FUCHS: Financial literacy is far too uncommon among college students
Column: Questioning Jules
One of the most common things among all people I have met in college is a lack of financial literacy. I am not saying that I am perfect and have never had periods of bad spending habits, but there is a universal issue among all college students regarding understanding the value of their money and how to use it wisely. There are several aspects of credit and finances that are important for all college students to understand.
But a lot of students financially struggle due to a lack of this knowledge, both during and after college years.
One thing I know for a fact is that most people in college either do not have or do not have great credit. Credit cards are a very slippery slope and it is very important to be safe with spending on them. If one is not careful with how credit cards are used, there can be piles of debt that keep growing and are difficult to pay off.
Although somewhat harmful, they are also a great way to build your credit score and are an important part of financial planning. I know several people who either do not have their own credit cards or have maxed out a credit card. This is potentially the result of students not wanting to take out their own credit cards at this stage in their life, or perhaps they have credit cards that their parents financially back up for them.
No matter the situation, good knowledge on credit is so important for setting up a student’s life after graduation. Building credit at a young age will help to teach the basics of credit before any huge potential mistakes can come out. A good place to start is a credit card with a very low limit, maybe $1,000 maximum. It is important to remember to always only charge what you can pay off immediately and to never charge too much to the card.
Not only does building credit help students to learn financial literacy and understand credit, but also it increases their chances of success after graduation. Good and established credit will help students to be able to buy cars, rent apartments and take out potential bigger loans for living expenses later on in life.
Without any credit, renters will not consider leasing to someone as there is no record of how well they pay off debt or an idea of how financially stable they are.
Credit does not only concern cards though. A lot of students do not understand how much of their life relates to credit. Student loans are one of the biggest dips in credit that a lot of students experience. Whether you need a big loan of $25,000 to afford a semester of college or a smaller loan of $5,000, it adds up.
Part of this process includes a hard inquiry of credit, which can also impact your credit score. A hard inquiry involves someone like a bank or financial institution checking your credit information before determining the status of a loan. These inquiries imply uncertainty in your credit and will show up on your credit report and lower your credit score by a few points.
Credit can be extremely difficult to understand and manage. In a lot of cases, people become too nervous by the fact that they or their children might have bad spending habits to begin to establish credit. Despite this difficulty, building credit while in college will only benefit students by teaching them debt management and self-control.
Everyone has that story of when they spent too much money on their credit card, or were low on income and needed to make a payment for something big like school on their credit card. The ability to pay off bigger debts in smaller increments helps people understand budgeting and frugality, as every month you need to have money to pay your credit card bills.
Debt is extremely stressful and can set people back for many years in their endeavors. But, it is a fact of life and one that is important to understand. While the system puts a lot of people at disadvantage, it is important to understand it and know how to look out for yourself.
Way too many college students go through their four years having no concept of money. A lot of times this is due to heavy financial control from parents or other influences. It is important for college students concerning their future to learn the value of money, hard work and good standing credit.
Julia Fuchs is a School of Arts and Sciences senior majoring in history and anthropology and minoring in French and archaeology. Her column, "Questioning Jules," runs on alternate Wednesdays.
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