Sadly, our school curriculums never covered personal finance, and most of our population is clueless about where to begin and what questions to ask.
@thefatjewish said it best
"After my 12 years of education I still don't know how mortgage or taxes work but hey at least I know about the cells inside a ****ing leaf".
Obviously, @thefatjewish is not alone, as he got over 190,000 instagram likes and over 23,000 comments on this post.
College students are often too intimidated to handle their personal finances and feel too uninformed to ask the right questions. I sat down with a college student (at a top university) to answer (even the most) basic questions about personal finance, investing, and how to get started.
As a college student, I want to know that I did something to prepare myself for the real world. How do I do that?
Learn what you have to. Learn how to save and put away money. A good rule of thumb for saving money is to put away 10% of your earnings in a separate savings account. You can open a savings account by going to any bank and opening one. You just need an ID and social security number in order to do this. Get access to your checking and savings accounts online, and review them regularly.
What else?
Then, focus on building credit. Do this by opening up a credit card and always paying the credit card on time. Do not charge more on your credit card than you can pay. If you have trouble getting approved for a credit card, you can get a "secured credit card". Click here for more information on how to build credit.
I have a job and have saved some money. What can I do with that money to make it grow?
The best thing to do with money you have earned and saved is to invest it in stocks. Buying a stock is buying a fraction of ownership in a company. The price can go up and down, but if you buy high quality companies, they tend to grow over time. The key to investing is to stay still, be patient, and hold onto your investment for as long as you can. A great way to get exposure to the stock market as an amateur investor is to buy ETF's, which trade like stocks, but can represent an entire market. This way, you can hold a diversified portfolio, without having to pick individual stocks. Keep in mind that this portfolio will make and lose money, but that historically, if an investor is invested for a long time, they tend to make money.
Can't I just put money in a savings account and just get interest?
Yes, you can, but interest rates are very low right now. The average interest rate on a savings account in 2016 is .06%. It would be improbable to make any meaningful money if you are invested in a savings account.
What is the difference between interest and growth?
Interest is payment on a loan. In the case of a savings account, the bank uses that money to lend out, and pays you interest on that money. When you own a stock, you participate in the growth of a company - which means that you make or lose money if the company that you own grows or shrinks.
How do I start an account? Do I just walk into a bank?
You can. Some bank branches can open an investment account for you, and have advisors that can help you choose appropriate investments.
You can also use a robo-advisor, which is an online wealth management service that provides automated investing.
I don't really have that much money, so growing, let's say, 10% is just not going to give me that much more. How can I make this grow?
Two words: compounding interest. Compounding interest means that you can make money on money you have made. So for example, if you invest $1,000 and make 10% in your first year, that would give you $1,100. In your second year of making 10%, you would make $110 instead of $100. By your tenth year, that $1,000 would be worth over $2,500.
What else should I be focused on?
There are currently $1.3 Trillion of student loans outstanding in the United States. If you are among the majority of students that took out student loans, make paying off these loans your priority from early on. The best way to get your loans as low as possible is to refinance the loans as soon as you have built up some credit and have a job lined up. Citizens Bank is one example of a bank that has been on the forefront of refinancing student loans.
This article strives to provide quick and easy education on saving and investing for college students. For more information, please read my blog, The In Crowd. Please also feel free to reach out to me and my team directly for more information or guidance at Roxana.maddahi@spwm.com .
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