As part of my sabbatical, I've convinced my wife to write more posts. Yes! My master plan is working. Here is Sydney discussing money lessons for college students. – Sam
Even though I haven't been in school for over twenty years, I always get excited during back to school season. I think back to the days of Trapper Keepers (I hear they're back by the way) and pencil boxes.
And, I still remember the giddiness I felt flipping through the class registration guide in college. It was like a puzzle figuring out how I could max out my credits each semester. But, I also like to reminisce about the money lessons I learned while I was a college student.
College wasn't that fun for me in the grand scheme of things. But it was something I was determined to do. You see, neither of my parents nor any of my grandparents went to college.
My dad went to vocational school and my mom only went to a few secretarial training classes. This really limited their career options. As a result, they had money struggles their whole lives.
A College Degree Or Bust
Financial literacy in schools was not a graduation requirement when I was a student, and still isn't in many places. But I didn't want a lack of knowledge or my parents' money fails to jeopardize my own financial future. So I started learning personal finance basics on my own. And come hell or high water, I was determined to get a college degree that I could use to springboard into a reliable career.
First, I did my best to prep. I applied to six schools and thankfully landed my top choice. Go The College of William & Mary! I could start to envision doors opening in my future.
Then, I made an atypical decision to take extra credits each semester so I could graduate in 3.5 years. It was a total a$$ whooping, but it was worth it. What Sam says is quite true, “A college degree will set you free.“
Overall, I highly appreciate my college education and would do it all over again in a heartbeat. It gave me the chance to push myself, get used to independence, and start learning about the love of money and financial responsibility. But best of all, I fell in love (xoxo Sam).
5 Money Lessons I Learned In College
Here are five money lessons I learned in college. I plan to teach our kids these same lessons when they're older. And perhaps some of you may find them helpful for yourself of your college-bound kids too. Here goes.
#1: Have Skin In The Game
The first money lesson I learned in college was experiencing what it was like to have my own skin in the game.
My parents wanted me to get a degree, but they were limited financially. So I picked an in-state school, they applied for grants, and we worked out a financial plan. We agreed that I would pay for 50% of all costs and my parents would pay the other 50%.
Tuition prices plus room and board were significantly lower back then than they are today (roughly $8,500/year then vs $40,000/year today). But even still, knowing that I would owe ~$17,000 after I graduated was a huge wake up call. I think I only had a couple hundred bucks to my name at the time.
I realized I could not afford to screw up my grades and wind up without a job after graduation. My parents couldn't continue to support me even if they wanted to. I needed to become financially independent asap.
I admit that I cut classes a couple times when I was overly tired (primarily geology lectures, which I constantly struggled to stay awake in). But, ultimately I didn't want to waste the money I would owe for my degree nor my parents'.
If my parents had paid for 100% of my college tuition, I wouldn't have been so motivated to graduate in under four years. Because I was able to graduate six months early, I saved my parents and myself about $9,800 total. I was very proud of that and still am to this day.
Some of you reading this who have college-bound kids may have the means to pay for 100% of their tuition and more. But, your teenager doesn't have to know that.
There are benefits of putting some of their skin in the game. Consider coming up with a college payment plan to give them some financial responsibility for their degree. Chances are they will appreciate it much more.
#2: Start With A Debit Card, Work Up To A Credit Card
One thing I remember about college is aggressive credit card companies. There were booths around campus constantly trying to get students to sign up for a credit card. And the mail offers were ubiquitous. It made me feel uncomfortable then, and still does today.
All I had at the time was a debit card, and I'm glad. The money lessons I learned were basic budgeting and financial planning. I had to ration my money each week or I'd run out by the end of the month.
My debit meal card was similar. I had a set amount of money for meals each day. If I bought too much for breakfast and lunch, I'd be stuck cooking 10 cent ramen noodles in my dorm for dinner.
There is true value in learning how to budget within your means from a young age. Being able to spend with discipline is a life-long skill that is key to achieving financial independence.
If you're worried about less protections with a debit card, here's a list of protections according to the FTC. For example, you won't be at risk of losing any money if you report a debit card missing or stolen before anyone uses it. And within 2 business days the max loss is only $50. Parents should set up a separate checking account just for their child's debit card, keep the balance minimal for discipline and minimizing risk, and monitor it regularly.
I'm grateful that I only had a debit card. Otherwise, the frequent trips I took to Target with friends could have resulted in so much unnecessary spending that I couldn't afford.
Of course there are benefits of establishing credit before finding a full-time job. But, I still wouldn't let your college student get a credit card for the first 2-3 years. Let them prove to you they can budget wisely with a debit card first.
#3: Get A Part-Time Job
Although I was unsuccessful at getting a part-time job in high school, I tried. The rejections made me mad, but I didn't have any prior job experience. So it's hard to blame them for not hiring me.
Fortunately, college had lots of part-time job opportunities. Plus, it was pretty easy to get hired. It didn't matter that I didn't have prior experience. None of us really did.
