The elementary approach to student finances

University, for many students, is the first time they are away from home and their families, and a lack of understanding of financial knowledge and the tools to be successful, leave many students perplexed.

As the school academic year comes to an end, pupils gearing up for the move to university may be relishing the newfound freedom coming their way. Unfortunately, this freedom can often translate into trouble when it comes to personal finances.

Therefore, it is imperative for students to understand basic money management skills such as handling credit, and living by a set budget.

Without basic financial literacy, students will struggle to plan their spending, use debit and credit cards correctly or make recurring payments, such as phone bills or rent.

Generally, personal finance begins at home. Young adults learn a lot of what they know about finance from their parents, who can also sometimes benefit from a few extra tips. This is why, ideally, the learning process should begin as early as possible – teaching pre-teen children concepts such as debt, interest, mortgages and loans. They should also be introduced to practical concepts they will be dealing with in their adult life, such as how to check and maintain a good credit score and saving for retirement.

Here are some basic fundamentals for students to keep in mind.

The concept of budgeting

To budget successfully, students must learn how to prioritise – for example, rent comes before going out with friends. The most efficient way to decipher what money should be spent on is by allocating a monthly budget after calculating available funds, and then identifying top priorities, as well as allocating a percentage towards savings. The rest can be used for discretionary spending.

Developing an emergency fund

As a student, it is common to run into situations where unforeseen costs arise such as a car breaking down, medical bills or expensive academic books. For this reason, students must take into account the importance of creating an emergency fund to salvage crisis situations.

Debt prevention

University is often a time when spending money seems like a great way to have fun; however, not spending smartly can quickly lead to debt and financial trouble. Spending within your means and cautious budgeting will alleviate financial debt and provide students with financial security and freedom. If you have a credit card, use it wisely by understanding all of the card’s terms and conditions, staying on top of payments and realising the true cost of purchases made with credit. Using a credit card is like taking out a loan – if you don’t pay your card balance in full each month, you’ll pay interest on that loan.

Payment cards

There are a number of card options available if you want to avoid carrying cash (for example, while you travel). Prepaid cards and debit cards give you control as you are spending only what you have. Such cards give you an electronic record of your spending, and if you lose them your money is safe as long as you’ve kept your PIN secure.

Maintain your credit score

Keep track of your spending to ensure you can repay your credit card bill in full each month. These responsible habits will help you maintain a good credit score, which shows lenders you are capable of managing your money responsibly. A good credit score will help you in the future when you need a loan from a bank for a car or for a mortgage for your home.

The importance of investing

Securing financial wellness is one of the most important things a student can plan for in life. As a student, funds are often limited, but it’s still important to be educated about opportunities. Many students often think that investing is something they don’t need to focus on until much later in life. However, there is a cost to waiting. Spending smartly can lead to savings over time that help students pay for their short and long-term goals. A list can be put in place stating the most important goals and how many years a student plans to give him or herself to achieve those goals. This is essential because when a student plans to invest, they will need to find an option that fits their time frame.

Many individuals underestimate the importance of ensuring financially literacy among students, who are lacking in real-world financial skill and know-how. When it comes to educating young people about money, there is no such thing as starting too early or too simply.

Naamat Baradhy is the head of communications at Visa for the Middle East and North Africa