Saturday July 28, 2012
Financial mistakes students make
By EUGENE MAHALINGAM
Lack of experience can lead to poor cash management
LEAVING school life and entering college, or even a university, is a big step for everyone. In a sense, it's a period where most youngsters will start managing their finances for the first time in their lives, such as tuition fees, bills, rent or other personal expenses.
However, the lack of experience can lead to poor cash management and bad financial-making decisions. The following are some of money mistakes college or university students make.
Not knowing how to budget
Rajan, 25, recalls entering college for the first time seven years ago and not knowing how to budget his spending wisely.
“I was given a decent allowance for the first time in my life, compared to what I was getting in school,” he quips.
In college, whenever I ran out of money, my parents would continue providing me with cash and I spent my allowance in a very care-free manner.”
Rajan says his father, who was the main breadwinner in the family, was then retrenched when Rajan was in the second year at college.
After that, managing money, Rajan says, became “quite tough.”
“At that point, I learnt the true value of money and how important it was to budget my money wisely.”
“They should read up on issues relating to personal finance to build up their knowledge,” he tells StarBizWeek.
Another good way to do this is to attend seminars or talks on personal finance, Foo advises.
“Try to attend seminars on personal finance. It would be even better if the college you attend organises such talks,” he says, adding that learning how to budget your finances early on would help prepare a person for the working world later.
AmBank wealth head Joshua Lim says college students can budget their finances well if they “live within their means.”
“Today's youths need to be able to budget for the high cost of living as well as the high living cost that come into play when entering college.
“The high cost of living could be due to the food and lodging expenses that you need to fork out when you're studying, while the high living cost can come about if you're not living within your means.”
Lim adds that parents should try to educate their children on how to manage their finances.
“Parents should have a heart-to-heart chat with their children on how to manage their resources. During the college years, many youths are exposed to peer pressure and there is a tendency to overspend.
“They need to understand that their father or mother is not an unlimited ATM!”
Not paying on time
Studying in college can bring about a lot of financial obligations. This could include tuition fees, or even rent if you're not living with your parents or family. This, together with whatever financial obligations you may have, should be settled timely or as soon as possible.
Murthy, 30, says that during his college years, his friends and he would remind each other to pay their fees on time.
“I personally had a diary and would mark it every month to remind myself by when we would need to pay our fees.
“Otherwise, our college would put up a notice board in the lobby, revealing the names of those who failed to pay their fees on time and that was quite embarrassing.”
For those living on their own (away from family), Foo advises this group of adventurous individuals to share the cost of the rent if possible.
“Of course, living with your parents or family is the best and smartest option,” he says.
Unnecessary financial obligations
In certain circumstances, additional payments need to be fulfilled usually as a result of unwise spending habits or when a person chooses take on additional financial obligations.
Sometimes, a college student could end up servicing a student loan or have credit card debts.
“It's possible to get a supplementary credit card but it is not advisable. Why do you need it for?” Foo asks.
“Besides, you're not working, so it's too soon to get a credit card. Most of the time, it's the parents that are footing the bill.”
Liz Lee, 24, however believes having a credit card during her college years was an advantage.
“It allows you to afford things that you can't immediately pay for upfront, such as books or semester fees. The (credit card) bill can be settled at your own pace.”
Lim says a good way to settle unnecessary debts is to take on a part-time job.
“It's a good way to supplement your income. Working can help you appreciate the value of money and prepare you for the working life ahead.”