Student finance 101: A crash course in building a strong financial foundation during college

Student loans get a lot of attention, and rightfully so, but college students have many other important money matters to consider. As you embark upon a new school year (or you as a parent help your student navigate it), here are some financial to-dos.

Have a question about personal finance? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

Build credit

Your credit score is one of the most important numbers in your financial life. It’s a key factor in whether you’re approved for loans and lines of credit, along with the interest rates you’ll pay.

It has gotten harder to establish credit in recent years. For example, starting in 2010, the minimum age to obtain a credit card in your own name rose to 21 (although you can qualify starting at 18 if you’re able to show sufficient income). Experian says 28 million Americans are credit invisible and another 21 million can’t be scored because they have too little information in their credit files. Collectively, that’s about one in five U.S. adults (many of whom are young adults).

A good way to jumpstart your credit history is to get on a parent’s credit card as an authorized user. You could also apply for a credit card in your own name, perhaps a starter card such as a secured credit card or a student credit card.

You could also sign up for alternative credit monitoring programs such as Experian Boost and eCredable Lift which incorporate certain utilities, streaming services and cell phone plans into your credit reports.

A strong credit score will serve you well throughout your life. Even if you’re not in the market for a loan or line of credit right now, it pays to start early.

Invest

Investing is the ultimate example of how an early start can lead to long-term benefits.

The biggest advantage that young investors have is time. As Albert Einstein put it, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

If you wait to invest that $1,000 until you’re 40, It will only be worth about $6,700 by the time you’re 60. With an average annual return of 10 percent, your money doubles roughly every seven years. The more doubling periods you have, the better. And you can really gain momentum over time, like a snowball rolling downhill. That last doubling period or two makes a huge difference. It’s similar to how a penny doubled every day turns into more than $5 million after 30 days. Going from 1 cent to $1.28 after the first week isn’t much – the big growth comes later on.

The earlier you can get into the habit of investing, the better. Even if you start small. You could set aside income from a part-time or seasonal job or some of your graduation money. Future you will thank present you. And periodically adding to it can really turbocharge your returns.

Choose the right bank accounts

Bank fees eat into your balance pretty quickly, so make sure you’re using the right types of accounts. For example, the average overdraft fee is roughly $27 and the average out-of-network ATM transaction costs about $5, according to Bankrate’s 2024 Annual Checking Survey. Young people, in particular, don’t tend to use much cash these days, but you may still need cash sometimes. If your home bank doesn’t have any ATMs in your college town, it might make sense to open a separate account that you can use while you’re away at school.

Just over half of non-interest checking accounts charge a monthly service fee averaging $5.47. It’s often possible to avoid this fee by maintaining a minimum balance or receiving a certain number of direct deposits. Paying an extra $5 per month may not sound like a lot, but that’s $60 a year that could be better used for something else.

While it’s possible to use something like a prepaid card, Venmo or Cash App as a substitute for a bank account, these alternatives are often not FDIC-insured and there are some gaps in the services they provide. I believe it’s important to participate in the traditional banking system, even if you use some of these services on the side.

Spend smartly

The essence of a solid personal finance strategy boils down to living on less than you make. It’s never too early to hone those skills. Your salary will grow over time but your expenses will, too. This is another instance in which good habits are crucial. If, every time you get a raise, you expand your lifestyle by the same amount, you’ll never really get ahead. It’s important to enjoy yourself, but it’s also important to save and invest for your future. Increasingly, the burden is on us to fund our own retirements, so you’ll want to leave room in your budget for fun but also short-term savings and longer-term investments.

Consider a side hustle

More than a third of U.S. adults (36 percent) have a side hustle, or a secondary income stream, and Gen Zers (18-26 year-olds) lead the way at 48 percent, according to Bankrate’s 2024 Side Hustle Survey. The average Gen Z side hustler brings in an impressive $958 per month. Some of this represents putting a new(ish) term on an old concept – working your way through school – but it’s easier than ever thanks to various websites and apps.

Side hustling can help your finances in several different ways. There’s the extra money, of course, which can make a big difference for a student on a tight budget. It can free up more money for discretionary spending and help keep you out of credit card debt, which is important given the average credit card charging a near-record 20.78 percent.

There’s a good chance you’ll still have to borrow money to afford college tuition, but any money you’re able to bring in can slow your burn rate and fund discretionary spending. Plus, you’ll build valuable skills and experience that can lead to bigger and better things.

The bottom line

As a college student, you have a lot on your mind, but make sure to give your finances some attention. These action steps can help you launch your financial journey on solid footing.