{"id":3834,"date":"2014-06-07T11:40:22","date_gmt":"2014-06-07T15:40:22","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=3834"},"modified":"2014-06-07T11:48:39","modified_gmt":"2014-06-07T15:48:39","slug":"three-money-tips-for-new-college-grads-on-forbes-com","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=3834","title":{"rendered":"Three Money Tips for New College Grads on Forbes.com"},"content":{"rendered":"
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\"photo<\/a>What New College Grads Need To Know About\u00a0Money<\/h1>\n<\/hgroup>\n
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By Caitlin Bonney,\u00a0Next Avenue<\/a>\u00a0Contributor<\/strong><\/div>\n<\/div>\n

[I recently wrote a\u00a0Next Avenue blog post<\/a>\u00a0<\/em>about attending the college graduation of my niece Caitlin Bonney and offered a few long-term money and career tips to her \u2014 and to the rest of the Class of 2014. But Caitlin says she and her friends have a few more urgent personal finance questions. She lays them out below and I answer them.\u00a0 \u2014\u00a0Kerry Hannon, Next Avenue personal finance and work blogger<\/strong><\/em>]<\/p>\n

Since I graduated from the University of Richmond last month, I\u2019ve listened to inspiring graduation speeches, read cheesy greeting cards and have received plenty of heartfelt advice about following my dreams and staying true to myself.<\/p>\n

It is great to be reminded of these things, I know.<\/p>\n

But to be honest, what I\u00a0really\u00a0<\/em>could use right about now is someone to help me with three practical money questions (which I will share in a minute).<\/p>\n

I casually mentioned this to my aunt Kerry, an esteemed personal finance writer for\u00a0Next Avenue<\/a>, Forbes, AARP and The New York Times (among others) as we were strolling along the James River in Richmond the day before graduation.<\/p>\n

(MORE<\/strong>:\u00a08 Money and Work Tips for My College-Grad Niece<\/a>)<\/p>\n

A Little Embarrassed<\/strong><\/p>\n

As a finance major, I was initially embarrassed to admit how much I didn\u2019t know about credit cards, renter\u2019s insurance and bank accounts. I explained to my aunt that many of my friends were fuzzy about these important personal finance matters, too.<\/p>\n

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My aunt Kerry was a little surprised at my naivety. I think most adults forget that few of us are formally taught about personal finances and that, frankly, people in their 50s and 60s have trouble remembering their own trials and tribulations when they were just starting out.<\/div>\n<\/div>\n

But I was undeterred. Below are three questions vexing my friends and me \u2014 money matters I bet many newly independent young people are grappling with \u2014 and her answers.<\/p>\n

Caitlin:\u00a0<\/strong>How do I get a credit card?\u00a0<\/strong>You can\u2019t qualify for a card unless you can prove you\u2019re worthy by having a\u00a0credit history<\/a>, but how can you have a credit history when you don\u2019t have a credit card?<\/p>\n

Kerry:<\/strong>\u00a0This is a tricky one and definitely a Catch-22.<\/p>\n

Before I tell you how to get a credit card, let me first make a racket about the dangers of running up credit card debt. (Caitlin: I\u2019m speaking from personal experience \u2014 yes, I\u00a0do\u00a0<\/em>remember what it was like starting out.)<\/p>\n

Sure, you typically need a credit card to pay for big expenses from hotels to airline tickets. I get it. But repeat after me: \u201cI will\u00a0always<\/em>\u00a0pay my credit card bill each month when it\u2019s due \u2014 and in full.\u201d If you only make the minimum monthly payment, you\u2019ll likely be slammed with a high interest rate.<\/p>\n

(MORE<\/strong>:\u00a011 Money Tips for New College Grads<\/a>)<\/p>\n

Twentysomethings these days often pay credit card rates of 22% or higher (!) because they lack a credit history and may have a low credit score. The\u00a0average credit score<\/a>\u00a0for Millennials, according to the Experian credit bureau, is 628; for boomers, it\u2019s 700.<\/p>\n

So when you do get a card, pay your balance each month and be happy that you get about 30 days to make the payment (that\u2019s called the \u201cfloat\u201d).<\/p>\n

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With that off my chest, I\u2019d suggest that if you don\u2019t have a credit history to speak of, you might want to hold off applying for a card until two months or so after you start working. Card issuers want to see an income stream before they\u2019ll approve you, so by waiting a bit you\u2019ll boost your chances of getting plastic.<\/div>\n<\/div>\n

Before applying for a credit card, get your latest credit report (free from\u00a0Annualcreditreport.com<\/a>) and\u00a0credit score<\/a>\u00a0(free from sites like\u00a0Credit.com<\/a>,\u00a0CreditKarma.com<\/a>,\u00a0CreditSesame.com<\/a>\u00a0and\u00a0Quizzle.com<\/a>). These will let you see what a card issuer would find out about your credit history and prepare you for your chances of being approved. If you see a mistake in your credit report, fix it by following the advice in Next Avenue\u2019s article,\u00a0Why You Must Check Your Credit Reports for Errors<\/a><\/em>.<\/p>\n

Traditionally a Visa or MasterCard was considered the best option to demonstrate you could handle credit responsibly because these cards let you \u201crevolve\u201d debt (carry it over month-to-month) if you make at least the minimum monthly payment. The standard American Express card, by contrast, requires you to pay in full each month.<\/p>\n

But this time-honored rule seems to be going the way of the desktop computer. \u201cIf a new graduate can qualify for an Amex card, that card will still help him or her build a credit score,\u201d Gerri Detweiler, director of Consumer Education at\u00a0Credit.com<\/a>, told me.<\/p>\n

