In June of this year, CNBC reported that “36% of U.S. college students say they already have more than $1,000 in credit card debt.” For those of you who remember your SAT conversions, that’s over a third of all American students.
One cause for this startling fact may be that few educators are bothering to prepare future collegians to assume fiscal responsibility. In an article for Forbes, Mark Avallone reveals that “only 17 states require that high school students take a course in personal finance.”
Debt in itself is not necessarily a bad thing. The financial community has long distinguished between bad and good debt. Good debt can help you get an education, a house, your first car. Bad debt tends to finance designer wardrobes, jet skis, and Mardi Gras weekends for those who have no realistic way to pay off these bills. Jane Hodges puts it succinctly in her blog 10 Lessons in Financial Literacy All College Students Should Learn: “Not all debt is bad—managing debt badly is bad.”
What can you do to avoid becoming a “bad debt” statistic? Learning (and practicing!) sound money management is the first step.
Below are a few suggestions:
- Actively Budget. To be honest, this is an area some adults have trouble with, too. Students would do well to remember Charles Dickens’ Micawber Principle: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery." In other words, if your income is exceeded by your spending you’ve got problems. The best way to balance your budget is to keep track of your spending. This can involve a spreadsheet, an app, or an old-fashioned notepad. Record everything: avoid the temptation to decide that “this purchase doesn’t count.” Everything counts.
- Sidestep Credit Card Pitfalls. Avallone offers this advice to families: “If the credit card mailers addressed to your teenager haven’t started to inundate your mailbox, just wait.” Make sure you are armed with enough information to choose wisely. Do you understand the disadvantages of making only minimum payments? Are you aware that making a late payment can result in a higher interest rate? Know the terms of your agreement before you sign up for that card.
- Build Your Personal Credit Score. Students who refuse to consider any type of credit may be throwing the baby out with the bathwater. You need to establish that you can handle debt responsibly before you enter adult life. That can’t be done if you never borrow anything! If you are apprehensive about your ability to borrow maturely, there are resources to help. Google! U.S. News has an excellent article by Beverly Harzog entitled, 5 Mistakes College Students Make With Credit Cards. Scholarship America offers Five Financial Literacy Month Tools for College Students (five seems to be a popular number). Harvard University posts guides for budgeting, credit, and taxes, among other things.
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