themoneymanualA Personal

FinancialGUIDE from the

HispanicScholarship

Fund

themoneymanual

© 2002. National Endowment for

Financial Education. All rights reserved.

Note: Content areas in this material are current

as of this printing, but legislative and regulatory

changes, as well as new developments, may

date this material over time. This manual is

meant to provide general financial information;

it is not meant to substitute for or to supersede

specific professional or legal advice.

A Personal Financial

GUIDE from the

H i s pa n i cS c h o l a r s h i p

F u n d

Dear Student 4

Introduction 5

Chapter 1: Getting Ready for College 6

Getting Organized 6

Checking Accounts 8

Know What You Need 10

Handling Your Checking Account 11

Making a Spending Plan 13

Learning to Save 17

Saving for the Unexpected 18

Chapter 2: Understanding Financial Aid Options 20

Scholarships and Grants 20

Work-Study Programs 23

Loans 23

Calculating the Cost of Loans 25

Financial Aid Forms 26

Student Aid Report 28

ROTC Scholarships 30

Chapter 3: Managing Your Money 32

Watching Everyday Spending 32

Plugging Spending Leaks 33

Cutting Expenses 34

Standing Up to Peer Pressure to Spend 35

Watching Out for Credit Cards 37

Credit Card Guidelines 39

Avoiding Expensive, Easy Fixes 40

Not Giving Up 43

Table of Contents

2

Chapter 4: Planning for Tomorrow 46

Making New Plans 46

Looking at More than Salary 48

Filling in the Gaps 49

Knowing Your Credit History 50

Building Good Credit 50

Planning for the Long Term 51

Company-Provided Retirement Plans 53

Conclusion 56

Resource Review 57

Financial Aid 57

Financial Planning 57

Credit Reports 57

Debt Help 57

The Family Foundation: A Special Note to Parents 58

The Importance of College 59

The Cost of College 59

The College Payoff 60

The Best Way to Help: Emotional Support and Money 60

Ways to Save 61

Other College Planning Tips 62

Reapply for Financial Aid 63

Prepare to Pay Back Student Loans 63

A Final Thought 63

Acknowledgments 64

3

Congratulations on your interest in going to college. We hope theinformation in this booklet helps you

obtain funds for your college education. Wealso hope you apply for and are selected tobe an Hispanic Scholarship Fund (HSF)scholar. If so, you will join many formerHSF scholars who are leaders in many professions. Their achievements are notexceptions; instead, they are examples ofwhat you can achieve for yourself, for your family, and for this country.

In 1996, HSF set a special goal. It wantedto double the rate of Hispanics enteringcollege to 18 percent by 2010. You are partof this important mission.

Since you have this publication, you are either about to enter college or arecurrently in college. This is an excitingtime—it’s also a challenging time.Succeeding in college is not just a matterof doing well in your classes and on exams.You also need to make wise choices withyour money so you can stay in school.

But just as help is available with your college studies, help also is available foryour finances.

One form of help is The Money Manual,

which was written as part of a joint projectbetween the Hispanic Scholarship Fund®

and the National Endowment for FinancialEducation® (NEFE®). The Money Manual

provides information and guidance to helpyou get a handle on your personal financesduring your college years and beyond. Italso provides a section aimed specifically atyour parents. We encourage you to sharethis manual with them.

The Hispanic Scholarship Fund and the National Endowment for FinancialEducation congratulate you on your choiceto plan for and attend college. This is awise path—but it won’t always be an easypath. No great journey is easy, but yourdetermination, persistence, and vision canlead you to a life of vast possibilities. Weknow you will succeed in your goals, andwe wish you the very best.

4

Dear Student

Sara Martinez Tucker

President and CEO, Hispanic Scholarship Fund

William L. Anthes, Ph.D

President and CEO, National Endowment for Financial Education

Your family probably has been the cornerstone of your life. Theyhave taught you so much. Lessons

on working together, being loyal, andsharing your feelings are all part of grow-ing up. It may be difficult to think aboutgoing to college—especially if your schoolis in another city or state. The tug ofhome can be strong, but your desire for acollege education must be stronger. Alsorealize that you represent the hopes anddreams of your family. They want what isbest for you. They want you to have abright future.

