First lesson for students should be budgeting

Students celebrating gaining record A level results on Thursday now have some important decisions to make. Their initial aim may have been to secure their university place, but if they fail to sort out their finances before they head off to college, they could end up counting the cost for years.

While fees of up to £9,000 a year are their main financial problem, for the many who will be living on their own for their first time will have to face taking responsibility for their own financial affairs. Even if universities are forced to slash fees to fill places, as a report by the Higher Education Policy Institute warned this week, students still face a daunting financial experience. Here are the key things they must consider to ensure university life doesn't become a cash crisis.

"It is important for students to consider finances at the start of university," says David Black, banking analyst at Defaqto. "Although money management may be the last thing they want to consider, doing homework up front and getting the right account in place could pay significant dividends."

With the average student having to survive on an annual income of less than £6,000 a year, half of which is derived from student loans, that makes sound sense. With such limited funds, three out of five students struggle to make ends meet, according to research from Lloyds TSB.

That forces more than half to take on paid work during term time, but doing so can have a negative impact on studies, warns Jatin Patel of Lloyds TSB. "Paid work can be a huge benefit to students as it can give them valuable experience; however, it should not be impacting on their studies. With finances tight, students need to ensure they use discounts and money management tools to help them manage their finances."

There are also tax implications to consider. Students aren't exempt from income tax demands. However, you'll only have to pay if you earn more than £7,475 in the current 2011-12 tax year. You'll also have to pay National Insurance if you earn more than £139 a week. Both should automatically be deducted from your wages. If you only plan to work in the holidays your total income for the year may be below the tax threshold, so fill out form P38(S) - available from your employer - to avoid unnecessary deductions.

One way to cut costs is to remain at home. At present only around a quarter of students lives at the parental home when at university but that's set to rise to half as youngsters look to cut costs, according to insurer LV. However, doing so can make it harder for students to feel involved in university life. The key is to get the balance right between getting the most out of the college experience while not burdening yourself with too much debt.

As part of that students should avoid the temptation to get a credit card - it's a sure way to get into debt trouble which can quickly spiral out of control. Parents who want to help students should consider getting them a pre-paid card.

It'll give youngsters the convenience of paying by plastic without the temptation to get into trouble.

Then, when kids need emergency cash, parents can simply add it to the pre-pay card by phone or online.

Cash points: Ignore the freebies

Students should focus on overdrafts – not freebies – when comparing bank accounts, advises David Black of analysts Defaqto. "Student accounts typically offer a number of incentives and, although useful, it is essential that students look beyond these and focus on what would happen if they were to become overdrawn," Black says.

Overdraft offers

HSBC and Halifax offer interest-free overdrafts of up to £3,000, at rival banks it's £2,000. If you stray further into the red charges will bite although they vary widely. For example, Lloyds TSB has an 8.2 per cent charge while Halifax – also part of the Lloyds Banking Group – charges three times as much at 24.2 per cent. Other lenders charge daily. Santander, for instance, charges a one-off payment of £5 per day, capped at 10 days per month.

Interest on credit

For the very rare student who may be able to stay in credit during university, most accounts pay a practically worthless 0.1 per cent on balances. However particularly flush students can get interest of 2 per cent on amounts up to £1,000 at HSBC or £500 at Santander.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones