As post-secondary students head back to school, they have a lot on their minds: sorting out class schedules, joining school clubs, meeting new friends and for many that means living away from home, alone for the first time. Most students also become preoccupied with money.
Students continue to say that one of the most difficult transitions from high school to college, university or trade school is managing their personal finances. It’s confusing for them.
Our high schools are doing a good job of preparing students for post-secondary education success, but they are not teaching students enough about financial literacy and how to manage their money well. This causes stress for many students…and their parents when the kids call to say they’re short on money!
We answer some common student questions, from budgeting to the pros and cons of student credit cards.
How can students get off to a good start financially?
It’s no different from what adults should be doing: budgeting. Budgeting means understanding how much money an individual receives each month and how much (and where) that money needs to go. We find that students are more successful in managing their finances if they budget in two separate compartments. A bucket is for big expenses such as tuition, room/board, and textbooks. For example, tuition, residence, and textbooks are usually paid in a lump sum each semester. If a student lives off-campus, rent payments are usually paid with post-dated checks or a monthly EFT transfer.
The second bucket is for the student’s spending money for the year. It’s easier to manage if it’s in a separate bank account.
To help keep the expense account within budget, the student should take the total expenses they have for the year and divide it by the number of weeks in the school year. This will help establish a weekly spending limit.
For example, there are usually about 15 weeks in each semester, so 30 weeks combined for the fall and winter semesters. If the student has $2,000 in spending money for the school year, divide the $2,000 by 30 weeks, to show that the weekly spending budget is $66 per week. Keeping it in a separate bank account from larger items will make it easier to stay on track.
How can students make sure their money lasts?
If you’re short on money, some students accept part-time work while studying, but make sure it doesn’t interfere with your studies.
Many scholarships and grants are available and it costs nothing to apply. Look for grant applications on high school and college websites, your parents’ workplace, and other clubs, associations, and community organizations where you live. Also be sure to take advantage of student discounts.
Another tip is to identify “must haves” versus “nice to haves”. A $10 trip to your favorite cafe a few times a week adds up quickly. You can save money by making your own coffee and taking it with you. You should also consider buying used textbooks or even sharing them with a classmate in the same course. Look for cheap or free social activities on campus rather than off campus, as this can be an expensive type of entertainment.
If you have a school meal plan, take advantage of it and don’t waste your limited weekly spending money on fast food or other restaurants or food delivery services. A recent study by Forbes showed that eating out can cost five times more than preparing the same meal at home!
Should students have a credit card or does it often cause them financial problems?
Both! A credit card is ideal for a student to improve their credit rating, earn useful reward points, and pay for emergencies. Building a credit history is important for life after graduation, when you need to rent an apartment, buy a car, etc.
But use the credit card as if it were part of your weekly spending allowance. For example, if you have $66 a week in spending money and you charge your credit card $120 for a purchase, you’ve just used up two weeks of your expense allowance! How are you going to make up for this?
When using your credit card, make sure you pay your bill in full when you get your monthly statement, or you’ll end up creating debt and paying interest that will cost you a lot more in the long run.
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