This is the season of graduation parties and weddings — two big milestones in life.
Let’s take a look at some financial tips for both circumstances.
Drew Martin, PNC Bank retail market executive, said the bank is seeing increased activity at its branches as graduates come in to deposit gift checks from family and friends.
“Summer is a peak season of change in Northeast Ohio, with many people embarking upon exciting new phases in their lives. With these major life changes comes a great opportunity for us to engage with customers about financial planning,” Martin said. “It all starts with an open dialogue about their goals and translates into what we hope will be a lifetime of healthy money management.”
For those heading off to college, managing loans and debt are important. For those graduating from college and getting jobs, there are different responsibilities.
Here are some things to consider:
• In a study of college graduates by Fidelity, for the class of 2013, the average college graduate has $32,500 in debt.
• In a survey by Ohio credit union members, more than 33 percent said they have an existing loan and 22 percent said they were not on track for repayment. More than 24 percent owed between $10,000 and $20,000 and 42 percent owe more than $20,000.
• A TransUnion study in January said more than half of student loan accounts are in deferred status, where repayment is temporarily delayed.
• The Pew Research Center said young adults are carrying less debt than before the start of the 2008 recession, primarily because they own fewer major assets. The percentage of younger households with debt of any kind dropped to 78, the lowest level since the government began collecting data 30 years ago. The share of young adults with credit-card debt declined to 39 percent in 2010 from 48 percent in 2007.
While overall debt declined, debt from student loans was the only major type of debt to increase. Student debt accounted for 15 percent of the total debt for young adults in 2010, up from 9 percent in 2007.
High school graduates
Here is advice for high school and college students about building healthy financial habits and managing loan debts, gathered from PNC, the Ohio Credit Union League and Bankrate.com:
Find a bank with a convenient branch location. Get a checking account with a debit card and a savings account. Parents should consider co-signing on a low-limit credit card for emergencies, especially if their son or daughter is going far from home. Look for technology conveniences such as text alerts to prevent overdrafts.
Also, pull together a basic budget. Parents could be named as co-owner of the student’s account, at least for the first year.
College graduate tips
• Maximize your retirement accounts because even though the stock market is volatile, time and compounding growth are on your side. Even a small amount from paychecks helps.
• Paying off debts with the highest interest rate and pay as much as you can above the minimum. If you get extra money as a gift, bonus or tax refund, use it as an extra payment on debt. Clip coupons and take a lunch to work. Use the savings to pay down debt.
• Build up your credit score, which affects terms and interest rates for all loans — credit card, mortgage and auto. Your payment history and how you handle money is so important that it may be used for apartment rental or insurance applications. Pay all bills on time.
• Create a budget starting with your net income — after taxes, health-care costs and retirement savings are taken out. Don’t underestimate expenses. Track spending for a month or two to get an accurate understanding of your expenses and where your money goes.
• Open a separate savings account to save for an emergency fund. The goal should be three months of income. If you lose your job or have sudden, unexpected expenses, your emergency fund — not your credit card — should be your safety net. Using loans to pay for an emergency simply adds to the cost of the emergency.
• Pay off your credit-card debt as soon as possible. If you are carrying a balance from one month to the next, do not put any new purchases on your credit card. If you can’t pay for it with cash, you can’t afford it, so don’t buy it.
• Monitor your credit history with free annual credits reports through annualcreditreport.com. You can get a free credit report from each of the three credit agencies (Equifax, TransUnion and Experian) every year.
• Know everything about your student loans. Find out when the payments begin, who owns the loan, and the interest rate. If you have a little extra cash, you can prepay loans.
• Set a payment schedule. Late fees are costly and paying late can lead to lower credit scores.
• Know the warning signs of trouble: credit cards at the credit limit; debt growing each month; bouncing checks, and getting calls from creditors.
Newlywed advice
Here are tips from PNC and Apprisen, a national nonprofit credit counseling agency and the former Consumer Credit Counseling Service:
Discuss these five questions ahead of time:
1. Is it my money or our money? Will we have joint or separate accounts? Will we consolidate accounts with the same banking partner? Ideally, all assets should be viewed as “ours,” not as just “mine.”
2. Debt: How much debt am I bringing to the marriage, and how will we manage it?
3. Household CFO: Who’s in charge of budgeting and paying the bills?
4. Spending: Are priorities in line? Is there mutual or individual approval for spending? There should be agreement on the difference between needs, wants and desires, especially when children arrive.
5. The future: Are we prepared to plan for retirement together? This includes 401(k) plans, Roth IRAs, and other savings.
Apprisen adds the following do’s and don’ts:
• Do understand attitudes toward money that might have been present since childhood and were developed in part by observing how parents addressed money issues.
• Do acknowledge that one may be a saver and one a spender, understanding that there are benefits to both approaches.
• Do learn from each other’s habits.
• Don’t hide income or debt, which is financial infidelity.
• Do construct a budget that includes savings.
• Do allow each person to have independence for some spending.
• Do set short- and long-term goals, both individually and as a family.
• Do talk about loaning money to family members and friends. Decide if it’s something each is comfortable with, or should be avoided.
• Do talk about caring for aging parents, and how to plan for their financial needs.
“Baggage can come in the form of a poor credit rating, significant debt, or no experience managing money. Regardless of the issue, the time to address money differences is up front,” Apprisen spokesperson Jana Castanon said.
Apprisen offers free credit counseling sessions at www.apprisen.com or by calling 800-355-2227. Apprisen has offices in the Akron-Canton area and the agency has partnered with the Beacon Journal for financial education projects.
Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Follow her on Twitter at www.twitter.com/blinfisher and see all her stories at www.ohio.com/betty.