Financial literacy for college students

By Roshan Pourghasemi

Abstract

College students benefit from their long time horizon due to their youth, but starting early never hurt anybody. As a college student, you should aim to understand some of the financial aspects of our society like debt, credit, retirement, and budgeting. There are steps you can take for the long-term, like visualizing your financial goals, and steps you can take for the short-term, like getting a job on campus to pay for your expenses. College students have to balance having fun with their future goals, and basic financial literacy is the first step in that process.

One of my biggest gripes with most college’s curricula is the lack of emphasis placed on financial literacy. Especially for students who may come from financially unstable families, it can be extremely difficult to navigate the complicated world of personal finance. Still, it must be done, and there are steps you can take in college that will make you thank yourself in the future.

Key Takeaways

• Long-term steps college students can take are building their credit, finding out how much the larger purchases in their life will cost, and planning for retirement.

• Short-term steps college students can take are finding a source of income, saving, and investing their money.

• Your time horizon is long when you are long which allows you to invest in riskier investments.

• Since you have a long time horizon, you can weather the ups and downs of the markets easier.

• Some important financial topics to learn about when you are just starting out are budgeting, saving, debt, credit, and the workings of retirement.

Steps for the Long-Term

As a college student, you likely have not had much time to build credit. Credit is a large part of how banks and other financial institutions evaluate your likelihood to pay back your debts, so it is extremely important to start building your credit as early as possible. One easy way to do this is to register for a credit card. There are many great credit cards that were made specifically for college students, and they will give you an early start on building that ever important credit score. It is important to understand credit cards before signing up for one, so I recommend reading our article on credit cards first.

On top of credit, it is important to think about your long-term financial goals. Retirement and buying a home may seem far off in the future, but the earlier you begin thinking about these kinds of things the better off you will be. Using a retirement calculator will allow you to put in perspective what you’ll have to do to retire when you want. Also, writing down some of the costs of other big ticket items like weddings, homes, and cars will help you visualize what your financial goals are and how realistic they are. It is practically impossible to accurately calculate what the costs will end up being, but a rough estimate certainly won’t hurt.

You should also look for a balance between investing and saving your money. It is recommended to put more of an emphasis on saving until you have a relatively large amount of savings, as you likely have less money at this age. Still, investing what you can is another thing you’ll thank yourself for in the future. Especially since you are young and your time horizon is so long, you’ll likely be able to be relatively unaffected by the ups and downs of the market, and you’ll have set yourself up with a good habit and an early start to financial freedom.

Steps for the Short-Term

For many people, college was considered to be the best four years of their life. While the validity of this statement is a conversation for another day, there is no doubt that your time in college is precious and you should spend a significant portion of it having fun and making memories. It can be extremely difficult to find that balance between setting yourself up for the future and having fun, but it can be done.

The first step you’ll need to take is to find a source of income. Many college students work on campus jobs, but you could do just as well finding a job outside of your campus. If you’re looking for a campus job, most colleges have a portal of sorts with available opportunities. With off campus jobs, it won’t hurt to walk up and ask to speak to the manager about the opportunities for employment available.

After finding a source of income, you should calculate the cost of your current lifestyle. Consider costs like food, transportation, and the average expenses that come with having fun in college. Once you’ve calculated how much you spend, you should look at it through the lens of your paycheck. If you are bringing in more money than you spend, then you can easily continue your lifestyle and put the rest of your money towards savings or investing. If you are bringing in less money than you spend, then you have two options. You could either pick up more hours to make more money and allow you to save some of it or you could find ways to cut costs in your lifestyle. Honestly, neither of these are really attractive options, but I would recommend the latter. Time is one of the most valuable assets, especially in college, so you wouldn’t want to spend all your time at college just working. Some ways to cut costs are to eat out less or eat a little less when you go out, walking to places when you can, and taking advantage of community resources put in place to help you save.

First Steps to Financial Literacy

Let’s say that you just graduated high school and you have no financial knowledge. Luckily, Hoskin Capital has created a database of financial resources called the Knowledge Base! Shameless plug aside, there are some aspects of financial literacy that are more important to know than others for younger folks and I’ll be highlighting many of them.

• Making a Budget - the first thing you should understand is your budget. By putting how much money you earn and spend in perspective, it will make it easier for you to know how much money you can spend and how much each part of your lifestyle costs.

• Creating Savings - getting in the habit of saving is one of the most important habits to build while you are young. While it is recommended to create a six month emergency fund as you get older, saving as much as you practically can will be great when you are young.

• Retirement - retirement is just income replacement from your investments. From 401ks to Roth IRAs, understanding how retirement accounts work and the pros and cons of each will help you reach your retirement goals.

• Credit - like I mentioned earlier in the article, credit is extremely important to show your trustworthiness to lenders. Higher credit lowers your interest rates and can save you thousands in the long run.

• Debt - the world runs on debt. From student loans to mortgages, most of the large purchases in life will require you to go into debt. It’s important to understand how debt works before you take on some of your own, as you’ll know what a realistic amount of debt is and you’ll be available to avoid the common pitfalls associated with debt.

These are just the first steps that you should take on your journey to financial literacy. There are tons of other notable financial instruments and decisions you will need to make, and that will require more research. The Knowledge Base is a great resource at your disposal, and I would recommend reading as much of it as you can. Outside of that, the internet is full of other resources. There are many great videos on YouTube that dive deeply into financial topics and they would be great to watch, as well. Your financial journey is just beginning in college. While you have a lot of time left, starting now sets you up for success.