Common Financial Mistakes Made By Students

03
May

Due to their youth and inexperience, many college students and other young adults make various financial mistakes which may seem inconsequential, but could end up hurting them significantly in the long run.  The main reason why students make so many financial mistakes is that they do not look at the big picture of their financial situation, which causes them to not fully understand the long term ramifications of their financial decisions.

The first common financial mistake made by students is that they rely too heavily on credit cards.  Many college students receive their first credit card while they are in school, and they have no idea how to use it properly.  Initially, the credit card feels like an unlimited source of money, and students tend to spend haphazardly.  Since many students do not have the money to pay off their credit card balance each month, their credit balance tends to grow exponentially because of the high interest rates.  Due to their reliance on credit cards, many students tend to accumulate a very high sum of credit card debt, which becomes a huge financial burden after they graduate.  Students also tend to spend money frivolously on small expenditures, such as eating out or buying music, which add up to high sums of money over time.

Another common financial mistake made by students is that they are poor at budgeting.  Many students have unique situations in which they are paid student loan proceeds only twice per year, but need to make the funds last the entire year.  Unfortunately, many students still have similar to adults and have monthly bills including rent, utilities, cell phones, and car insurance.  Since they have to account for many months worth of bills, without a consistent inflow of cash, many students are unable to stick to a budget and end up either relying on credit or running out of money.

The third common financial mistake made by students is that they do not work.  While getting through college comes with a lot of time constraints required for going to class and studying, most students could find some time to work a part-time job.  Most universities have a large job board that is filled with positions that are to be filled by students.  Even working 10 to 20 hours per week could have a drastic effect on a student’s financial well being.  Not only will a student have more money to pay their monthly bills, but they could also have some money saved when they graduate which could be used when they are in adulthood.

The fourth common financial mistake made by students is that they frequently do not keep an emergency fund.  While most students do not have nearly the same financial responsibilities as an adult, they would still benefit from having an emergency fund.  Even if the fund is only a couple thousand dollars, it would be helpful in the event that the student gets a flat tire, needs to purchase an expensive piece of equipment for class, or has to make an emergency trip home.  By not having an established emergency fund, a student is risking that they will have to rely on credit in the event that an emergency comes up.

The last common financial mistake made by students is that they do not save for retirement.  While retirement is the last thing on a student’s mind, it is something that should be planned for as early as possible.  Most college students are probably close to 50 years away from retiring.  Because of this, the small investments a student makes while in school will grow to a sizable amount by the time they retire.  Assuming an 8 percent interest rate, if a student invests even $100 per month for four years into an IRA while they are in school, the $4,800 investment will grow (tax free) to over $200,000 by the time they retire.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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