Leaving home for college doesn’t meancutting ties with your family or changingyour values. It just means that your strongfamily bonds must stretch a little farther.

Addressing the futureThese are exciting times for Hispanics.The number of Hispanics in the UnitedStates grew 58 percent in the last 10 years.You are part of the fastest growing ethnicgroup in the country. This growth isexpected to continue. By 2020, 22 percentof the U.S. population likely will beHispanic. (Source: U.S. Census, 2000.)

Hispanics are becoming a major influenceon American culture, economics, and politi-cal policies. Your college education can helpposition you to affect all of these areas—aswell as advance your own career desires.

That’s where the Hispanic ScholarshipFund comes in. HSF scholars have a 97percent bachelor’s degree graduation rate,with more than 30 percent going on tograduate school. (Source: HispanicScholarship Fund.)

For many students, money challenges areas much a part of college life as exams.The Hispanic Scholarship Fund and theNational Endowment for FinancialEducation hope you will use this manualto help you meet the money challengesalong the way to fulfilling your educationdreams and goals. Your sound moneyskills, combined with academic achieve-ments, make a formidable team foraccomplishing any goal. So, with yourgoals clearly in mind, let’s get started!

5

Introduction

COLLEGE

Going from high school to collegemeans taking more difficult classes,meeting new people, and setting

your own hours. But it also means takingcharge of your personal finances. Don’tlet that thought scare you. You can followthese steps and begin your journey tosolid money skills.

Getting organizedGetting organized—especially with yourimportant papers—is the first step in getting ready for college life. Putting yourpaperwork in order can save you time—

and aggravation. Infact, learning to be

organized with your important papers is agood skill for your life after college, as well.

Organizing your papers and records willtake a few hours, but it doesn’t take a lotof cash. Most records can be kept at homein any of the following:

• inexpensive file box (available from an office supply store or major discount store)

• labeled file folders kept inside a card-board box

• labeled shoe boxes

CHAPTER 1Getting Ready for College

6

Most of your financial records can bekept with you in your dorm room, apart-ment, or home. How you organize yourfiles is up to you, but you may want toconsider making separate files for the following categories:

• Bills. As bills come in to be paid, placethem in this file. Pull the file out everyfew days to pay all bills that are comingdue. You also may want to note on acalendar when you need to send in apayment on a particular bill. Then, justgo to your “bill box,” find the bill, andsend in your payment.

• Checking account. Canceled checks (ifyou get them) and monthly statementsfrom the bank or credit union go intothis file.

• College. Keep a file for college-relatedinformation, including high school gradereports, awards, and other records ofnote. You’ll also want to sort and filerecruitment and program informationfrom various colleges, SAT and ACTscore reports, and so on. After you areenrolled in a college, you can keeprecords of requirements to graduate,courses completed, grades, and credithours. Later, when you are out of school,this information will come in handy ifyou want to apply to graduate school.

• Financial aid. File your financial aidapplications, grant and scholarshipawards, and agreements concerning anystudent loans. If you talk to someone bytelephone about your financial aid, keepwritten notes of your conversation,including the person’s name, telephonenumber, and date.

• Insurance. File your car, medical, life, andrenter’s insurance policies here. If youreceive any paperwork about changes toyour policies, keep those, too.

• Loan and credit records/receipts. Fileloan agreements and payment recordsfor items like student loans, car loans,credit card payments, and so on.

• Receipts and warrantees. Receipts andwarranties can help you get an itemrepaired or replaced when needed.Receipts also come in handy if you needto return an unused item. Of course,you’ll want to keep receipts for majorpurchases, such as computers, appli-ances, or stereo equipment. You alsomay want to keep receipts—for a shortwhile—on clothing, books, or similar“smaller” items.

• Banking and investments. Keep quarterlyand end-of-year statements from your sav-ings and investment accounts in this file.

