By Rodney Wilson, Student Success and Retention Analyst
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 in college.
Nellie Mae, a student loan company, reports that 78% of college students have at least one credit card. The average amount of credit card debt held by college graduates is $2,700. According to the National Center for Education Statistics, 65.6% of 4-year undergraduate students in 2007-2008 graduated with an average student loan debt of $23,186. The U.S. Secretary of Education released information in 2008 that more than 238,000 students defaulted on their student loans. With college student debt on the rise, it is important for students to have good financial information early in their college career.
Recently, Dr. Rinne Martin, ORU Finance Professor since 1977, shared tips on student financial planning. Dr. Martin, who holds a Ph.D. in Finance, is 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 on the “Owner.” The Bible has much to say about finances in the areas of giving, stewardship and how to avoid making money an idol. In the book of Mark, the rich young ruler’s refusal to give his possessions to the poor is an example of missing the mark in the area of finances. He did not understand the principle of giving. Encourage your student to study the Bible and know what it has to say about finances.
2. Do not blame lack of God’s provision for poor money managing.
In many cases, Christians mention they will pay their bills when “God provides.” Essentially, people are blaming God rather than themselves for poor money management. Many times when people have financial problems, it is not that God did not provide enough money; it is that the person did not know how and/or did not manage God’s money well enough.
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. Professor Martin says when he looks back at life’s crossroads, he could see the hand of God. 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 establish a good credit score. The second use of credit is to purchase a home. The third use of credit is to purchase your first vehicle. Students should pay cash when possible and not impulse purchase especially with credit cards.
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. This could be easily avoided. Give students the opportunity to establish good credit during their sophomore and junior years in college. One suggestion is perhaps 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” and 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 can make. 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.
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. Gasoline is a good example of a product with multiple taxes. A person can reduce taxes by utilizing savings or retirement plans like 401k 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.
