Five financial tips for college students

by Teresa Ghilarducci

I’ve been teaching an undergraduate class for almost 20 years called “The Economics of Desire.” I always thought “desire” in the title was the attraction, but it turns out “economics” is the draw.

In some ways, today’s students are more financially savvy than their predecessors — they score higher on financial literacy tests, are more likely to be invested in stocks and crypto, and some may even have taken high school money-management courses. Yet they still struggle to explain how markets work and are entering adulthood in an uncertain economy with rising prices everywhere they look.

For that reason, it’s important for students heading to college now to focus on five tasks to get their financial lives in order: track spending, create a budget, clarify income sources, understand debt along with its returns, and stop buying just because.

Tracking spending is both the most difficult and useful part of any mature financial life. Learn this life skill at 19 and you are on your way to financial security. I advise keeping track with a notebook, or more realistically an app.

I like bucket budgets. One bucket is for recurring fixed expenses such as housing and transportation. The second bucket is for discretionary and somewhat recurring expenses like food, clothing and entertainment. The third bucket is the amount set aside for future spending. It’s also important to know the details of what’s covered under your health insurance plan, even if it’s through a parent’s plan or the university’s. You may think you’re young and healthy, but a car accident or sudden illness can be costly.

It’s essential to itemize income sources, even if parents provide general promises to pay. Most college expenses are paid from student work, loans and parents. Ideally, young adults should know exactly how much college costs and which income sources will cover what, but that’s rarely the reality. Most students don’t have parents who budget or plan, so they must budget themselves and coax their parents to plan with them.

Too many times I find students who are in the dark and then left in the lurch when their parents find out they can’t afford the cost or are disappointed with their grades. One student told me her parents took out two mortgages to pay for her undergraduate degree at an art school.

New York University anthropologist Caitlin Zaloom says families craft “financial imaginaries” where they think an expensive undergraduate degree will guarantee their child a career. In fact, they are performing a newly crafted middle-class parental virtue by doing everything they can to pay for a private college.

Understanding student loans involves more than what the financial aid officer tells you. Sure, the federal government has forgiven a portion of debt for some borrowers, but that doesn’t mean taking out loans now are or will be eligible for relief.

It’s important to research the future demand, educational requirements and compensation offered for the jobs students think they want. This exercise does what student aid officers don’t do — it estimates cost and return. One dog-loving student changed her plan to be a veterinarian assistant after she learned it paid minimum wage. Film directing also fell out of favor.

Finally, ignoring your consumption psyche is an important life skill. Economist Juliet Schor explores the social reasons we buy what we don’t want, and addiction expert Gabor Mate argues some shopping is compulsive and destructive. Needs and wants become blurred as humans buy to reward themselves, opt for brand names or just wind up buying what other people are buying.

This behavior is not shameful because humans are social, and having a certain type of good (like a luxury handbag) is a shorthand for status placement in a social hierarchy. 

While about half of U.S. states now require that high school students take a personal finance class to graduate, none teach the psychology of advertising and consuming.

I have taught my class on economics and desire for 19 years — 15 at the University of Notre Dame and the past four at The New School. I guess students are learning something: Recently, two first-year students told me they were transferring to their state schools for half the price, reasoning they would enroll back in a private school for the last two years.

Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research and a member of the board of directors of the Economic Policy Institute.