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• Taxes. Use this file for W-2 forms, copies of past tax returns, and proof of tax deductions.

Records that would be difficult to replaceshould be stored in a safe deposit box at a bank. A safe deposit box costs around$30 a year. Another option is to put theserecords into a fire-resistant box. Examplesof hard-to-replace items include birth cer-tificates, Social Security cards, passports,car titles, and military records.

One item that should not be placed in asafe deposit box is your will. A will directshow—and to whom—your assets will bedistributed. You also use your will to namea guardian for your minor children.However, upon death, a safe deposit box issealed and can be opened only witha court order. This means

your wishes may not come to light untilafter decisions already have been made. If(or when) you have a will, keep a copy in afire-resistant box at home and give a copyto a trusted friend or relative who lives at adifferent address.

Checking accountsIf you don’t already have a checkingaccount, you may want to consider settingone up now or when you get settled atcollege. This is another major step in getting organized.

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After you have answered the checking account questions on the next page and thought about your moneynature, it’s time for some comparison shopping. Use the worksheet below to compare the costs of checkingaccounts. If a credit union has the best rate, find out if you can join.

BANKINGShop for the right account

Bank A Bank B Savings Credit(name) (name) and Loan Union

(name) (name)

Monthly fee

Cost to print 200 checks

Monthly cost of on-line banking

Minimum balance to avoid fees

Fee for falling below minimum balance

Bounced check fee

Fee for check copy (if canceled checks aren’t returned)

Teller fee

Account reconciliation fee

ATM card fee

Interest rate for high balances

Overdraft protection charge

The bank, savings and loan, or credit union I will use is: _____________________________________

CheckingAccountFeature

Using checks is safer than carrying cash.A checking account costs less than buyinga money order, and your canceled checksor monthly statement will help you keeptrack of your expenses.

With a checking account, you simply write acheck to a vendor or person to pay for anitem. The amount of the check then is takenout of your account and placed in theaccount of the person or business towhich you wrote the check. Sounds easy,doesn’t it? Checks are easy and useful ifyou follow these steps:

• Decide what type of checking accountwill work best for you.

• Learn how to take care of your account.

Know what you needBefore running out to the nearest bank,credit union, or savings and loan to opena checking account, do some research first.It could save you money in the long run.

Start by identifying your banking needs.Ask yourself the following questions:

• On average, how much money will I beable to keep in the account every month?

• About how many checks will I need towrite each month?

• Do I want to go to the bank to get or deposit my money, or will I use auto-mated teller machines?

• Would I prefer to pay most of my billsusing on-line banking?

After you answer these questions, you’llhave a better idea of the kind of checkingaccount (and account features) that willwork best for you.

For example, if you won’t be able to keepmuch money in the account, but plan onwriting only a few checks each month, alow-cost, no-frills checking account maybe right for you. Or, maybe you wouldprefer to do your banking at automatedteller machines (ATM) or over the tele-phone. Then, an express account might bea good choice. Always ask if the bank,credit union, or savings and loan offersspecial accounts for students.

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You also need to think about your “moneynature.” For example, one student learnedthat he just couldn’t handle his ATM card.Because the machines were everywhere, hewithdrew—and spent—too much money.Now, he doesn’t have an ATM card andchose a bank across town so he has to makea special effort to withdraw cash. Thiscross-town trip gives him time to thinkabout his money and his spending.

Handling your checking accountAfter you have your checking account, it’simportant to maintain it properly. Thefollowing tips can help you keep youraccount healthy and avoid costly andembarrassing mistakes.

• Write down your transactions. Everytime you write a check, enter thecheck number, date, and amount intoyour checkbook register, and sub-tract it from your balance.

• Consider check duplicates. If youcan’t get into the habit of writingdown your check transactionsimmediately in your checkbook register, order checks that haveduplicates. Then, you’ll have arecord of the check and can enterthe transaction amount into yourregister at a later time.

• Synchronize your checking account. Ifyou are using both paper checks and on-line banking, make sure you enter the checks you wrote electronically intoyour paper register.