An easy way to build a credit history is to ask your parents to add you as an\u00a0authorized user<\/a>\u00a0on one of their cards. The card will then show up on your credit report, and it\u2019ll have your name on it. Your parents\u00a0must<\/em>\u00a0make on-time payments to the account to protect your credit record and theirs. After about six months as an authorized user, you can then apply for a card on your own.<\/p>\n

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Otherwise, a good place to shop for your first credit card is your bank \u2014 or\u00a0credit union<\/a>, where interest rates and fees tend to be lower.<\/div>\n<\/div>\n

Check out\u00a0CardHub.com<\/a>, which just published its 2014 list of the Best Credit Cards for High School and College Graduates.<\/p>\n

The site also has a\u00a0list<\/a>\u00a0of cards for people with no credit history. The rates on these cards these days range from 11.9% to 24.9%. Many of these cards are \u201csecured\u201d credit cards, requiring a security deposit of $100 to $500. With a secured card, you\u2019ll get a credit line of generally one to three times the amount of your deposit. Manage your card responsibly and you may earn credit limit increases. After several months, you can apply for a regular card from the same issuer or from another one.<\/p>\n

Once you obtain an unsecured credit card, close your secured card account and your deposit will be returned.<\/p>\n

One last tip on credit cards: Visit\u00a0Lowcards.com<\/a>\u00a0to find the best deal. In general, look for cards with no annual fees.<\/p>\n

Caitlin:\u00a0<\/strong>Do I need renter\u2019s insurance?\u00a0Since I lived on campus, I never had to deal with landlords so I don\u2019t have any experience with renter\u2019s insurance. What is a renter\u2019s insurance policy, and do I really need one?<\/p>\n

Kerry:\u00a0<\/strong>Absolutely. Your landlord will have insurance on the building, but that won\u2019t cover your stuff.<\/p>\n

Renter\u2019s insurance protects your belongings against losses from theft and vandalism, fire or smoke, lightning and water damage (not including floods). The policy can also cover your living expenses if you\u2019re unable to live in your apartment while it\u2019s being repaired or rebuilt.<\/p>\n

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Renter\u2019s insurance also covers you if someone gets injured at your place and pays legal costs if you\u2019re taken to court. The standard policy provides about $100,000 in liability coverage.<\/div>\n<\/div>\n

There are two types of policies. One covers how much you actually paid for, say, your computer or smartphone, minus the amount it has lost in value since you bought it (that\u2019s depreciation). The other type is\u00a0replacement cost<\/em>, which pays what you\u2019d pay to buy a similar item today.<\/p>\n

Renter\u2019s insurance only costs around $16 a month, or about $180 per year (though this depends on where you live and size of your apartment). So do yourself a favor and spring for it.<\/p>\n

Some insurers will give you a discount if you also have an auto policy with them. Allstate, for example, allows you to add a renter\u2019s insurance policy to an auto policy for about $4 a month.<\/p>\n

Compare rates with at least three insurers at\u00a0Einsurance.com<\/a>.<\/p>\n

Caitlin:\u00a0<\/strong>What\u2019s the difference between the various types of bank accounts and which should I get?<\/p>\n

Kerry:\u00a0<\/strong>When it comes to banking, keep it simple. The biggest question is: What do you need your bank for?<\/p>\n

For example, do you want to be able to bank through a mobile app? Do you just need a plain vanilla checking account where your employer can direct deposit your paycheck and which you can tap, through an app such as\u00a0Venmo<\/a>\u00a0or\u00a0PayPal<\/a>, to pay a friend you owe money?<\/p>\n

I like the comparison tool at\u00a0Findabetterbank.com<\/a>. It lets you compare checking accounts by ZIP code and screens banks by your preferences (for instance, whether you care about avoiding ATM surcharges or the ability to deposit checks via your mobile phone).<\/p>\n

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Two other good sites to compare local and online banks:\u00a0Bankrate.com<\/a>\u00a0and\u00a0NerdWallet.com<\/a>.<\/div>\n<\/div>\n<\/div>\n<\/div>\n

In general, you\u2019ll want to open an interest-bearing checking account that comes with a debit card. To avoid fees, look for an account with no minimum balance or at least a low minimum balance of $500 to $1,000. If your balance dips below the minimum, monthly fees can run you $20 to $35.<\/p>\n

Many banks have reward programs attached to their checking accounts, so that\u2019s something else you might consider.<\/p>\n

One caveat: Always ask about\u00a0any<\/em>\u00a0fees that might be associated with an account. \u201cHigh-yielding\u201d checking accounts may restrict how often you can withdraw money from ATMs, how many checks you can write in a month or how much you use your debit card.<\/p>\n

It\u2019s also a good idea to open a savings account at the same bank. This lets you separate your day-to-day purchases from your savings and helps stave off temptation to spend more than you really should. I find that a savings account is a great place to set aside\u00a0emergency funds<\/a>\u00a0to cover your unforeseen medical bills, car repairs and so on.<\/p>\n

At your age, make it a goal to build up enough in the savings account to pay for at least three months of expenses. As you get older and are earning more, you\u2019ll want to increase that savings fund to cover a year\u2019s worth of expenses.<\/p>\n

A money market account is another type of savings account you can open at your bank, generally with a minimum deposit of $300 to $3,000. You might earn a teeny bit more in interest with this type of account.<\/p>\n

In general, you\u2019ll find better interest rates for checking and savings accounts at\u00a0credit unions<\/a>\u00a0and\u00a0Internet-based banks<\/a>, if you don\u2019t care about having a traditional bricks and mortar branch.<\/p>\n

Caitlin:<\/strong>\u00a0Awesome, thanks! And did I hear you say you\u2019ll help me jumpstart that emergency savings account?<\/p>\n<\/div>\n<\/div>\n

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