Financial Wellness: An Interview with Dr. Staniec
Photo provided by Mōhailani Peloso
Economics professor, Dr. Staniec shares her best financial tips for college students
Managing money in college can be overwhelming, from budgeting and student loans to credit scores and saving for the future. To shed light on the best financial practices for students, I sat down with Dr. Staniec, a professor of economics here at Pacific, to discuss financial wellness and smart money habits for college students.
Background
Tell us about yourself.
“I have been teaching Economics at Pacific for over 30 years. I have my B.S. in Economics with a minor in Business from the University of Delaware and my Master's and Ph.D. in Economics from Duke University. I have two daughters who are currently in college, so that has given me more insight on financial questions and concerns college students have.”
Budgeting and Financial Planning
What are the key steps college students should take to create an effective budget? And how can students balance spending on needs versus wants?
“It's really useful to start by just writing down all your spending for a month. It may seem like a lot of work, but if you use your debit card a lot, much of the work is done for you. But that really helps to see how much you're spending and what you're spending it on. Then you can categorize your spending into things you have to pay and don't have a choice about the amount (e.g. Rent, some utilities, necessary medication or health care, car insurance), things you need but have some discretion over the amount (groceries, basic personal care items, necessary clothing) then things that are not necessary but that you want (e.g. Eating out, non-necessary personal items, gifts, charity, etc.)
“Then once all your spending is categorized you can get a good idea of how much you need, and also places where you might be able to cut back. If you're not saving anything, this would be a good time to move savings (at least a small amount) to your "discretional necessities" that get paid before any of your wants.”
What budgeting tools or apps do you recommend for college students?
“I don't have good advice on this, except that I don't think as a college student trying to spend within your means that you should pay for a budget app. There are several out there with basic versions that are free. Nerdwallet reviews several in this article.”
Saving and Investing
How important is it for college students to start saving early, even with limited income?
“Saving early and often, even if it's just a little bit to start with, is important for several reasons. First, it helps develop the habit and the saving mindset—treating saving as a necessary "expense" every month, not just something you do when you feel like you have extra.”
“Second, having some money saved helps you handle unexpected or irregular expenses, like car repair or professional clothes for interviewing or even something fun like a spring break trip without using a credit card and incurring debt that you can't immediately pay off. Because once you start carrying credit card debt you get behind the snowball of compound interest, you pay interest on your debt, then interest on the interest, then interest on the interest on the interest...ultimately you end up having to pay back way more than the original purchase instead of using that money for other things you want.
“Third, savings puts you on the good side of the compound interest snowball. When you save, your money earns interest, and that interest earns interest, etc. By starting to save when you're young you have that much more time for the magic of compound interest to work in your favor.”
What are some simple and safe ways for students to start investing their money?
“One of the simplest and safest things is to open a high-yield savings account. You can do this online (online accounts typically offer much higher rates than savings at a "brick and mortar" bank) and right now earn about 3.75% which isn't huge but it's extremely safe, your money will be insured against loss if you use a reputable bank. Nerdwallet has some suggestions here.”
Do you recommend setting up an emergency fund while in college? If so, how much should it be?
“Absolutely, as I described above. How much depends in part on how much you have and what expenses you might incur (e.g. If you have a car you may have more unexpected expenses, like tires.) For non-students experts recommend 3-6 months basic living expenses. If your room and board is paid for already because you live on campus, you wouldn't need too much to cover 3 months of expenses, so that would be a reasonable goal to aim for.”
Managing Debt and Credit
What advice do you have for students who rely on student loans? How can they manage this debt responsibly?
“The most important thing is to make sure you are fully informed about how much you're borrowing, what your interest rate is and what the repayment will look like. Don't take out any more than you absolutely need to pay your college expenses. When it comes time to repay, make sure you are aware of all of your options (some loans have income-contingent repayment plans, for instance, where your monthly payment is a percentage of your earnings so it doesn't consume all your income when you're first starting out).”
How can college students build a good credit score while avoiding credit card debt?
“This is a great question because building a good credit score is one of the best things, besides saving, that students can do now to help themselves in the future. I recommend finding a credit card that has no annual fee and using it ONLY for things that you KNOW you will be able to fully pay off at the end of each month. This way you build credit history without paying fees or interest. Length of credit history factors in your credit score so having the same credit card for a long time helps. Also extremely important is that if you do have debts/loans make sure to always pay the amount due on time. Missed payments may not seem like a big deal now, but not only will they cost you fees, interest and sometimes even increase the interest rate you have to pay but they will also damage your credit score for seven years. This means you would pay more for interest on other credit cards or car loans or may not be able to get the apartment you want.”
What are the biggest mistakes students make with credit cards, and how can they avoid them?
“Biggest mistake is using a credit card for non-necessities that you can't afford to pay off at the end of the month (see above.)”
Spending and Saving Strategies
How can students avoid impulsive spending?
“These questions are more specific to particular students, but the budgeting activity I mentioned above can help students see where they may be able to cut down.”
General Advice
If you could give one piece of financial advice to all college students, what would it be?
“Save early, save often. And if you can't pay for it with money you currently have (and it's not an ABSOLUTE necessity) don't buy it.”
By implementing these insights from Dr. Staniec, college students can build strong financial habits that can set them up for success.