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If you use personal finance software(such as Microsoft Money® or Quicken®)along with on-line banking, you can listboth your paper checks and electronicchecks in the software.

• If you use an ATM or have a bank debitcard, write down those transactions inyour checkbook register, too.

• Don’t “bounce” a check—write a checkfor more money than you have in youraccount. The bank will charge you asmuch as $20, $30, or more for eachbounced check. In addition, the companythat took your “bad” check can chargeyou a fee. Bounced checks also can hurtyour credit record.

• Don’t check your account balance at theATM and assume it is correct. If youwrote checks that haven’t cleared thebank yet, the ATM balance appearshigher than the amount of money youhave available.

• When the bank mails your checkingaccount statement each month, comparethe bank’s figures with your own andmake any adjustments. This is called“balancing your checkbook.” Follow thestatement’s directions on how to balanceyour checkbook. If you have any ques-tions, ask a bank representative to help you.

• Promptly report any errors or lost orstolen checks to your bank.

• Keep your bank statements, canceledchecks, or check duplicates with yourother financial records. Not all banksreturn canceled checks, but if yoursdoes, it helps keep track of your spend-ing. In addition, you may need thisinformation to re-apply for financial aidor to do your taxes. In general, keepyour canceled checks and bank state-ments for five to seven years.

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Making a spending planWhen you are planning for college (andwhile you are in college), it may seem likethere is never enough money. That’s whyyou need a plan—a spending plan. Aspending plan helps you know how muchmoney you have coming in, where youmust spend it, and where you might beable to save.

A spending plan works well for anyone,but for a college student it is especiallyimportant. Consider making severalcopies of these spending plan worksheetsto use throughout the year (or create yourown on the computer). Spending plansaren’t complicated and don’t take a lot oftime to complete. Just follow these foursimple steps, and you will have a betteridea where you stand financially.

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WORKSHEETSpending Plan

Step one: Identify your incomeThe first step in making a spending plan is to list the income you receive each month. Use this worksheet toestimate your monthly income. Don’t include any financial aid that pays for “direct” college expenses, such astuition, room and board, and so on. Also, if your financial aid exceeds your direct college expenses, don’t rushout and spend that “extra” money. Instead, request that the money be applied toward the cost of the next quarter or semester.

If you receive any money in a lump-sum payment at the beginning of each quarter or semester, divide the totalamount by the number of months it must last.

Monthly Income Sources Per Month

After-tax wages from a job or work-study program $ _ _ _ _ _ _ _ _ _ _ _

Financial help from family $ _ _ _ _ _ _ _ _ _ _ _

Withdrawals from savings $ _ _ _ _ _ _ _ _ _ _ _

Other (child support, public assistance, gifts, etc.) $ _ _ _ _ _ _ _ _ _ _ _

Total Income $ _ _ _ _ _ _ _ _ _ _ _

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WORKSHEETSpending Plan

Step two: List your expensesUse this worksheet to estimate your monthly expenses. If you are not sure how much you spend for things likemeals, gasoline, or CDs, try keeping a spending notebook for a month. In your notebook, jot down what youspend on everything—including those “small” purchases, such as gourmet coffee or candy bars. An inexpensive,pocket-sized notebook works well for this purpose.

Some expenses, like food or rent, are paid every month. Other expenses, such as books, school supplies, and carinsurance, come due every three or four months. To set aside enough money each month for these occasionalexpenses, divide the total amount by the number of months between payments. Write that amount on yourmonthly expense worksheet.

