As a college student, I’ve noticed a frightening trend amongst my peers: fiscal ignorance. I’m not trying to be Dave Ramsey here (I’m really not one to talk), but I’m often struck by the foolish decision-making of otherwise intelligent people when it comes to money matters. After the break I’ll list my take on the biggest Moolah Mistakes people my age make, and my solutions.
1) Student Loans
In an informal study, I asked several college students how they pay for their tuition. Some were awarded grants or scholarships for their academic efforts (myself included). Others were working multiple jobs or living at home so they could pay out of pocket. A few had government assistance. But the troubling majority answering my question fell into two groups: student loans or, even worse, a shrug of the shoulders and nonchalant “I dunno.” (I’m not even going to discuss the mental incompetence and disgusting display of passivity displayed by the latter.)
As for borrowers, I should first make clear that not all student loans are created equal. An entire blog could be dedicated to the discussion, comparison, and intricacies of student lending. But Clit isn’t that blog, and financial jargon is not my forte. That said, even a shallow investigation of loans can uncover some seriously shady shenanigans.
Collection costs and interest rates cause loan debt to grow faster than a tumor. Not even the B-word (bankruptcy) can save you. Lenders, not unlike the Mafia, will stop at nothing to take you, and your loved ones (at least those stupid enough to cosign), down: tax returns can be seized, social security payments can be withheld, and, with the permission of the court, 25% of your wages can be garnished, all in the name of repayment. (Further reading: here) Lenders care not whether you actually complete college and earn your degree or find a job; the bottom line is that you will pay up.
And you know what’s really, really stupid? People rack up debt pursuing degrees in fields of study that will never yield income sufficient for timely repayment! Tuition, room and board at a major four-year can run $40,000 before fees and interest. ”Jewelry design” or “anthropology” majors probably won’t make half of that in a year.
Solution: Prevention. If loans are a must (they never are, but for argument’s sake…), don’t pick a frou-frou degree. Major in Kicking Ass or Making Bank, and plan on earning six figures so you can get the hell out of debt fast.
2) Buying a New Car
You don’t have to be an Economics major to understand depreciation; it’s a lesson hard learned by every college student. Whether it’s textbooks, laptops, cell phones, or electronic gadgets, just about anything you buy as a student will rapidly fall in value by graduation time. And nothing loses its value faster than a brand new car (25 – 40% depreciation in the first two years). Despite this, I went to school with plenty of poor schmucks driving fresh whips.
The Solution: This should be common sense. You can pay $20,000 to drive a 2012 Ford Focus off the lot or you can pick up an ’07 Focus in decent shape for $6,500. It’s a no-brainer…
3) Credit Cards
Establishing credit is an integral step in reaching adulthood. Unfortunately a lot of people my age are more intent on establishing debt. The instant gratification that comes with “buying now, paying later” is an easy addiction, especially with minimum monthly payments and carrying balances. But at what cost?
The average annual interest rate on a credit card fluctuates around 15%. In-store credit cards (offered at just about every store, from Bloomingdales to Best Buy) tote an even higher APR — 25 – 30%, often on top of other hidden fees.
Solution: Credit is a necessary evil. The best rule to follow: spend within your means. If you don’t have the cash to pay for it, don’t buy it. Pay your bills in full. Another idea: instead of opening a card to establish credit, take advantage of financing offers the next time you make a big purchase. A lot of big-ticket items have financing packages available that offer 0% interest if repaid in a timely manner.
4) Getting a Payday Advance
Holy shit cakes, these things are stupid. With an APR averaging in the 400 to 800% range (or as high as 5000%, where legal), these things are bat shit crazy and should be avoided like the plague. Seriously. You’d have better luck breaking into Gringotts and charming a goblin into giving you some gold. (Read more: here)
Solution: Don’t. Even. Fucking. Think. About. It.
5) Not Filing Income Tax Returns
Excellent advice.