By Clare Morgan
nFinanSe Inc.
As posted on The Huffington Post
As National Financial Literacy Month comes to a close, young adults remain vulnerable to the traps of poor financial management in record numbers with 45 percent of college students with more than $3,000 in credit card debt.
The number of college students who drop out due to financial pressure is at 8.5 percent and continues to soar. People in the 18 to 24 age bracket spend nearly 30 percent of their monthly income just on debt repayment as a result of living beyond their means – double the percentage spent in 1992.
Some know better and get into trouble anyway because they’re immature and used to having adults bail them out. But, many simply don’t understand the basics and spiral out of control financially before they realize the long-term damage they’re doing to their lives.
Sixty-five percent of college students tested on basic personal finance principals failed, according to a recent study by the Jump$tart Coalition for Personal Financial Literacy which has been promoting April as financial literacy month since 2000. Congress added it endorsement three years later and officially named the month National Financial Literacy Month in 2004.
The following tips will help students better understand how to manage their finances:
- Create a budget. It’s surprising that so few students – and adults – don’t know their total monthly expenses. In fact, only 39 percent of Americans have and follow a budget. Making a budget – a list of all expenses, including rent, utilities, books, auto insurance, etc., offset by income – lets people know what the shortfall might be and allows them to take action.
- Live within your means. The concept of supply and demand isn’t complicated – it means living off what’s in your wallet. However, more than 40 percent of Americans today live beyond their means, and on average, 32 percent of students graduate from college with four or more credit cards. Reloadable prepaid cards help young adults learn how to live within their means, as the money they load onto the card is all they have available to spend. Prepaid cards can be used like any credit or debit card but don’t require having a bank account, they’re inexpensive and they eliminate the possibilities of overspending, falling into debt and potentially having to drop out of school.
- Choose wisely by applying a cost/benefit analysis to everyday decisions. It may make you popular to buy all your friends pizza one night, but does that benefit outweigh your need for groceries that week?
College students are not the only ones at fault. In addition to being poor at budgeting, the average household carries approximately $12,000 in total revolving debt that zaps spending power as interest and fees eat up a large portion of monthly paychecks. That’s a trend we don’t need to see the next generation of wage earners continue.
Although it’s true plastic is required in today’s world for in-store and online electronic payments, there are newer and smarter options that don’t let college students – or anyone else – spend money they don’t have. National Financial Literacy Month is a good time to access our understanding of our own personal spending and move to more rational behavior each month moving forward. It’s the only way we can all change and arm students with the facts so that they can stay in school and become wise stewards of their financial future.
Morgan is vice president of nFinanSe, a financial services company and provider of stored value and prepaid card solutions headquartered in Tampa, Fla.
