Financial Literacy - 9 things a college student should know

Summary

In this video, Brad Berrett shares valuable financial advice for college students, emphasizing the importance of creating a budget and managing expenses. He highlights the necessity of distinguishing between needs and wants, and explains how small spending habits can add up over time. The video also covers the significance of borrowing wisely, particularly when it comes to student loans, and offers insights into the difference between term-based loans and revolving credit. Ultimately, Brad stresses that making informed financial decisions now can pave the way for long-term success and financial stability.

Takeaways

• 😀 Have a Financial Plan: Start with a simple budget. Track income vs. expenses and spend less than you earn to ensure financial success.
• 😀 Budgeting Made Simple: You can create a budget on a single sheet of paper, dividing it into income and expenses. The goal is to manage what comes in vs. what goes out.
• 😀 Needs vs. Wants: Differentiate between essential needs (tuition, room and board, books) and discretionary wants when budgeting.
• 😀 Spending Habits: Small daily purchases can add up quickly. Be mindful of seemingly minor expenses like coffee, snacks, or meals out.
• 😀 Financial Decision-Making: Life is about making decisions with your money. Prioritize what is most important, even if it means forgoing certain wants for more essential needs.
• 😀 Borrowing Money: Understand that borrowing means paying more than the face value due to interest. Borrow for investments that will appreciate over time, like a house.
• 😀 Car Ownership Considerations: Cars depreciate in value over time. Evaluate if you truly need a car, especially if it creates financial strain with payments, insurance, and maintenance.
• 😀 Student Loans: Be cautious with student loans. They're a form of debt that cannot be discharged through bankruptcy and can impact your future financial health.
• 😀 Investing in Education: College may put you in debt initially, but it increases your earning potential. A college graduate earns, on average, $25,000 more annually than a high school graduate.
• 😀 Credit Cards and Revolving Credit: Credit cards can lead to debt if not managed carefully. They work like revolving credit, meaning the debt doesn’t have a set end date, and can accumulate interest over time.

Q & A

Why is having a financial plan important for college students?

Having a financial plan helps college students avoid financial struggles and stay on track with their expenses. It guides them on managing their money effectively, ensuring they spend less than they earn and avoid unnecessary debt.

What is the key to financial success according to the script?

The key to financial success is spending less than you make. If you can manage to do this, you will be financially successful in the long term.

How should college students create a simple budget?

Students can create a simple budget by drawing a line down the middle of a sheet of paper. On one side, list income, and on the other side, list expenses. The goal is to track money coming in versus money going out and ensure that expenses do not exceed income.

What is the difference between needs and wants when creating a budget?

Needs are essential expenses like tuition, housing, and books, while wants are non-essential items or services. Students should prioritize paying for their needs first, and then use any remaining funds for their wants.

Should college students buy a car while in school?

It depends on individual circumstances. If a student needs a car for commuting or work, it may be necessary. However, if the car is an additional financial burden—such as car payments, insurance, and gas—students should carefully assess whether it's worth the expense.

How can small, everyday expenses add up over time?

Small expenses like daily coffee, snacks, dining out, and weekend outings can seem insignificant but accumulate over time. For example, spending just $4 on coffee daily can total over $3,000 a year, money that could have been saved or spent on something else.

What should students do with their extra money if they save from daily expenses?

Students should save the extra money for larger goals, like a spring break trip, or invest it in something that provides long-term value, such as education or personal development.

What are the risks of borrowing money?

Borrowing money means agreeing to pay more than the face value of the item due to interest. While borrowing may be necessary for big purchases like cars, homes, or education, it’s important to understand the financial impact and avoid excessive debt.

What is the difference between a term-based loan and revolving credit?

A term-based loan has a fixed start, end, and interest rate, with a set repayment period. In contrast, revolving credit, like credit cards, allows for continuous borrowing and repayment, leading to a cycle of debt if not managed properly.

What are the advantages of investing in a home versus a car?

A home typically appreciates in value over time, meaning that its worth increases, allowing the owner to build equity. In contrast, a car depreciates in value as soon as it is driven off the lot, making it a poor investment if purchased with borrowed money.