Monthly expenses Sources Per Month

Tuition and other expenses not coveredby financial aid $ _ _ _ _ _ _ _ _ _ _ _ _ _

Textbooks and school supplies $ _ _ _ _ _ _ _ _ _ _ _ _ _

Transportation (bus or rail pass,gas, oil, car payment, travel at holidays) $ _ _ _ _ _ _ _ _ _ _ _ _ _

Insurance (car, health, life) $ _ _ _ _ _ _ _ _ _ _ _ _ _

Rent, mortgage, or dorm room $ _ _ _ _ _ _ _ _ _ _ _ _ _

Food (groceries or meal plan) $ _ _ _ _ _ _ _ _ _ _ _ _ _

Utilities (heat, water, electricity) $ _ _ _ _ _ _ _ _ _ _ _ _ _

Telephone or cell phone $ _ _ _ _ _ _ _ _ _ _ _ _ _

Snacks/dining out $ _ _ _ _ _ _ _ _ _ _ _ _ _

Child care $ _ _ _ _ _ _ _ _ _ _ _ _ _

Loans and credit card payments $ _ _ _ _ _ _ _ _ _ _ _ _ _

Clothes $ _ _ _ _ _ _ _ _ _ _ _ _ _

Entertainment (movies, dates, concerts) $ _ _ _ _ _ _ _ _ _ _ _ _ _

Savings* $ _ _ _ _ _ _ _ _ _ _ _ _ _

Other $ _ _ _ _ _ _ _ _ _ _ _ _ _

Total Expenses $ _ _ _ _ _ _ _ _ _ _ _ _ _

*If you think of saving money as a regular monthly expense, you will be more likely to set money aside.

Write down your total monthly income (from step one). $ ______________

Write down your total monthly expenses (from step two). $ ______________

Subtract expenses from income and list the amount here. $ ______________

Step three: Compare income and expenses

Step four: Set priorities and make changes

Was there money left over at the end of the month? Congratulations! If you treat it wisely (like puttingit into a savings account), you will be on your way to building financial security.

If you came up short, review your monthly expense worksheet. Some costs you have no control over,such as tuition, room and board, and so on. But other costs, such as travel, entertainment, and personalexpenses, you do have some control over. Look to see where you can reduce these expenses. If cuttingback isn’t enough, you also may need to consider increasing your income—if possible.

WORKSHEET

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Learning to saveThe best way to pay for college is to havethe money on hand to handle at least someof the expenses. The money that you setaside in savings may reduce the amount offinancial aid you qualify to receive. Still,it’s always cheaper to “pay as you go,”rather than “go now and pay later.”

If you’re expecting to receive financial aid, realize that some of the financial aidyou receive may be in the form of studentloans—which must be paid back. In2001–2002, a record $74 billion wasavailable to students for financial aid.Some 58 percent of this aid was in theform of loans. (Source: The College Board.)

Frankly, few college students and theirfamilies can save enough to pay the entirecost of a college education. Instead, theyoften rely on a combination of savings,family contributions, financial aid, and,possibly, income from a part-time job.

Of course, it’s not easy to save—particularlyfor college students or soon-to-be collegestudents. But learning to set aside somemoney—even small amounts—in savingsmay reduce the amount you need in loansand may develop a life-long savings habit.

Here are a few simple ideas to start a savings habit:

• If you receive money from a relative, putthe money into a savings account insteadof spending it.

• Each day, put $1 plus any loose changeinto a jar, box, or some other container.Put the container in a secure place. In amonth, you’ll probably have around$50 to put into a savings account.

• Pay yourself first. Try to set aside 10 percent of the money from a work-study or other part-time job into a savings account.

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Saving for the unexpectedAnother reason to save is to pay for those“unexpected” expenses that always seem tohappen. For example, a car could breakdown, a part-time job may suddenly end,or your computer could suddenly stop“computing.” Having money in an emer-gency fund will help you get over a loss ofincome or pay for repairs.

A good rule of thumb is to set aside enoughmoney to pay for three months of basic livingexpenses. Then, if you can’t find a part-timeor work-study job for a quarter, or yourcomputer sends up smoke instead of e-mail messages, you’ll be ready.

PROFILEDiana Diaz, Certified Social Worker

Diana Diaz, 26, loves her work at the New York Board of

Education. She has a degree in applied psychology from

New York University. She also earned a master’s degree

from Columbia University.

Diana had emotional and some financial support from

her family. “My parents were major motivators,” she says.

“They emphasized how difficult it was for them. They

are very intelligent people, despite limited education.

They emphasized how important it was to continue

my education.

