If you’re a new college student, moving into the dorm probably marks the first time you’ll truly feel like an adult.
Unfortunately, this is also a time rife with bad financial decisions.
Even if you’re just the parent of a college student, it’s good to know common ways they stumble financially — so you can help prevent unnecessary financial hardship.
Here are four of the most common money mistakes college students make, along with my tips on avoiding them:
1. Overusing student loans
While the money received through student loans is supposed to be for the direct costs of your education, many students stretch the definition.
For instance, some students use portions of their student loan money to buy a new car or pay for off-campus housing — when public transportation and the dorm would both do just fine. While the terms for student loans are favorable, that hardly makes the money free, and you’ll be in real trouble if you can’t pay back your loans after graduation.
A better plan is to figure out exactly how much you could afford if there were no loans available. Then, borrow no more than the difference between your budget and the real cost.
2. Signing up for unnecessary credit cards
I went to college in the bad old days when credit card companies were still allowed to set up shop on campus and offer freebies like t-shirts to students in exchange for signing up. While the 2009 CARD Act was supposed to end those kinds of predatory practices and restrict credit cards to those 21 and over, there are still plenty of ways for a shady credit card company and a minor college student to find each other.
Unfortunately, the majority of college students are not yet ready for the responsibility of a credit card. 40% of students have charged items knowing they don’t have the funds to pay the bill, and 60% of students have experienced surprise at seeing how high their balance has become. Until you’ve learned the basics of budgeting — and the difference between wants and needs — it’s best to avoid credit cards altogether.
3. Spending with impunity
The new freedom many students feel at being on their own can translate into poor spending habits. Many young adults will find they’ve spent all the money they need for the semester within the first few weeks of school. It’s very difficult to say no to fun things like going out to eat with new friends and decorating your dorm room.
You need to have the intrinsic motivation to save money, or else you’ll be calling the Bank of Mom and Dad over and over again. One good way to insure this is to get a part-time job on campus, which will help you take ownership of your finances.
4. Not protecting your financial information
Millennials have grown up with technology, meaning they’re much more comfortable with everything from social media to smartphones. Unfortunately, that comfort often translates to a relaxed attitude toward sensitive information. Nearly a third of all identity theft happens to people between the ages of 18 and 29, partially because this demographic is more willing to trust others (like unreliable roommates) with sensitive information — or they think nothing of checking financial information on public computers.
You need to take precautions to protect your identity. It’s also a good idea to get in the habit of checking your credit report at least once a year. If you establish that habit now, it’ll become automatic as you build your career.
How are you planning on avoiding money mistakes at college? If you’re a parent, what other advice do you have?