eTrade1 recently surveyed young investors – those between the ages of 18 to 34 – to determine the biggest barriers. It turns out that many of those barriers can, and should, be addressed while in college.
If college students can learn strong financial wellness habits and head into their careers with solid financial advice, they will be prepared to invest their money wisely. This includes building emergency savings, purchasing a home, and saving for retirement.
Offering a student financial wellness program is key to helping these students avoid these three common investing mistakes.
Mistake #1: Deferring Student Loan Payments
Student loan deferment allows graduates to put their loans on hold for up to three years.
This may sound like a great idea, especially when a recent grad is just getting started. However, there are some drawbacks.
- Deferment is not loan forgiveness. Borrowers will still owe the full amount when they start payments.
- Depending on the type of loan, the deferment period may not be interest-free. Federally subsidized loans do not accrue interest, but unsubsidized loans do. That amount will be added to the loan balance regardless of its payment status.
- Deferment extends the number of years it will take to pay off the loan, which can lead to a smaller or delayed start toward retirement savings or a home purchase.
- Public workers who qualify for the Public Service Loan Forgiveness plan miss out on time working for a qualified employer.
Participating in a student financial wellness program can help students understand the downfalls associated with deferment and help them understand the alternatives, such as participating in an income-driven repayment plan or employer payment program, working out a repayment plan with the lender, or refinancing the loans.
The iGrad program offers courses on student loan borrowing, repaying student loans, and staying on track with student loans while in school.
It also offers the student loan snapshot tool, the student loan affordability calculator, and hundreds of articles and videos to help students understand their loans.
Mistake #2: Taking on High-Interest Debt
Taking on debt can be the right thing to do as long as the reasons for the debt make sense and the interest on the debt is low.
Too often, however, recent graduates use credit cards to make purchases to set up their new living arrangements.
In the end, they are left paying 16% interest on $3,000 worth of furniture. If they only make the minimum $60 monthly payment, they will pay almost $2,000 in interest. This is money that would be better off in a retirement savings account.
Generally speaking, debt keeps recent graduates from reaching their financial goals.
Those with high debt often do not have emergency savings, cannot afford a home, and delay starting a retirement fund.
A student financial wellness program, such as iGrad, can help students learn about debt and how to avoid it.
iGrad offers the Your Money Personality assessment to help students understand how they feel about money so they can learn strong financial habits to support their strengths and reduce their weaknesses. It also offers courses on smart borrowing, managing debt, mastering credit, and various tools to help students understand debt.
Mistake #3: Spending Too Much
Imagine this scenario. A recent graduate lands their first job making more money than they’ve ever made before. They get their paycheck each week and spend it – every single dime.
Two years later, they still have no savings and haven’t begun to invest in their future. Why? In most cases, it is because they didn’t realize they should.
A student financial wellness program can help students learn how to:
- Budget – keeping in mind both necessities and wants
- Minimize or pay off debt
- Set financial goals
- Keep student loan debt to a minimum
Students armed with this knowledge will be less likely to overspend and far more likely to put money into savings and retirement.
iGrad offers courses and tools on budgeting, saving, and investing.
The How Much Do Your Daily Expenses Cost Over Time calculator can help students realize the cost of certain over-spending habits, such as buying coffee every morning or eating out three times a week.
Students armed with the right information and the opportunity to develop strong financial habits can leave college with the skills needed to attain financial wellness. To learn how to offer iGrad’s financial wellness platform to your student population, request a demo today.
1 - https://www.businesswire.com/news/home/20210621005759/en/E*TRADE-Study-Reveals-the-Biggest-Financial-Mistakes-Among-Young-Investors-Post-Graduation