The coronavirus pandemic has disrupted the personal savings and spending habits of millions of Americans. A survey by Charles Schwab found that 53% of Americans were financially impacted by the pandemic.
Now, as America’s economy recovers from lockdowns, it’s time for Americans of all ages to find their financial footing again. But for the young people heading back to college, sound strategies for money management still may be an enigma.
Jamie Gayton is executive vice president of member operations and global fixed assets at PenFed Credit Union. He’s also a teacher and mentor in personal finances for families and young people. He wants everyone to know that building for their financial future has to start early, and it’s easy to begin.
“I’ve spent thirty years teaching high school graduates, West Point Cadets and military families how to take control of their finances,” Gayton said. “That means I’ve seen first-hand just how many young college kids aren’t equipped with the education they need to build their financial future. But there are easy ways to get started ー even during a pandemic.”
Making the right financial decisions at a young age can forever change your future. With that in mind, here are Gayton’s four finance tips to help college students and young adults stand out from the pack and get on the right track financially.
1. Choose the financial institution that makes the most sense long-term, not for just right now.
All college students should have their own checking and savings account in their own name — especially if they’re living at home. But with so many financial institutions to choose from, how can you know you’re making the right choice when selecting your financial service provider?
You may be inclined to choose the financial institution closest to you. But while that may make things easier in the short-term, proximity is not the most important factor in the long run.
“Most financial institutions today offer digital services, including fully remote banking,” Gayton said. “What you should really be looking for are great rates, low fees and superior service.”
If you’re like most Americans, you probably assume that means going with one of the “big name” banks. You’d be mistaken.
Remember: You are looking for a financial institution that can support all your financial needs for years to come and not just provide immediate convenience. Even if you’re traveling far away from home for college, don’t feel like you have to use a big bank just because they’ll have a branch near you. Hunt for the financial institution that will serve you best.
2. Start building credit early.
Your credit score is your financial report card for life. Many college students make the mistake of waiting too long to get started on building their credit. If you start early, you can enter adulthood with a credit score that helps, rather than hinders, you.
“I’m a big proponent of the power and value of credit and debit cards,” Gayton said. “If you can be responsible with a credit card, you can minimize the need for cash, earn rewards, consolidate payments on a single card and build your credit score all at once.”
That said, it’s crucially important to avoid the most common pitfalls: spending more than you can pay off each month, paying back interest charges and hurting your credit score by missing payments.
3. Create a budget.
Most people — even adults who’ve been working for years — tend to overestimate their income and underestimate how much they’re going to spend. There’s no better way to combat that natural tendency than to make a budget.
“The budgeting process can be a powerful tool to help you understand that every expense is a choice, and every choice adds up,” Gayton said. “When I was teaching at West Point, I would show the cadets the tradeoff between buying one pizza a week for four years at West Point versus the compounded returns of the ‘pizzas’ if they had invested that money into a mutual fund. The result was over $100,000 in missed income!”
4. Be open about your own finances.
It’s often difficult for young people and parents to be open with each other about their finances. But if you set aside some time to discuss your financial worries and hopes with your family or trusted adults, you can better identify your needs, learn valuable advice and carve out a path toward your best financial future.
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