YOUR MONEY: College bound? Don't fall into these money trapsThe school of financial hard knocks is in session for college-bound freshmen, living on their own for the first time.
By: Diane C. Lade, Sun-Sentinel
FORT LAUDERDALE, Fla. — The school of financial hard knocks is in session for college-bound freshmen, living on their own for the first time. Among the lessons they will learn:
—The new credit card they signed up for to get that great T-shirt also comes with a 21 percent interest rate.
—Pizza doesn't qualify as an emergency expenditure.
—Paying your bills late today means you may not be able to rent a good apartment tomorrow.
"The problems young people have with money usually start with (the student) wanting too much and not paying close enough attention," said Dr. Doug Emery, chairman of the Finance Department at the University of Miami.
Parents should talk with their children about managing money long before they head off to the ivy halls. But what Emery hopes is once the kids arrive there, "Mom and dad can give them enough leeway to learn from their mistakes but not enough rope to hang themselves."
Here's a short course, from the experts, on common fiscal mistakes college students make and how to avoid them. And study up, parents: These tips aren't just for kids.
1. Getting the credit card with the neatest swag. The majority of Florida college campuses restrict credit card vendors' access to students a study, according to a study released in June, by Florida Chief Financial Officer Alex Sink and the state's Financial Literacy Council.
The bad news: Students are going to be bombarded with offers anyway, some offering free stuff as bait.
Don't bite. Instead, go online to research cards with the best rates and terms at independent sites like bankrate.com or cardratings.com. And get only one card, to use preferably for emergencies.
2. Forgetting that charging is the same as spending cash. It's easy to lose track of credit card expenses because you don't see the dollar bills leaving your wallet, Emery said. So get in the habit of using cash or a debit card for most daily expenses and paying off your one card every month.
3. Not making a budget. Not knowing how much you need every month to cover your costs is a sure way to get in trouble, said Terry Seaton, a St. Augustine accountant who heads the financial literacy committee for the Florida Institute of Certified Public Accountants.
Make out a budget and stick to it. Go back to the allowance system you may have had as a kid, asking your parents to send you a certain amount monthly. When it's gone, it's gone.
4. Not asking mom and dad for a free loan. Students often turn to their credit cards or high-interest loans if they have a necessary but big-ticket expense. That means you'll be paying off that debt plus your student loans when you graduate. Instead, Emery suggests getting a loan from your parents, but one that includes interest and a written payback agreement.
5. Keeping a car on campus. It may seem like that $8,000 used car fits into your budget. But Emery said teens may forget to factor in insurance, maintenance, gas and parking fees — easily running up to $250, $300 a month. Plus then everyone else wants you to drive — to the party, the library, the supermarket. Ditch the car, take the bus, save the money.
6. Not monitoring your credit report and score. Late payments and closed accounts can stay on your credit report for up to seven years and affect your score. Which might not seem like a big deal — except that your credit score may affect your ability to get a good loan, rent an apartment or even get a job, as more employers are checking reports.
Nina Banister, spokeswoman for the Florida Department of Financial Services, suggests checking your score regularly with all three major credit reporting agencies and immediately correcting any deficiencies. You can get one free report a year, courtesy of the federal government, at www.AnnualCreditReport.com.
7. Not having insurance. You know you need to insure your car. But what about your stuff? Check to see if you are covered under your parent's homeowner's policy if you live in a dorm.
But if you are crashing off campus, you probably should get a renter's policy. See if your family's insurance carrier will sell you one. Seaton even has seen coverage just for laptops; one policy he noticed would insure a $1,000 laptop for three years for $75.
8. Not developing good fiscal habits. Properly handling money is like getting enough exercise or eating right, Emery says: It takes discipline but once you get into the habit, it becomes routine. Start your fiscal workout this semester.