By Amelia Heymann and Drew Thompson

“Typically, when students graduate high school, they either enter the workforce or go on to a higher education institution. This forces them to focus on finances, likely for the first time, as they typically have not had to pay for bills or other expenses while they were still living at home,” Pridemore said. “Young adults should first set a budget and determine spending limits so they do not go into debt or overdraw their accounts. While they may have other things on their plates, there is nothing more important than focusing on finances early in their lives to set healthy financial behaviors.”

Pridemore fielded 10 questions that can help today’s students benefit from lifetime lessons.

SOME BASICS

How can someone start budgeting?

First, figure out your personality style. What do you like to do, and how do you learn best? Is that pen and paper, a spreadsheet, an app?

If it’s a budget in Excel, type in how much your total income is from all of your sources. Next, lay out fixed expenses – rent, utilities, your cellphone bill, anything that’s going to stay the same. Then do variable expenses – groceries, your dining out, your entertainment and any personal care items – because we can adjust those a little bit.

How can someone start saving?

For college students, it’s challenging, but always try to put at least $5 or whatever you can in a savings account. If you want to do it through an app, typically you can link those to your bank account. 

A great way to save more is to pick up a second job or a side gig. What is a hobby you love that you could potentially turn into a business? I have some students who do crocheting and then sell those things on Etsy. If you’re great with Canva or digital marketing, you could create templates for companies or social media.

Also, we all probably have things in our homes or our apartments that we don’t use anymore. How can you put those on Facebook Marketplace, Mercari, Poshmark or some third-party site to make a couple of bucks? If you sell 10 items for $10, you’ve made $100 that you didn’t have before.

What are good sources for financial advice at VCU?

The VCU Financial Success Center by Virginia Credit Union is a great start – we have peer coaches who can talk to you, and for more of an in-depth financial plan, you could look for a certified financial planner. The credit union also has a whole host of online modules and videos related to building credit, budgeting, financial education and personal finance. Your financial institution probably has a similar library of articles.

LOANS AND CREDIT

What are initial tips for paying off student loans?

First, remember that while subsidized loans don’t accrue interest while you’re in school, unsubsidized loans do. That means interest is going to keep growing even as you’re not making loan payments. Often, that’s how we end up with a larger student loan balance when we graduate than what we started with.

I recommend that everybody try to put a little bit toward loan repayment when they’re in school – $5 per month, $10, anything is going to help keep that interest lower and from capitalizing on top of itself while you’re in school.

After graduation, when you get that first full-time job, lay out your expenses. Maybe you need a new car and you need to focus on that as well, so you can look at whether an income-driven repayment plan or the standard plan is the best way to start paying down student loans.

And you can always put a little bit of extra money toward the loans as well – it doesn’t have to just be that minimum payment. Anything extra is going to help pay them off sooner. 

Thinking of payments, what should we know about credit reports and credit scores?

A credit report is a history of your credit from the time you start building it until your present day. That’s going to include any lines of credit or credit cards you have opened and closed, including how much you owe on student loans, car and mortgage loans, other outstanding debt, etc.

For your credit score, think about it like a pie chart. The biggest slice is payment history – bills, loans, your rent, all of these things that, if you aren’t paying them regularly, could go to collections. That’s going to be when you get your biggest hit.

How can someone start building credit?

A great way to start is either through your student loans or by getting a credit card with a very small limit – $500 or less. I recommend putting one purchase a month on that card. Maybe you want to buy a pizza or fill your gas tank, and then you pay it off immediately. That’s going to build your credit. It will show those healthy behaviors of paying it off each month.

It can also help train your brain and get you in the habit of not carrying a balance on those cards. You have to be disciplined when you get a credit card, because if you don’t pay it off, you could face higher interest rates or late-payment fees. 

Is it better to pay off student loan or credit card debt first?

Honestly, it doesn’t matter concerning your credit score. The issue is more about the interest rates on the debt. Typically, we want to pay off any high-interest debt first, and often, your credit cards are going to have a higher rate than your student loans.

THE LONG TERM

Should someone start planning for retirement in their 20s?

Absolutely! One activity I like to do with my class is a future value calculator. Say you opened a Roth IRA today with $50 you got from your grandma for your birthday. Then you put $10 a month into it from now until retirement, about 50 years later. Based on historical market returns, the balance is typically over $1 million. It’s a big eye-opener for students to see that exponential growth.

Then we do the same exercise, but we move the starting age into our 30s. Even doubling the monthly contribution to $20, we have lost hundreds of thousands of dollars by retirement. You don’t think that being in your 30s is that old, but just waiting that amount of time to start investing is costly. 

With uncertainty about the economy or Social Security, is advice different for young savers today?

Honestly, I wouldn’t change anything. Right now is a really good time to get into the market. What we want to think about for retirement is the long game.

When you look at the linear path of the stock market, there are dips – the dot-com bubble, the 2008 housing crisis, COVID – but it continues to have an upward trajectory. There will be ups and downs, but invest and stay invested, even amid recessions. You’re in it for the long run, because you’re not going to retire until you’re 65 or 70 years old.

What is your biggest piece of advice for someone in their 20s?

Don’t wait to start investing. Put money in your retirement account, build a Roth IRA, get a brokerage account. There is no better time than today to start putting money in and building wealth. Even if it’s just a very small amount each month, it will continually compound and grow exponentially.