Financial Lessons for College Grads
This May and June some 1.7 million students will graduate from college. But do they have the tools they need to succeed in today's economy? They may have the job skills, but according to a recent survey many grads report that they lack the financial knowledge to make smart decisions.
According to Capital One Financial Corporation, college grads are overlooking key ways to build a solid financial foundation. This isn't so surprising since Personal Finance 101 isn't usually a course offered at universities. Most graduates pick up financial skills by trial and error and some painful mistakes are bound to happen. For this reason, I recommend Mom and Dad step in now and pass along some useful lessons.
Here are the results of the Capital One survey and some suggestions for how parents can help their recent grads:
1. Student Loans
The average college student graduates with over $23,000 in education loans. Not so surprisingly, 60% of those surveyed say that they are "very" or "somewhat" worried about repaying those debts. Sixty six percent claim that their loans will influence the job or career they pursue.
The Parent's Job: For those of us who manage to juggle mortgages, car loans and all sorts of other bills, we know that facing our obligations is the best way to attack them. That's why I recommend you sit down with your child and come up with a repayment strategy for her student loans. Options range from deferment and consolidation to Income-Based Repayment programs. (For more details, check out the Repayment Information page from the U.S. Department of Education.)
2. Credit History
Fifty five percent of those surveyed are concerned about building good credit. That's good news, but the other 45% should be, as well.
The Parent's Job: I'm sure you know that maintaining good credit is important. But your child may not. Or, at the very least, he may not know how one achieves that coveted 800 plus FICO score. Now's your chance to give your recent grad a step-by-step guide for achieving that "excellent" rating we all want. (Check out Bankrate.com's credit score article for some helpful tips.)
3. Building a Nest Egg
Fewer than half (43%) of those surveyed are currently saving any money, according to Capital One. At this point -- it is only May-- I'm not too concerned about this. But once these newly minted grads start finding jobs, they should certainly begin thinking about contributing to a retirement account and paying off any credit card debt they've accumulated while in school.
A Parent's Job: This will be tough to convey to a recent grad, but you really need to explain that there is no better time than the present to start saving for retirement, especially if your child's employer offers a company match on 401(k) contributions. Afraid your kid won't understand why he should think about his sunset years now? Let him play around with a retirement calculator, which will illustrate the power of compound interest.
What financial lessons do you think college grads need?
Stacey Bradford is the author of The Wall Street Journal Financial Guidebook for New Parents.
Pomp and Circumstance image courtesy of Flickr, CC 2.0.
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