Diana needed scholarships, student loans, work income,

and savings to pay for college.

She lived at home to save money. Diana worked part

time in college and full time in graduate school. She had

a two-hour commute and often got home very late. She

also admits having only a limited social life.

But still, Diana doesn’t regret a thing. “I’m glad that I

did whatever I had to do. It worked out nicely,” she says.

Diana warns today’s college students about overusing

credit cards: “I didn’t want to ask my parents for any-

thing, so I charged everything.”

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CHAPTER 2

For many students, financial aid is an important source of income during their college years. Typically,

financial aid comes in three forms:

1. scholarships and grants

2. work-study programs

3. loans

Another option that may be consideredto help pay for college is a ReserveOfficers’ Training Corps (betterknown as ROTC) scholarship

(see page 30). The followingsections detail the varioustypes of financial aid and

scholarships available.

Scholarships and grantsThe great thing about scholarships andgrants is that they do not have to berepaid. The U.S. government funds two ofthe largest grant programs: the FederalPell Grant and the Federal SupplementalEducational Opportunity Grant. Somestates also offer grant programs.

Most grants and scholarships come fromcolleges or private sources, including:

• service groups

• religious groups

• companies

• employers

Finding these grants and scholarships isn’talways easy. It takes time to fill out theapplications, but it is well worth theeffort. Your college’s financial aid officecan help with your search. Also keep in

mind that it’s possible to beawarded more than one scholarship or grant.

OPTIONSUnderstanding Financial Aid Options

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So how do you get started on your schol-arship hunt? As with many things, an initial on-line search uncovers any numberof opportunities. Best of all, the informationis free and current. Make special note ofapplication due dates and requirements.Here are a few great places to start:

• College Board (www.collegeboard.com)

• FastWEB (www.fastweb.com)

• FinAid (www.finaid.org)

• Scholarship Resource Network Express(www.srnexpress.com)

• National Association of StudentFinancial Aid Administrators(www.NASFAA.org)

• Sallie Mae, scholarship service(www.salliemae.com/planning/scholarships.html)

• U.S. Department of Education, Office of Postsecondary Education(www.ed.gov/offices/OPE or www.students.gov)

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SCAMSAvoid scholarship scams

Thousands of Americans are conned out of millions of dollars each year while

searching for scholarships (Source: National Association of Student Financial Aid

Administrators). Consider these guidelines:

• Never pay a fee for

scholarship money or

application information.

• Never give out your

credit card or bank

account numbers.

• Don’t fall for “guarantees”

or other claims.

The truth is that real

scholarships never charge

fees, and the information

about applying is available

to everyone.

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Work-study programsIf you want to work during college, there is a place to indicate this on yourFree Application for Federal Student Aidform (FAFSA form). (See page 26.) Or,check with your college’s financial aidoffice. They should have a complete list of what’s available. You also can call 1-800-4FED-AID and request informationon work-study programs.

Work-study programs offer jobs both oncampus and in nonprofit groups and publicagencies. In general, work-study jobs payat or slightly above the minimum wage.The government provides these funds toemployers to pay work-study salaries.

LoansGraduating from college debt free is agood goal, but this may not be possible.You may need one or more loans to payfor college. The federal government andprivate lenders offer loan programs. Startby exploring federal student loans. (See thechart on page 24.)

When accepting a loan, you will sign apromissory note. This legal documentshows your pledge to repay the debt.

In a few situations, the federal government“forgives” loans. This means you don’thave to repay part of or your entire loan.For example, if you have a Federal PerkinsLoan, you can go into law enforcement orteach in a federally designated, low-incomearea. If you do so, you will not have torepay the loan if you stay in that job for atleast five years. If you leave the job beforefive years, part of the loan will be forgiven.

Also, AmeriCorps, a domestic version of the Peace Corps, currently providesparticipants with an education award ofapproximately $4,725.

Check with your financial aid officer forinformation about these special programs.

Warning: More and more private loansare being marketed to college students.Review a loan’s provisions carefullybefore you accept it. Make sure youunderstand what you will have to repayand when. Most important, do not borrowmore than you need.

