College can be an exciting opportunity to experience new things both academically and personally. However, it can also be a period marked by economic uncertainty, particularly for students navigating financial independence for the first time. That's why Our Money Matters offers free financial tools to help you avoid the pitfalls of making poor money decisions. In this blog, we explore some of college students' most significant financial mistakes and offer tips on how to avoid them.
1. Overspending on Entertainment
Research shows that eating out costs college students $4,000 per year. Another analysis of available data shows that throughout a 4-year degree, students spend nearly $53,000 on personal expenses. This is around 12% more than the average expenditure on academic needs during the same period. Of course, it's natural to want to enjoy your years in college. However, slight moderation can ensure you have fun while not getting yourself into severe debt.
Tip: Create a budget and stick to it. The only way to truly understand what you can afford is by putting it down on paper (figuratively) and finding a balance between doing what you enjoy and spending responsibly.
2. Accumulating Credit Card Debt
According to a report by Experian, the average credit card debt for individuals aged 18 to 23 was almost 2k and if you don’t pay off that debt when it’s due, you will end up spending a lot more than 2k in interest payments. Students many of whom have a card for the first time can get caught off guard by the ease of paying by credit, leading to impulsive spending and debt.
Tip: Limit yourself to one card and set up auto payments so that you pay it off in full each month. Do your research and make sure to get a card that offers the best rewards programs and/or lower interest rates. According to research, the average college student has five credit cards.
3. Ignoring Student Loans
The Federal Reserve Bank of New York reported that, as of 2021, the total outstanding student loan debt in the United States exceeded $1.7 trillion.
Unfortunately, with rising tuition costs, student loans are a necessity for many students but you should understand what you are signing up for so you can plan for repayment.
Tip: Take the time to learn more about your student loans, explore repayment options, and consider income-driven repayment plans or loan forgiveness programs if you qualify, but don’t completely ignore them.
4. Not Saving for Emergencies
Unexpected expenses can arise anytime, and not having an emergency fund can leave you in a tight spot. 22% of Americans don't have any emergency funds. That number is probably higher for college students already strapped for money. Many people make the mistake of not saving for emergencies because they don't think they have enough income to do so. However, even small contributions to an emergency fund can provide financial security when unexpected costs arise.
Tip: Start small. The easiest way to create an emergency fund is to take a windfall like a birthday check from Grandma and stash it in an emergency fund. You can also consider selling things you no longer use on Postmark, thredUP, eBay, or Amazon. Begin with at least $100 in your emergency fund and try to build up to at least $500. If you skip that latte every day for a month, you would have at least $90.00 in savings.
5. Skipping Financial Literacy Education
A survey by EVERFI found that only 34% of college students felt confident in their financial knowledge, while 43% reported feeling stressed about their finances. Neglecting financial literacy education is a common mistake among college students.
Tip: Take advantage of free financial literacy resources available through Our Money Matters. With everything from budgeting tools to loan calculators and resume and career tips, we can help you while you're in college and after you graduate.
Summary:
College is a time of personal and academic growth, but it can also be a period of financial vulnerability if you're not careful. Statistics show that it’s not uncommon to mismanage your finances while you’re a student. However, you can avoid that outcome by investing in your future and making your finances a priority. You won’t regret it.
For more tips on how to improve your financial future, sign up for free at Our Money Matters.
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