I learned a lot of money lessons from my part-time work in college. I got my first minimum wage job making cold calls to alumni to raise donations for the school. Man I hated that job, haha. But, I'm glad I suffered through it.
Seeing my name at the bottom of the leads board day after day was so humbling. Having alumni hang up on me was also eye-opening. The nerve! lol
I learned several things. 1. I am not a natural sales person. 2. People hate getting random phone calls asking for money even from their alma matter. 3. I had to make sure I could graduate and find a job I actually liked and was good at. I couldn't imagine working a job like that full-time.
Although I didn't last long at that job, I found a new one working at the music library. It was a delight. I was able to work independently, the environment was tranquil, I could use my knowledge of music, and best of all I didn't have to make any phone calls.
Encouraging, or possibly insisting, your college-bound student to get a part-time job during school builds character. Not only that, they'll learn about their strengths and weaknesses while making some money.
Every job experience is valuable because it helps you get closer and closer to figuring out what you really want to do in life. Not only that, it teaches time management skills, discipline, and the value of both time and money.
#4: Get Internships By All Means Necessary
I'm very grateful to both my high school and college counselors for emphasizing the importance of internships. Only one of the internships I had was paid, but they were all well worth the time I put in.
I did all sorts of random things from filing papers at a bankruptcy company, observing a marketing manager at a jewelry startup, to updating facts in industry guides for a job ranking firm.
None of the work I did was earth shattering. But, it gave me fundamental experience to put on my resume and job skills. Having experience to reference was vital for getting interviews and eventually got my whole foot in the door. This money lesson helped set my entire career in motion.
The job market is an entirely different place today than it was for me when I first graduated college. Things are incredibly competitive now. Sam and I are worried about our children's future, which is part of the reason why we want to keep Financial Samurai going. It's nice to have an option in case society doesn't give our children a chance.
If you have a college-bound student, I strongly suggest you insist they get an internship every single year. Use whatever networking you can leverage to help land internships for your kids.
Even if the internships are not highly related to their interests, that's ok. Ultimately, more experience is better than less. There are many transferable skills they can develop and take with them across industries.
And please encourage your college student to stay in touch with the people they meet at these internships. Networking can be invaluable. Regular check ins strengthen relationships, show appreciation, and can be the difference in scoring a full-time job over someone else when the time comes.
#5: Eye On The Prize – A Reliable Full-Time Job
There's another reason why I wanted to graduate early besides saving on tuition. It's kind of silly, but true. You see, I really hated homework and studying for exams.
Instead, I wanted a full-time job that wouldn't require me to do homework anymore. I didn't want to party it up to balance things out. My idea of a good time on Friday nights was going to the Music building by myself and playing the piano for 1-2 hours.
I admire those of you who continued on for a Masters or PhD. But, it wasn't my thing. I couldn't wait to graduate and enter the real world. I wanted to work, earn money, and not have to worry about cramming for any more exams during my “off” time.
Even though it's highly possible you or your son/daughter may graduate, not knowing what they want to do in life, that's ok. Help them keep their eye on the prize – a reliable full-time job.
It may take months and months of rejected job applications. They're going to need your support and encouragement more than ever. But once they can land a reliable full-time job, the wheels for their future are set in motion.
If they end up hating their first job, help them focus on the positives. Now they are closer to figuring out what it is they do want to do. Just try to make them gut things out for at least one year.
Frequent job hopping, especially with stints less than a year long, doesn't impress hiring managers. They want to see people with a demonstrated ability to commit to a role or project.
Bonus: Fund Your Roth IRA ASAP
With the part-time income you're earning in college, please use as much of your proceeds as possible to fund your Roth IRA. Then invest any amount over the maximum contribution limit into a taxable brokerage account.
The standard deduction limit for 2021 is $12,550. Therefore, you can earn up to $12,550 and pay no taxes.
The maximum Roth IRA contribution limit is $6,000. Therefore, you can contribute up to $6,000 in tax-free income into a Roth IRA, let it compound tax-free, and then withdraw the money tax-free in retirement.
When we were in college, the Roth IRA was a new concept. It was introduced in the Taxpayer Relief Act of 1997 and became a savings option in 1998. Please take advantage of this powerful retirement plan while in a zero or low tax bracket.
Money Lessons To Take Us Further
If your teenager is about to enter college, congratulations mom and dad! You did it! Hopefully, you've already been teaching them lots of money lessons along the way. But if not, don't fret. It's never too late to start encouraging financial awareness and independence.
I hope these money lessons I learned in college are a helpful reference you can use in one way or another. Even if you have a teenager who is technically now an adult, or soon to be, don't fully check out. They can still benefit from your guidance and encouragement.
They may gripe and groan when you talk to them. But hopefully one day they'll randomly look at you and say, “thanks mom and dad for everything you've done for me.” Sam and I sure dream about the day our kids say that to us. <3
Related posts about college:
Readers, what money lessons did you learn in college? Did you have a credit card, a part-time job, internship, and/or the responsibility to pay your own tuition? What do you wish your parents did differently for you during college?
For more nuanced personal finance content, join 100,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.