While a majority of college students give themselves good grades for their financial literacy skills, many actually need to study up on the basics of budgeting, according to a new survey by the American Institute of CPAs (AICPA).
The survey of 751 college-bound students found that a gap exists between the students' perceptions of their financial literacy and reality.
âFor many students, college is their first time making independent financial decisions,â Ernie Almonte, chairman of the AICPA National CPA Financial Literacy Commission, said in a written statement. âWith this opportunity comes serious responsibility, and if they aren't making informed, intelligent decisions, it can have a negative impact on the rest of their financial lives.â
The survey found that college students who rated themselves as having excellent or good personal financial management skills (57 percent) outweighed those who rated their skills as poor or terrible (12 percent) by more than a five-to-one margin.
However, almost half of college students (48 percent) reported having less than $100 in their bank account at some point in the last year. In addition, 38 percent said they had borrowed money from friends or family in the past year, and 11 percent missed a bill payment.
Even though nearly all the students surveyed (99 percent) said they valued the importance of personal financial management skills, they are not actively taking steps to develop their knowledge in this area. In fact, only 23 percent of those surveyed seek out personal financial management information and incorporate it into their spending and saving habits frequently or often, compared with 41 percent who say they rarely or never do so.
According to Almonte, establishing and following a budget is one of the most important things a person can do to take control of their financial situation and build for the future. However, the survey revealed that only 39 percent of students follow a monthly budget. Of those students, 42 percent said they learned how to budget from their parents or relatives, with 37 percent saying they learned on their own.
âParents of college students should definitely encourage their children to establish a monthly budget as a means of keeping their spending in check while they are in school,â Almonte said. âEstablishing a monthly budget is the foundation upon which other positive financial behaviors are built. This fall, we encourage students to take âFinancial Literacy 101' by establishing a budget, tracking their spending and expenses, and reviewing it on a monthly basis. By incorporating these positive behaviors, students will be better equipped to make intelligent financial decisions later in life.â
The AICPA National CPA Financial Literacy Commission suggests the following four tips to help college students improve their financial literacy and make better decisions.
1.Get started. Visit the AICPA's 360 Degrees of Financial Literacy website and use the free budget calculator designed for college students. The calculator allows you to input your expenses and income for the school year.
2.Review your plan. Look at your budget each month and see if there are gaps between your budget and your actual spending. If there is a gap, determine if your budget or spending needs to be modified.
3.Build a credit score. It's a good idea to start to establish a positive credit history by having a credit card in college. But it's critical that you don't use it unless you can pay it off, or it is an absolute emergency. Late-night pizza or fancy lattes are not emergencies.
4.Set a goal for summer earnings. Figure out how much money you'll need to get through the semester for fixed expenses, such as utilities, cellphone, transportation (i.e., car payment, insurance, etc.), and rent. Use that as a goal to see how much money you'll need to save from summer jobs to start the semester in a position of financial strength.