I was recently asked by a national newspaper if I could give some quick student finance advice for those heading to university. Below is a roundup of my tips, and if you have any others you would like to add then please add them via the comments box at the bottom of this article.
What money lessons students can learn before heading off to university?
First of all they need to really understand the value of money, and by that I don't mean how much an iphone costs. Most youngsters have never had to do the weekly food shop so don't know how much things cost. I was no different when I first attended university back in the 1990s. Parents should let their soon-to-be-students do the household food shop a few times before they head of to University. They'll soon learn an important lesson of how far money really goes.
Only once they've done the above can they learn their second lesson - How to budget. In reality most students have never had to run their own finances before. Making sure they have enough money to eat is their first concern. Then they can learn to budget for everything else. It's amazing how quickly you learn to economise and cut your food bill when it means the difference between going out with your new University friends or not.
But the problem with a lot of student finances is that the money coming in via student loans etc does not match the timings of their outgoings. By that I mean that any grants or loans are often paid periodically while student spending is often weekly (food bill or rent).
So students need to appreciate the value of budgeting into the future.
What advice would you give students to help them keep free of money worries?
Don't take on debt needlessly. When you start university you'll be amazed at the availability of credit (overdrafts and the like). The reality is that this money has to be paid back with interest. So it might seem a good idea to kit your room out with the latest technology but in reality you will regret it in the long term.
Also budget weekly. You'll be surprised at the number of students who blow all their money by the end of the first term to then vent their frustrations at being poor come the end of the second term. Budgeting weekly simply means that you can spread out your fun (spending money on socialising) across the year.
Also shop around. If you are buying food look for the deals and freeze food. Also think about cooking with fellow residents to cut both costs and the amount of time you spend cooking. Only eat out on special occasions and try to make a packed lunch if you can.
Walk instead of taking public transport if you can, as you will save a fortune and buy a travel mug and make your coffee at home. Plus look out for student discounts in shops and bars, especially if your university is in a city.
What are the most common financial mistakes students make when living away for the first time?
- Not budgeting
- Not keeping track of their spending
- Taking on unnecessary debt and then defaulting on repayments. Many students are not used to a world of direct debits and credit card repayments. The problems arise when they take on debt but miss a monthly repayment. This will affect their credit score which, although they might not care about it now, they probably will when they try and apply for a mortgage or loan when they leave university and it presents a problem.
Banks use honey trap tactics
Students need to realise that the banks give you all those student account freebies and overdrafts not because they like you! They do it as a honey trap.
Statistics show that most people take out their first mortgage with their existing bank rather than shop around. So while they may give you credit now they are playing a waiting game in the hope that you will have a high paying graduate job one day and need a mortgage to buy a nice expensive house. That's when they get their payback as in all likelihood you will turn to them for a mortgage rather than shopping around.