Back to School: Budgeting 101
For CPAs, budgeting is as easy as debits on the left, credits on the right. It is simply the way it is. But not everyone is a talented budgeter. A recent AICPA survey revealed that college students aren’t as monetarily savvy as they think they are.
Just how much do college students need to brush up on their budgeting skills? While 57 percent of students surveyed rated themselves as having excellent or good personal financial management skills, nearly half reported having less than $100 in their bank account at some point in the last year, 38 percent said they had borrowed money from friends or family in the last year, and 11 percent had missed a bill payment. It is clear that college students’ perceptions of their financial skills and reality are not aligned.
College is often the first time many people make financial decisions on their own. While these same students spend years studying for and taking proficiency and competency exams, many are never taught simple financial literacy skills. This leaves even the brightest and most responsible vulnerable to overspending, money mismanagement, and failing to develop a solid financial plan. What can be done to encourage college students to take charge of their finances and develop sound budget practices?
- Parents should regularly check in with their children about money and help them learn to create a working monthly budget. This is the especially important during the first semester of their college career as children can quickly get caught up with living on their own with little financial oversight. Living more independently, children must face the reality of how much things cost and realize that their parents did not have a money tree in the backyard. Anticipating spending needs is one of the best way to develop a sensible budget.
- Help college students learn to delay making big purchases, take time to assess the costs and determine whether they can afford them. It seems simple enough, and for a majority of purchases, it is a good practice. Dan found that if he wanted something that he couldn’t afford, he would wait 24 hours before going through with the purchase. That gave him the time to figure out if he really wanted the item (and how long it would take him to pay it back if he used his credit card!)
- Remind students about the difference between wants and needs. College students need textbooks and a roof over their head in order to graduate. But they often want to wear the latest fashions, throw parties, buy the newest electronic gadgets, and spend endlessly on pizza deliveries. Having a clear understanding of wants versus needs can greatly reduce frivolous spending while in college.
- Teach college students to beware of the risks of credit card offers. Credit card companies love to target college students with offers for credit cards, promising 0% APR and other enticing gimmicks (like free tee-shirts or fast food gift cards). While a credit card can be a useful tool in certain circumstances, without a sound financial plan, it can very easily become a way to quickly rack up debt.
- Encourage students to get a job on (or near) campus to help subsidize their expenses. During Lauren’s senior year of college, she had a car on campus for the first time and quickly found that her previous practice of using money earned over the summer to pay for things during the school year wouldn’t be enough to keep gas in her car. To keep her car running, she took a part-time job at the convenience store on campus to cover the cost of gas. Dan was a Resident Assistant his junior year and worked part-time in the campus bookstore. While home on holiday, he worked at a local Barnes & Noble. This put extra money in his pocket for gifts for his family and textbooks during the semester.
Developing money management skills before college can greatly increase the chances of developing and sticking to a sound, workable budget. The AICPA’S 360 Degrees of Financial Literacy website offers financial tips and budget building resources in order for any college student to develop a solid financial foundation.
Daniel Bond, CAE, Senior Communications Manager-Consumer Education, American Institute of CPAs.
Lauren J. Sternberg, Communications Manager-American Institute of CPAs.
College student with empty piggy bank courtesy of Shutterstock.