Have you ever heard that old (British) expression that someone is “penny wise but pound foolish”? How about “A penny saved is a penny earned” that was supposedly said by Benjamin Franklin? There is a lot of advice out there—some helpful and some not—but one thing that is certain is that you must develop your financial skills along with your academic progress in college. Financial decisions you make now will have long-lasting impact on your future prospects.
Here’s a quick diagnostic quiz to see how much you already know (since you have been learning about money almost from infancy) and where you need to step it up. The answer key is at the bottom, but do not peek.
1.The best way for a college student to start building a good credit rating is:
a.Having as many credit cards as possible
b.Being an “authorized user” on a parent credit card
c.Charging large amounts on your credit card
d.Having a responsible co-signer on your credit card
e.None of the above
2.A student should file a Federal income tax return for 2012, even if you are still a dependent on a parent’s return, if your income was at least:
a.$400 in earning from self-employment (lawn-mowing, dog-walking)
b.Any amount if Federal taxes were withheld
c.More than $950 in unearned income (dividends, interest, etc.)
d.More than $5,950 in earnings from a job
e.All of the above
3.If you file a Free Application for Federal Student Aid (FAFSA) as a freshman, when do you file again?
a.Never, if your family’s circumstances do not change
b.When your family’s financial circumstance change (loss of job, adopt a child, etc.)
c.Once a year, by Valentine’s Day
d.It depends, ask your Financial Aid Counselor
e.None of the above
4.What is the most serious threat to financial solvency for typical college freshmen and sophomores?
a.A latte habit
b.Parents with unrealistic expectations about how much things cost
c.Failure to budget in advance
d.Over-reliance on credit cards with high interest rates
e.Inattention to financial matters in general
5.What is the most egregious (look it up if you don’t know it—it was on the SAT) waste of money for a typical college student?
a.Multiple parking tickets adding up to hundreds of dollars
b.Buying textbooks new when used were available
c.Leaving money unused on your meal plan because you ate out frequently
d.None are egregious
e.All are egregious
6.What is the best thing a college student can do to prepare for a promising financial future?
a.Build and maintain a high credit rating
b.Start an IRA (retirement account) the minute you start earning money
c.Major in engineering
d.Run a business on the side while being a full-time student
e.None of these strategies is a standout
7. The most important reason to have adequate car insurance in force every minute you are driving is:
a.Insurance is required under Maryland law
b.Insurance will pay for repairs to your car if you have an accident
c.Insurance will pay the medical expenses of anyone injured because you ran into them
d.If you do not have insurance and you injure someone badly, you or your parents could be sued and have to pay enormous amounts of money out of pocket
e.All of the above
AND NOW, THE ANSWERS
Question 1: (e) None of the above
The key to building a good credit rating is to have a card in your name (not just “authorized user” status or cosigned), to charge either a small or large amount relative to your credit limit, and PAY IT OFF ON TIME!!! Timely payment is absolutely the most important factor. And try to pay it off in full to avoid costly interest expenses.
Question 2: (f) All of the above
Figuring out if you need to file a tax return while still a dependent is a little tricky—depends on what kind of income you have. But if you had a job that withheld taxes from your pay, you MUST file a return in order to get a refund. If you do not file, you will have made an unsolicited donation to the Federal treasury. (Source: IRS Publication 501: Exemptions, Standard Deduction, and Filing Information)
Question 3: (c) Once a year by Valentine’s Day
You must file a new FAFSA every year if you wish to continue to receive Federal aid, including Federal loans
Question 4: (e) Inattention to financial matters in general
It is easy to get caught up in academics, social life, your job, etc. and not do the planning ahead that is needed. And if parents are your problem, you need to PLAN how to make a strong case to them that additional funds are needed.
Question 5: (a) Multiple campus parking tickets adding up to hundreds of dollars
This one wins because it is completely avoidable, not only wastes money but gives you a negative record with the university and a “financial hold” that prevents you from registering, sending an official transcript, or receiving a diploma.
Question 6: (a) Build and maintain a high credit rating edges out (b) Start an IRA early
Your credit rating is so key to your future! Not only does it affect whether you can get a car loan, rent an apartment, or what interest rate will be offered to you, it may even prevent you from getting certain educational loans down the road. Did you know that the average medical student incurs loans of $170,000 and that 86 percent of medical students have indebtedness when they graduate? (Source: Association of American Medical Colleges, Feb 2013 report on medical education costs) A poor credit rating could prevent you from being able to borrow the money you need for professional school.
Question 7: (e) All of the above
You need to know not only that there is insurance, but that payments have been made on time to keep it in force. You also need to know whether it covers just the damage YOU do to others, or also the damage to your own vehicle if you are hit by someone without insurance, for example. If you drive a car, whether your car or your parents’ car, take time to understand your coverage and make sure it is adequate.
SCORING THE QUIZ: HOW MUCH DID YOU KNOW?
1-2 questions correct:
Your financial literacy is lagging and you need to get busy learning about taxes, insurance, investments, loans, credit, and more ASAP!
3-4 questions correct:
You are heading toward financial competence. Keep learning!
5-6 questions correct:
You are getting to close to MASTER status. Just fill in the holes.
All 7 questions correct:
You must be a Financial Economics major! You show an unusual perspicacity and acumen in the financial realm at an early stage in your college career. You have earned the title “MASTER of Money Management”! But do not get complacent—continuing education is necessary.
FOR MORE INFORMATION: ADDITIONAL RESOURCES
UMBC Career Week workshop: Learn Financial Literacy!
April 4, 2013 12-1 pm, Commons 331
Get financially fit at this hands-on financial planning seminar. Senior Financial Planner Judy Ward from T. Rowe Price will help you plan a budget and avoid credit blunders that could affect grad school admittance or career options.
“What Students Need to Learn about Money” by Seth Fiegerman on the Main St website
“College students and personal finance, Part 1: Credit-card debt” on ConsumerReports.org
This article also addresses the pitfalls of pre-paid cards.
“Top Five Money Mistakes College Students Make” by Jeremy Vohwinkle on About.com Financial Planning
EXTRA CREDIT DISCUSSION QUESTION
Although this financial savvy quiz was intended to be fun, it carried some serious messages. What did you learn that you had not thought about previously? Did we omit something that you think is important? Share your thoughts in the comments section below.