Five financial tips for incoming students

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I’ve been teaching an undergraduate class called “The Economics of Desire” for nearly 20 years. I always thought “the desire” in the title was the pull, but it turns out “the economy” is the draw.

In some ways, today’s college students are more financially savvy than their predecessors – they score higher on financial literacy tests, are more likely to be invested in stocks and cryptocurrencies, and some may even having taken money management courses in high school. Yet they still struggle to explain how markets work and are entering adulthood in an uncertain economy with prices rising everywhere they look.

For this reason, it’s important for students heading to college now to focus on five tasks to get their financial life in order: tracking expenses, creating a budget, clarifying sources of income, understanding debt as well as its returns and stop buying just because.

Tracking expenses is both the hardest and most useful part of any mature financial life. Learn this life skill at 19 and you’re on your way to financial security. I advise keeping track with a laptop, or more realistically an app.

I like bucket budgets. A bucket is for recurring fixed expenses such as housing and transportation. The second bucket is for discretionary and somewhat recurring expenses like food, clothing, and entertainment. The third bucket is the amount set aside for future expenses. It is also important to know the details of what is covered by your health insurance plan, even if it is a parent’s plan or the university’s plan. You may think you’re young and healthy, but a car accident or sudden illness can be costly.

It is essential to detail the sources of income, even if the parents generally promise to pay. Most college expenses are paid for by student labor, loans, and parents. Ideally, young adults should know exactly how much college costs and what sources of income will cover what, but this is rarely the reality. Most students do not have parents who budget or plan, so they have to budget themselves and persuade their parents to plan with them.

Too often I find students who are left in the dark and left behind when their parents find they can’t afford the cost or are disappointed with their grades. A student told me that her parents took out two mortgages to pay for her undergraduate degree at art school.

New York University anthropologist Caitlin Zaloom says families create “financial imaginaries” in which they believe an expensive undergraduate degree will guarantee their child a career. In fact, they are exercising a new middle-class parenting virtue by doing whatever they can to pay for a private college.

Understanding student loans involves more than what the financial aid officer tells you. Sure, the federal government has forgiven some borrowers’ debt, but that doesn’t mean the borrowings are or will be eligible for relief.

It is important to research the future demand, educational requirements, and compensation offered for jobs that students think they want. This exercise does what student aid officers do not: it estimates cost and return. A college student who loves dogs changed her plan to become a vet assistant after learning she was paying minimum wage. Filmmaking also fell out of favor.

Finally, ignoring your consumer psyche is an important life skill. Economist Juliet Schor explores the social reasons why we buy what we don’t want, and addiction expert Gabor Mate argues that some purchases are compulsive and destructive. Needs and wants become blurred as humans buy to reward themselves, switch to brand names, or just end up buying what other people buy.

This behavior is not shameful because humans are social, and having a certain type of possession (like a fancy handbag) is shorthand for placing status in a social hierarchy. Thorstein Veblen, an economist, noted in 1899 how a husband paid to dress his wife in order to increase her social status. These days, Instagram creates Veblen products from “experience” photos.

While about half of US states now require high school students to take a personal finance course to graduate, none teach advertising and consumer psychology.

I taught my class on Economics and Desire for 19 years – 15 at the University of Notre Dame and the last four at The New School. I guess students learn something: Recently, two freshmen told me that they were transferring to their public schools for half the price, thinking they would re-enroll in a private school within the last two years.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Teresa Ghilarducci is Schwartz Professor of Economics at the New School for Social Research. She is a co-author of “Rescuing Retirement” and a board member of the Economic Policy Institute.

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