ISU personal finance professor takes students to school on managing their money

AMES, Iowa -- Each year, new students arrive on their colleges campuses eager to experience independence for the first time, which includes greater financial freedom. But numerous reports have shown that some students aren't prepared for the responsibility of managing their own money and fall victim to overspending -- running up substantial debt in the process.

"College students are not better or worse than other adults at managing their money. Most students are responsible people who have good, sound value systems," said Tahira Hira, an Iowa State University professor of personal finance and consumer economics in the Department of Human Development and Family Studies. "It's only a minority who act irresponsibly. But of course, that is not good for them or for the larger society."

Hira would like to see fewer students experience financial distress. Appointed by President Bush to the president's advisory council on financial literacy, she recommends that students practice these three basic principles to nearly guarantee financial well-being:

1. Live within your means, so you first need to know what your "means" are.
"That is to know how many funds you have at your disposal to spend on all kinds of expenses over a period of time -- whether it is a semester, month, or week," Hira said. "Keep that figure in mind so you can stay under that amount when spending. You must first take care of the basic needs -- food, shelter, transportation, and college supplies. Then comes the spending on wants."

2. No matter what is the level of your financial resource, you must spend just a little under that.
"Another way of saying this is that you save something -- five to 10 cents of every dollar -- to build a 'rainy day' fund," she said. "This fund is for unexpected expenses, emergencies and perhaps sometime for a large expense item that one cannot afford from the regular budget."

3. Be very mindful of borrowing!
"It is a good thing to borrow for education -- the best investment you will ever make, because higher education results in higher paying jobs for many years to come. However, you must carefully determine how much you should borrow," Hira said. "Borrow just enough to pay for your legitimate college cost. And before accepting a student loan, explore all other sources of funds. Taking a loan should be the last step in completing your financial aid package, and fully understand the cost and other terms of this loan.

"Additionally, be very careful about the use of credit cards," she continued. "Use credit cards for the ease in which you can purchase things, but charge only the amount for which you have funds -- staying within your spending plan. That means you pay the credit card bill in full. If you see yourself making only a partial or minimum payment, that's a big sign that you have a problem."

Hira says the key to successful management of finances is controlling expenses. Students should always be aware of how much they are spending and what they are spending their money on --documenting it as a reference.

"Have a spending plan that is within your financial means and then build in some control mechanism to help you stay within that plan," she said.

She also offers these additional spending tips:

  • Give yourself a daily allowance that fits within the budget, so once that amount is spent, you know you have to stop spending for that day.
  • Balance your checkbook regularly, even if you are doing your banking on the internet.
  • Keep credit cards safe at home; don't have them on you every day. "Studies show people with credit cards are more likely to spend beyond their means, or lose control," said Hira, who is an international leader in consumer credit research. "Keep credit cards for emergency needs, or take them with you when traveling."
  • When going out with friends at night, decide ahead of time how much money you can afford to spend that evening. "Just take that much money and leave the rest behind," she said.
  • Eliminate or minimize casual visits to the mall. "Only go there when you have something specific to buy," Hira said. "Buy that item and then leave."
  • When you want to relax, reduce stress, or celebrate, realize that there are better ways to deal with emotions than shopping. "Go for a walk, read a fun book, visit with friends or family, or volunteer your time to someone who is in need through community service," she said.

Iowa State's human development and family studies faculty have collaborated with the university's Government of the Student Body to expand the financial education resources available to students this fall. A new, one-credit online course will provide a basic understanding of issues such as budgeting, credit and student loans.

The department also operates Iowa State's Financial Counseling Clinic, a full-service financial counseling center for students that Hira founded previously as a research and teaching laboratory. Doug Borkowski is the clinic's director and may be contacted at (515) 294-8644, or