| Shaking the Money Tree |
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By Mary Hartney
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You Can Bank on It
Credit card companies aren't the only ones vying for students' money. Most banks have special checking and savings accounts geared toward college students. They're attractive because they usually don't have minimum balances. However, Dietrich says students should be cautious because these accounts often are loaded with extra fees and limit the number of withdrawals you can make.
Megan Singleton hasn't always been pleased with her student checking account. Her teller visits are limited, and her bank encourages her to make all of her transactions from an automatic teller machine (ATM), which Singleton says can be a hassle.
"They don't want to waste their service dollars on student accounts where they're not making any money," Singleton says. "I just don't think it makes much sense for a student."
When choosing a bank, students should look at all the fees involved, the initial deposit required, and the minimum balance. O'Malley suggest students opt for a "no-frills" account with ATM locations that are convenient.
"One thing that a student doesn't need to worry about is a lot of extras for a bank," she says.
Silver recommends students choose larger banks where they can keep their affiliations. Having a relationship with a bank manager can pay off over time, especially down the road when the student needs to apply for loans.
"Longevity really says something to them," he says.
Once students have a bank, they should learn how to manage their accounts. Greene says she was lucky because she opened her first checking account when she was in sixth grade. Her parents then taught her how to keep her checkbook balanced.
"That was really what my parents did -- give me that place where I could put my money and not spend it on dumb stuff," she says. "It was a place for me to watch my money, and watch my interest grow."
Greene still keeps a running tab on her checking account and keeps it balanced throughout the month.
"I like to know how much money I have at all times and how much money I need to have soon," she says.
Silver says managing checking accounts isn't intuitive for some students, and he recommends they use cash whenever possible. However, he says, they must learn how to balance their checkbooks to avoid bounced check fees and overdraft charges.
"You want to keep a clean record from day one," he says.
"You're on a lifetime journey, and your credit history sticks with you. If someone sees your credit report, you don't want to have a scarlet letter on your forehead."
Building Credit
Ironically, the thought of getting a bad credit report scares some students into getting credit cards. They mistakenly believe it's the only way to begin building their credit history. However, students can build credit by paying rent and cell phone bills, taking out loans, or even renting a car. Indeed, credit cards often are more trouble than they're worth.
"It's a big problem for students today because they generally walk out of school with three things: a diploma, a note for student loans, and a credit card statement," Silver says.
Such is the case with Singleton. She managed to go without one for her first three years of college but signed up for a card before she took a cross-country trip to California to work as a camp counselor the summer before her senior year. She originally planned to use the card for emergencies but was surprised by how much more expensive things were on the West Coast, and she ended up using it fairly often.
"There was no big one thing," she says. "It was just a bunch of little things that I don't even remember."
Later, Singleton signed up for two store credit cards to buy clothes for her job at an appraisal firm. Eventually, she had to stop using the cards and start paying off the debt.
Looking back, she says much of what her parents taught her about money didn't resonate until she began to feel the sting of debt. They "could have told me up and down, gave me books to read, but I don't think it would have made a difference," she admits.
Despite such potential problems, many students believe they need a credit card. According to O'Malley, the key to teaching students good credit card use is explaining how the card works.
"[Students] don't understand the word 'credit,' " he says. "Every time they use the card, they're taking out a loan. It's just that basic concept that some students just don't get."
According to Nellie Mae Corp., 83 percent of undergraduates in 2001 had a credit card, up from 67 percent in 1998, and 44 percent had four or more credit cards. The median debt level for undergraduates in 2001 was $1,600. If a student only pays the minimum amount due each month, he or she could wind up paying more than $1,000 in interest, if the credit card company charges the maximum allowable fees.
Part of the reason students build up debt is because having a credit card makes it easier to buy things they don't necessarily need. Students should weigh the long-term and short-term impact of a purchase, especially when they're going to use a credit card to pay for it.
"We all can fall into temptation to spend, and when we spend with plastic, the impact isn't as real," Silver says.
However, when the debt becomes real, it can add to a student's stress.
"It's creating havoc, not just financially but psychologically, too," he adds.
Saving for the Future
Students who manage to avoid money traps in college can get a jump on working toward post graduation financial goals. Students rarely can save much, but it is the best time to start.
Saving can be as simple as putting money into an interest bearing account. If a student gets a lump sum of more than $1,000 each semester from loans or from their parents, Dietrich recommends putting the money into a money market account. He also recommends short-term certificates of deposit or savings accounts because there are more hoops to jump through to make withdrawals, and the interest is guaranteed.
Setting aside even modest amounts, such as $10 one month and $11 the next, can help students learn to save.
"Even if it's just the smallest step, at least you're moving forwards and not backwards," he says.
Dietrich believes everyone, including students, should have a "rainy-day fund" with enough money to cover three to six months of expenses.
"If you've got some savings, you've got some flexibility," he says.
Finally, Silver likens the saving process to the old fable about the tortoise and the hare: If students save slowly and steadily, they'll come in first.
"[Today's students] don't want to be 65 years old and looking for a job at McDonald's," he says.
Teaching your child good money management at an early age is the best way to prevent that from happening.
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