by Rodney Wilson and Victor Bustinza
College is a critical time for making wise financial decisions. Wrong decisions during
this period can leave students in an adverse financial situation. Their ability to
make future major purchases like a car or a home can be placed in jeopardy. Financial
awareness is the key to helping your student avoid the mistakes that are all too common
Sallie Mae, a student loan company, reported earlier this year that 30% of college students have at least one credit card. The average amount of credit card debt held by the students is $747. According to the Institute for College Access and Success, 66% of 4-year undergraduate students in 2011 graduated with an average student loan debt of $26,600. The Federal Reserve Bank of New York reported at the end of the 2nd quarter of 2013 a delinquency rate of 10.9% on student loans. With student debt on the rise, it is important for students to have good financial information early in their college career.
Recently, Dr. Rinne Martin, Oral Roberts University Finance Professor since 1977, shared tips on student financial planning. Dr. Martin holds a Ph.D. in Finance and is a pioneer in establishing the Personal Financial Planning course at ORU. He championed the establishment of a personal financial planning class as part of the curricular offerings because he knew the dire need for students to be competent financial managers. Here are some tips from Dr. Martin on how to help your student avoid common financial pitfalls.
1. Know what the Bible has to say about money and money management.
The way a person manages God’s money is a reflection of the “Owner.” The Bible has much to say about finances in the areas of giving, stewardship as well as how to avoid making money an idol. In the book of Mark, the rich young ruler’s reluctance to give his possessions to the poor is an example of missing the mark in the area of finances. The man did not understand the principle of submitting his riches to God. Encourage students to study the Bible and know what it has to say about finances.
2. Do not blame God for lack of provision when the problem is really poor money management.
In many cases, Christians mention they will pay their bills when “God provides.” Essentially, this is blaming God rather than themselves for poor money management. Often, people face financial problems not because God did not provide enough money, but because the person did not know how to and/or did not choose to manage God’s money well.
3. Understand the role of faith in financial planning.
Students should adhere to God’s direction regarding financial decisions. Encourage students to seek God’s direction during their planning process. Looking back into his life, Professor Martin says that he could see the hand of God helping him with his decisions. He understands there was no way that he would have made certain decisions on his own. Godly decisions will positively impact finances long term.
4. Know the appropriate use of credit.
There are really only three reasons to use credit. The first use of credit is to purchase a home. The second use of credit is to purchase a vehicle. The third use of credit is to borrow money to be invested (for example, educational loans). Students are investing their time and money in a college education. Using credit sparingly while on their road to graduation may be necessary.
5. Know the importance of your credit score.
Many students graduating from college either have bad credit or nonexistent credit, which equates to bad credit. Students with bad credit will pay higher interest rates on most loans, have higher insurance premiums, have more difficulty finding employment, and pay larger deposits for renting an apartment as well as for utilities. This could be easily avoided. Give students the opportunity to establish good credit during their sophomore and junior years in college. One suggestion is to advise the student to take out a small secured loan at a local lending institution. Timely repayment will assist the student in establishing good credit.
6. Know the difference between debt and credit.
It is not wrong for a person to use credit; it can be great tool. However, credit is what also gives a person access to debt. When borrowing money, a person should have the intent and ability to repay. School loans can be “good debt” if used as a tool to get a better education and corresponding financial benefits. Education can position a student to earn more money and improve his or her standard of living. However, using school loans to take a vacation during Spring Break, for example, is an abuse of borrowed money. High interest credit that cannot be paid in full each month should be discouraged. People should only use credit after a lot of thought and prayer.
7. Set financial goals.
Financial planning without financial goals is like taking a vacation with no road map and no destination in mind. Encourage your student to have a plan that includes the future, such as a description of his or her dream spouse. One’s marital choice is the biggest financial decision a student will have in their lifetime. Many people impulse purchase and marry someone who is financially incompatible. This decision can negatively impact their marriage and life. Students should also incorporate into their budget an estimate of their income and expenses upon graduation.
8. Understand the importance of healthy choices.
An individual will save an estimated $250,000 in a lifetime by exercising and receiving proper nutrition. The cost of poor lifestyle choices such as alcohol, gambling and other destructive habits can contribute to high medical bills, loss of time on the job, and large amounts of financial loss. The Oral Roberts University honor code encourages students to avoid destructive habits.
9. Be familiar with tax implications.
You do not have to be a tax expert to understand its implications. Our country’s tax structure is set up to tax multiple times on the same dollar. When people make money, they are taxed on the federal level, state level and for social security. When people spend money, they are taxed again for sales tax and corporate tax. Corporations pass tax expenditures along to the consumer in the form of higher product cost. A person can reduce taxes by utilizing savings or retirement plans like 401k/403b and/or an Individual Retirement Account (IRA).
10. Understand that good money management can be a good witness.
As Christians, we should excel in the area of money management. The Bible has so much to say regarding this subject. One good way of witnessing to people is by demonstrating that we are good money managers. Also, whenever possible, we should pass sound financial principles on to others.
Dr. Martin’s course, Personal Financial Planning, is offered each semester and is required for business majors. It may also be used to fulfill the distribution course requirement in certain majors. Any student, however, may take this course for general elective credit.
Sallie Mae, “How America Pays for College” (2013). , https://www.salliemae.com/assets/Core/how-America-pays/HowAmericaPays2013.pdf
Institute for College Access and Success “Student Debt and the Class of 2011” (2012), http://projectonstudentdebt.org/files/pub/classof2011.pdf
Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit”
Federal Reserve Bank Center for Microeconomic Data