I had a great time at Paul Smith’s College (Paul Smiths, NY) earlier this week meeting with about 40 students to answer their questions about money. Thanks to President Dove, Jill Susice and Terry Lindsay for organizing the event and giving me a great opportunity to engage with your students. They were actively involved in the conversation and shared some great money management ideas that they are using in their lives.

Planning for this talk forced me to get to the essence of what I felt was most important when it comes to money management for a college student. Rather than talk at the students I wanted them to be involved too.  I eventually settled on setting up some pollinq questions on PollEverywhere with a few slides prepared also to make key points. In terms of topics to cover, I thought I would tackle budgets, saving and checking accounts, credit scores and credit reports, credit cards, investing and student loans. A lot to cover in 90 minutes but I only had one shot…I hoped for active student participation and I was not disappointed.

I started by asking students what they hoped to get out of the workshop to help me figure out where to focus my time. Here’s a smattering of what they wanted to know (via Poll Everywhere):

• How to save money
• Understanding different kinds of investments
• How to get a better credit score
• How to manage my wallet better
• How to afford the cost of education that I need for my future
• Student loan repayment (several asked about this)

Budgeting

CREATE SAVINGS GOALS TO ENCOURAGE YOUR BUDGETING. We started with budgeting and surprisingly 74% of students said they had budgeted at some point. As for what they spent money on, their spending matched closely what surveys have found about college students. Their top three spending categories are food, car-related and entertainment. When I asked students why they budget, they raised good points about how it helped them set saving goals and also where they were spending their money.

Savings and Checking Accounts

MAKE SAVINGS AUTOMATIC. An overwhelming majority of students in the audience have checking and savings accounts (78%). When I asked why they had both, a student discussed his strategy of taking a percentage of his paycheck and transferring it to his saving account and putting the rest in his checking account. BINGO! This provided a great opportunity to reiterate the importance of making saving automatic by splitting one’s paycheck between the two accounts.

SAVE AS MUCH AS YOU CAN. When I asked how much was the right amount to save, I got answers from 5-10% to 50%, which was a perfect set-up to say that “there is no right percentage,” but as college students to remember that every dollar saved is a dollar of debt that you won’t have. Another student introduced the concept of saving until you have three months of your paychecks saved. We then had a good discussion about the importance of an emergency savings account because “life happens.”

JUST SAY NO TO OVERDRAFT PROTECTION. Next it was on to overdraft protection. As with almost all consumers, there was some confusion amongst the students about this concept with 30% indicating that they didn’t know if they had it. I described what overdraft protection was by describing what happens if you have it AND what happens if you don’t. I then gave them an overdraft scenario and 74% were able to figure out that EACH transaction for an overdrawn account would result in a $30+ fee.

Credit Reports and Credit Scores

CHECK YOUR CREDIT REPORT AT ANNUALCREDITREPORT.COM. 67% of students indicated that they had never checked their credit report. When I asked them where they could check their credit reports for FREE, only 20% indicated the proper site. I encouraged each student to go home and check their reports on this website ASAP. Students seemed surprised by the number of parties aside from the obvious (lenders) who are interested in reviewing their credit report. They also seemed to take seriously the threat of identity theft as another reason to check your report.

• I wish I had a sample credit report to hand out or had shown them one on the screen.

PAYMENT HISTORY AND AMOUNT OF CREDIT ARE TWO MOST IMPORTANT FACTORS TO YOUR CREDIT SCORE. There are some great pie charts to show what the five factors are that go into a credit score. When I asked how many students had credit cards, only about 10% of students raised their hands. So then I asked the group, what are ways that you can establish a credit history?

HACKS TO BUILD UP YOUR CREDIT SCORE. One came directly from a student who said she paid the monthly interest on her student loan while in school (about $10/month) and how she was able to get a credit score of 700 in six months this way. Another hack that I discussed was to get a credit card (if you can be responsible with it) which would require a co-signer (better get ready to convince your parents) if you are under 21, and to charge a small amount every month and pay it off on time. I showed them a chart that displayed credit scores by age to show them that young people tend to start off with very low credit scores which is why these hacks are so important.

HAVING A LOW CREDIT SCORE WILL COST YOU. I demonstrated the example that a $20,000 car can cost $7,000 more if you have a low credit score vs. a high one.

Investing

I started by asking students what one word came to mind when they heard the word “investing.” Here is what they said: stocks, wise, confused, IRA, loss, risk, return, ROTH, savings. This provided me an opportunity to go into more depth about risk vs. return, the concept of loss aversion (we feel losses more intensely than gains) and the concept of a retirement account.

COMPOUND INTEREST IS YOUR FRIEND SO START INVESTING WHEN YOU ARE  YOUNG. Thankfully one student offered that his father had convinced him to set up a ROTH IRA using money he had earned in a summer job. I then went to a standard compound interest calculator, punched in $300 (he wasn’t sure how much was in his account so we went low), no additional investment and made assumptions about a stock market return (guesses ranged from 2% to 20%, I used 10%) and asked what people thought it would be worth in 50 years. The results shocked everyone (including me):

BE HAPPY WITH A MARKET RETURN. I quickly discussed 401(k) retirement plans and that almost all young people will be making investment decisions for their retirement (pensions are becoming rarer and rarer). I emphasized that they will be given way too many options in their 401(k) plans and should focus on index funds (I mentioned S&P500 as an example). I told them to be skeptical about all the “experts” saying how they could help them beat the market. I also emphasized that the markets returns can vary significantly and that if they are hesitant about the potential to “lose money,” that they should ease into the market with smaller investments at first before they got comfortable. Having money in a savings account earning 0.5% interest is actually losing you money given that the inflation rate of 2% means you are losing purchasing power.

Student Loans

At this point, I am running on fumes. I wish I had talked about this topic sooner since this is a topic that all students seemed very interested in. Here is where the students believed they would be with student debt upon graduation:

KNOW YOUR REPAYMENT AMOUNT. Next, I asked them to estimate what a student with $30,000 in debt (about average for college graduates these days) would be expected to pay using a standard 10 year repayment schedule at current interest rates. 62% got the correct answer of about $300/month. I then sent them to the student loan repayment site at the Dept. of Education and suggested that they estimate what their repayment will be upon graduation. I also emphasized that they would be selecting their repayment method and would need to start paying 6 months after they left school. Should they run into difficulties, I mentioned the best strategy was to reach out to their loan servicer and develop a plan to stay on track making payments using one of the myriad repayment options (including income-based repayment).

OTHER WAYS TO MINIMIZE YOUR STUDENT DEBT. Graduate in four years or less. Save more money from your summer jobs and jobs you hold during the school year (but don’t let work get in the way of your grades). Apply for scholarships.

Thanks again to Paul Smith’s College and for the students who made this such an enjoyable experience for me. I look forward to returning again soon!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.