Everyone has a pretty good idea of what “IQ” is, but what is financial IQ? How well someone is able to understand and manage their own money is important to their financial future. Whether a person is a long-time business owner or a new college student, financial IQ is an important part of one’s education.
There are a number of different concepts new students should know when entering college. Below are some of the most important ones.
Student Loan Debt
Understanding how much debt student are incurring during their college time is critical to keeping up with their indebtedness through school. They need to learn that they should never borrow more than they can reasonably pay back within about 10 years at the most.
Tuition costs vary from one school to another. Think about what a university offers and consider whether it is really worth the amount of money that will be paid to them over the course of four years or more. Could your child get what they need with an associate’s degree or certification, rather than a four-year traditional degree? If so, it might be better to go that route rather than giving the institutions thousands of additional dollars for something they might learn on their own.
Savings and Investments
Once a student starts making an income after graduation, they should be encouraged to save and invest at least 5% of each paycheck. Paying themselves first means to stock away at least a small portion of their monthly income into a savings or investment account. This will pay off over the long-term if they stick with it and it helps young people learn about delayed gratification.
Interest rates are important because they determine how much someone’s overall debt will debt. The higher the interest rate, the more they will end up paying back. Having this information before signing is important for parents and students. Make sure to read the fine print and ask any questions if there are unclear aspects of the loan agreement.
There are some great money management applications out there that help college students to better manage their money. Learning to live within a budget and sticking with it are some of the most important skills students need to stay ahead of their debts and obligations. Even on a college budget, skills can be learned that will last a lifetime.
How to Test Your Financial IQ
As a parent or guardian of a child entering college, how smart is your financial IQ? Are you familiar enough with the list above of financial components of financial health to help your young person be successful? They need to learn to depend less on parents and others and rely on their own financial decisions and income choices. This is why it is so important to get into a program that will pay off.
A little research that is done now will pay off big in the long run.