Students heading to college this fall will have many things to focus on – from classes to social life and everything in between. One thing that should be on their mind (but often is not) is financial health and wellness.
Here are some things financial aid directors need to understand about college students, where their biggest financial problems lie, and the best ways to help them develop strong personal finance habits.
1. Not Knowing Wants From Needs
Many college students have little, if any, financial experience, especially if they are coming to campus immediately following high school. Because of this, they often do not know the difference between what they need and what they want.
Add to this the presence of peer pressure, where friends suggest items or activities beyond a student’s budget, and you can easily see a student buying impulsively and spending beyond their means.
According to an ecampus.com study1, college students spend $27 billion yearly on non-essential items, which are classified as anything beyond room, board, tuition, books, and school supplies.
Another survey by Study Breaks College Media2 found that students spent their non-essential money on restaurants, beauty, fashion, electronics, live music, media, and fitness.
They also learned that college students spend $5.5 billion a year on alcohol and $1 billion on snacks and drinks.
A Financial Aid Director Response:
Help students learn the difference between wants and needs by helping students:
- Create their own definition of wants and needs
- Write down a list of needs and wants based on their definition
- Refine the list by getting rid of items on the need list that are too frivolous or prioritizing items that are necessities
- Track their current spending to see where their money is going
- Create a budget based on their needs first and any remaining money on wants
2. Using Credit Cards Inappropriately
When students head to college, credit card companies start sending out credit card applications enticing students with fun sign-on gifts, great benefits, and the idea that they need to begin using credit now to obtain a strong credit score for later.
Unfortunately, many students do not know how to wisely use credit cards and find themselves in debt by the time they graduate.
According to many surveys, credit cards are used by some students as a money source. According to a TransUnion report3, GenZ’ers have an average credit card balance of over $1600, and according to the Money Matters survey4, only half of students pay their credit card balance in full each month.
This leads to even high balances and a lower credit rating.
A Financial Aid Director Response:
Getting a credit card is not necessarily a bad thing, as long as students know how to use them correctly. Financial aid directors can help students:
- Determine if having a credit card makes sense for their situation
- Set credit card spending limits
- Understand the need to pay balances in full each month
- Realize that their credit management now affects their credit score later and how poor credit scores will affect future decisions
- Choose the right credit card based on the fine print
3. Not Having a Budget
The only way a student can accurately determine if they have enough money for the things they need and want is to create a budget.
Having a budget will let students determine how much money is coming in, how much is needed for essentials, and how much is left over for wants. A budget can also help students determine where to cut back if money is tight.
Additionally, students can use a budget to help them set financial goals.
Perhaps they want to study abroad for a semester or have the ability to quit their part-time job during their last year of college. Maybe they want a small nest egg to start their own business when they graduate, or they want to have an emergency fund for unexpected expenses.
Whatever the goal, setting a budget will help them achieve it. However, AICPA found that only two out of five students follow a budget5.
A Financial Aid Director Response:
The best way for students to spend within their means and meet financial goals is to set up a budget. Financial aid directors can help students to:
- Know their numbers including income, fixed expenses, variable expenses, debt reduction, and savings.
- Write down a budget based on their numbers. This can be as simple as writing down figures in a notebook, but generally speaking, using an interactive budgeting tool, like the one found in iGrad, can help students easily set up and follow a budget.
- Regularly monitor their income and expenses, to adjust the budget as needed
- Find ways to cut back on spending and increase savings
- Open up individual accounts for checking and savings
4. Abusing Student Loans
A majority of students do not understand student loans.
In fact, a College Ave Student Loans survey6 found that only 37% of students understand the terms of their loan, and 7 out of 10 don’t know what their loan payment will be.
To make matters worse, half of student loan borrowers don’t believe they will be able to repay their loans after graduating.
Additionally, many students are unaware that they are not required to take the full loan amount offered to them.
If their loan amount is more than they need, some students use this extra money to purchase wants rather than needs. This leads to large amounts of student loan debt that could have been avoided.
A Financial Aid Director Response:
To help students use student loans correctly, financial aid directors can help students:
- Understand how and when student loans will be repaid
- Learn how to best use student loan money not needed for tuition and provided as a “refund check”
- Realize refund checks are to be used for an entire semester of needs
- Determine how much student aid they need and what are the best ways to get that aid
iGrad’s student financial wellness program offers students several tools that help students understand their student loans and keep track of what they owe and how much their payments will be after graduation.
5. Not Saving Money
Students should start the habit of saving a portion of their income as early in life as possible, yet many students do not think to save money while in college.
In fact, most students have no emergency savings, and according to The Student Financial Wellness Survey7, 63% would be unable to pay for an unexpected $500 expense.
Students who find themselves in a financial bind often reduce their class load or drop out of school. Those who remain in class state that they do not spend as much time trying to make good grades because they are too focused on their financial difficulties.
A Financial Aid Director Response:
Financial aid directors can help students learn the right savings habits by:
- Showing students the advantages of saving money
- Explaining the effects of compounding interest
- Providing details on opening savings accounts
- Showing the positive outcomes of having an emergency savings account
6. Not Getting Help From Reliable Sources
A recent RIA study8 showed that students want more financial education but don’t know where to get it.
In fact, young people look to their parents who may not understand financial concepts (especially things like college financial aid) and social media where information may not be accurate.
Another problem students face is the fear of asking questions and looking stupid. That has left many pretending to know what is going on and just winging it.
In fact, the RIA survey found that about 40% of students will pretend they know what they are doing even if they have no idea. This often leads to poor decision-making when it comes to personal finances.
A Financial Aid Director Response:
The best thing a financial aid director can do to help students is to be sure they have accurate resources when looking for financial information:
- Dedicated website page for financial information
- Resource page
- Peer-to-peer counseling
- Financial wellness programs like iGrad
To see examples of how iGrad can help you provide your students with the information, tools, and resources necessary to develop strong financial habits, see how four different universities are successfully using it to tackle financial wellness.
1 - https://www.blackenterprise.com/infographic-where-college-students-spend-money/
2 - https://www.prweb.com/releases/studybreaks-college-media/college-student-spending/prweb11994508.htm
3 - https://content.transunion.com/v/q2-2021-credit-industry-insights-report-summary
4 - https://everfi.com/white-papers/financial-education/money-matters-report-19/
5 - https://www.journalofaccountancy.com/news/2015/sep/financial-literacy-skills-201512981.html
6 - https://www.collegeavestudentloans.com/press/college-ave-student-loans-survey-finds-only-half-of-college-students-that-borrow-student-loans-feel-confident-they-can-repay/
7 - https://www.trelliscompany.org/wp-content/uploads/2019/06/Fall-2018-SFWS-Report.pdf
8 - https://blog.riamoneytransfer.com/en/financial-literacy-personal-finance-survey/
