Finance 101: Avoid These 4 College Money Mistakes

by Emily Guy Birken · 6 comments

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?

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  • lana says:

    Our family never saved for college. We figured we would help our kids make right decisions and help them out financially while they did most of the heavy lifting when it came to paying for college.

    Both our children received scholarships. One was almost completely paid for.
    They went to local universities. So one lived at home for two years and we helped with rent the other two years. We also paid for gas, car maintenance, insurance, books, lunches etc.

    The other child has a scholarship that pays half the tuition. He pays half of the left over and we pay the other half plus all the aforementioned miscellaneous expenses.

    The oldest just graduated magna and now is in graduate school fully paid for and the youngest will be living at home studying this year.

    My husband and I put ourselves through college and graduated with no debt. It was extremely stressful. We did not want that for our kids.

    The one thing I didn’t account for was all the extraneous expenses. Parking, textbooks, summer school when desired etc. It all adds up.

    If I could do it again, I would have saved. (We didn’t because we had planned on living in England for my husband’s job.)

    • David @ says:

      Good kids lana! I hope my little ones will earn some type of merit based scholarship because colleges will be very expensive by then!

  • Jon @ Money Smart Guides says:

    I knew some students in college that took the “extra” they received from their student loans and invested the money. At the time, the risk paid off as we were in the bull market of the 1990’s. But, it is a very risky choice. I’d much rather not take the extra debt in the first place.

    • David @ says:

      That is risky, especially at such a young age because many people would just spend the excess returns, negating the benefit of winning the “bet”.

  • Cat@BudgetBlonde says:

    Ugh I so overused student loans and am paying for it now. Good advice!

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