: What can you afford and how will you pay for it?
Students today are graduating with debt that burdens them for life. But you have options. The average annual tuition for private college is $34,740, compared to out-of state public school at $25,620 and in-state public school at $9,970. Choose wisely and be smart about how you pay, including taking advantage of grants, scholarships, and tax credits that never have to be paid back. That can go a long way to keeping those loan amounts down. Also, only take out federal student loans, which are cheapest, and avoid private loans. Better yet, keep working, so you can pay as you go. Once you graduate, look for programs that help you pay back your loans like Income-Based Repayment and Public Service Loan Forgiveness.
Save 20 cents of every dollar you bring in.
Saving in a tax-advantaged account like a 401(k) or IRA is the smartest and best way to save money. If you know that “compound interest” means this dollar becomes a dollar and six cents a year from now, and the following year you earn interest on that $1.06, and so on—then you understand its power. You don’t have to know how to sit there and do the calculations; you just have to act on it.
Have health insurance.
Making sure you and your family are covered could be what keeps you out of bankruptcy if you get sick. It protects your extended family and friends, too—the people who would pay for treatment if you ran out of money. Under the current law, young people are allowed to stay on their parents’ insurance plan until they turn 26. If you do need to purchase a policy on your own (and not through an employer), compare prices at ehealthinsurance.com.
All you need to do is be a savvy consumer. Shop around for everything from banks to school books to bubble gum, and make sure you’re getting the best deal. When it comes to investing, that means going with index funds that carry low expense ratios. Two good ones are Vanguard’s index ETF (0.04%) and Schwab’s index fund (0.03%). Be confident enough to approach every financial product—and certainly every piece of paper you’re asked to sign—with skepticism.
Teachers, students—got any questions for me? I’m all ears!