By SARA CASLER
According to finaid.org, the median cumulative debt among graduating bachelor’s degree recipients at 4-year undergraduate schools was approximately $20,000 in the 2007-08 school year. The average high school student is under-informed about the benefits and implications of planning a balanced financialfuture. Here are the top four tips to help navigate this system of numbers.
Start small and skip the credit card
A credit card is not an all access pass to the epic man cave, so put it down. Credit cards are one of the most heavily abused forms of financing available. They are a valuable asset when used properly. The cost of items purchased with a credit card cost no more than they would at the initial time of purchase if the bill is paid on time. The problems arise when the bill is not.
Economics teacher Richard Houston believes purchases made on credit should not be made if the bill cannot be paid.
“[One of the dangers of credits cards is that] there is the feeling of a free lunch and consumption without payment. A lot of people think they can control their consumption and that it will never be a problem, but with a lot of people, it does. If you don’t have the discipline to pay 100 percent of the bill every single month, cut up the card,” Houston said.
Credit cards have interest rates upwards of 14 percent, depending on how many rewards points or frequent flyer miles the consumer thinks they “need.” So, if a purchase of $100 is made on a credit card with an interest rate of 16 percent, the bill, if untouched for approximately four months, would total approximately $180, almost double the original cost.
Credit card companies also like to lure unsuspecting students into gimmicks with “cool gear” like tees, coupons and most importantly, food. Do not fall for it; the free food only lasts as long as the meal, while the temptation to spend the entirety of a bank account lasts as long as the plastic does.
If the draw of having a high roller flashing plastic is too great, try a debit card or prepaid card. Those kinds of cards can be more easily managed because the amount one is able to spend is limited by the amount put into the linking account.
Make a budget
If a student working at minimum wage works a 40 hour work week, he makes, on average before taxes, $300 a week. If that money is spent in the first two days, that leaves 12 days without funds and an excessive amount of Ramen.
Calculus teacher and advocate for teenage financial planning Teresa Tachon believes that the issue most teenagers have is not purchasing what they need as independents, but unnecessary buying what they want.
“Teenagers need to understand the difference between “wants” and “needs.” Sometimes, teens tend to spend their money on what they think is important which may differ from what their parents [or financier] may think is important,” Tachon said.
To avoid the struggle to survive or the need to ask mommy and daddy for funding, set up a budget. Invest a small amount in a checkbook or notebook to track spending. Divide the money into quantities set aside for necessities, spending and saving. According to getrichslowly.com, a top financial advice blog, the preferred method of saving versus spending is called the Balanced Money Formula, which states that the key to success is spending 30 percent on wants, 50 percent on needs and putting 20 percent in a savings account. Although saving 20 percent is tough, it is a good plan to develop when finances are stable.
Take advantage of sales
At one point or another, every item on the market goes on sale because of excess supply. This is prime time to purchase what is needed. Textbooks go on sale at the end of every year because most students no longer need them. Food items go on sale to increase total sales for a store.
Stores publish a listing of all items available for less. When those are published, grab a copy. Not only are there listings, but normally coupons. Also, buying in bulk is cheaper, but only if the stock purchased gets used.
Warning! Sales are not a reason to go on a shopping spree. Debate whether the item is needed before buying or if it would just be an impulse buy because of the cost.
Accumulate credit
Odds are, a part of the readership is stuck scratching one’s heads in confusion. A high school kid needing credit? Why? What is the point? What is it, any ways?
A credit score is a numerical value designed to predict risk and more specifically, the likelihood that the borrower will become seriously delinquent on credit obligations after a 24-month period. In laymen’s terms, the higher the number, the more likely the one being scored will repay loans and make good on obligations.
A prime example of a location where the credit score is vital is purchasing or leasing a car.
Every car salesman not only takes into account the size of the down payment on the vehicle but how well the buyer has been in the past with repaying debts and loans.
If one’s credit is low, then the odds of receiving a financing plan are low; the car dealership is not interested in getting ripped off or cheated.
To build credit, start with small loans and purchases that
can easily be paid back on time. Avoid overstepping the boundaries of income, and try to keep some money in reserve in case of emergency purchases on credit so that a high credit score can be maintained.
//