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Loan Type Loan Facts Loan Limits Disbursement

Federal Perkins Loan Not all schools $3,000 to $4,000 for The school disburses fundsA campus-based aid program participate in undergraduate students to students

this program

Student must show $5,000 to $6,000 for financial need graduate students

Stafford Student must show $2,625 to $18,500, Family loan program:Subsidized Loans financial need. depending on government provides fundsIncludes Federal Family college grade level to schools to disburse Loan Program Education to students(FFELP) and Federal Direct Student Loan Program Government pays (FDSLP) interest while student Direct loans:

is in school and during government disbursesthe grace period directly to students

Stafford Student does not $2,625 to $18,500, FFELP: government providesUnsubsidized Loans need to show depending on funds to schools toIncludes Federal Family financial need college grade level disburse to students Education Loan Program(FFELP) andFederal Direct Student Student responsibleLoan Program (FDSLP) for paying all the Federal Direct:

interest during the government disburseslife of the loan directly to students

Federal Parent Loan Lets parents borrow Up to the full Funds can be disbursedfor Undergraduate, money to cover any cost of attendance directly to the studentStudents known as covered by student’s or to the school toPLUS Loan financial aid package disburse to the student

Available to parentsof dependent undergraduate students

PLUS loans are the financial responsibility of the parents

Private Loans Borrower must qualify The lending institution Funds are disbursedSources include bank or for a private loan. will set the limit directly to the borrowercredit union loans, life Qualifying willinsurance policy loans, depend onhome equity loans credit history

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EXPLOREYour Loan PossibilitiesThe chart on this page shows the types of student loans that may be available to you.

Calculating the cost of loansTry to think of student loans this way: They are an investment in your future, but theyalso will put you in debt. Many students spend 10 or 20 years repaying their collegeloans. If you have to pay interest on the loan, the debt can quickly mount up.

For example, consider the following chart:

TotalPayment

Borrowed Interest Monthly Loan with Amount Rate Payment Duration Interest

$23,000 8.25% $282 10 years $33,840Federal Annual 120 Stafford Percentage Payments

Loan Rate

Private lending sources will cost you even more!

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Financial aid formsApplying for financial aid starts by fillingout the “Free Application for FederalStudent Aid” (FAFSA) form. College-boundstudents all across the country use this form.

You can get a copy of the FAFSA form bycalling 1-800-4FED-AID or you can applyon-line at www.fafsa.ed.gov. Keep the fol-lowing points in mind when completingyour FAFSA form:

• Read the instructions carefully. Termslike “household” or “parent” have aspecific meaning when it comes tofinancial aid. To answer the questionscorrectly, follow the instructions.

• Apply early. Apply for financial aid assoon as you can after January 1 of theyear in which you will be attending col-lege. The earlier you get started in yourfinancial search, the better your chancesare of finding the money you need.

• You don’t need to file your tax returnbefore you submit your FAFSA form.Filling out your tax return first willmake completing the FAFSA easier, but you do not need to submit your tax return to the IRS before you submit your FAFSA. You can updateyour FAFSA later if the numbers onyour income tax return end up beingdifferent from what you expect.

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• Apply on-line if possible. The fastestway to apply for financial aid is to fillout and submit a FAFSA over the Internet(at www.fafsa.ed.gov). On-line applica-tions have an additional advantage: yourapplication will be reviewed before it issubmitted. This reduces the chances ofyour application being rejected becauseof an error.

• Keep your paperwork. Save everythingyou used to complete the FAFSA form,such as tax records, driver’s license, and so on. Also, make a copy of yourcompleted FAFSA form and keep it inyour records.

• The FAFSA form is good for one schoolyear only. You must complete and submita FAFSA each year you are in school.

• Don’t miss deadlines. The FAFSA formshould be submitted as soon as possibleafter January 1 of the year you will beattending school. (If you submit theform before January 1, it won’t beprocessed.) In most states, the FAFSAmust be submitted by March 1; a fewstates have an earlier deadline. If youmiss the filing deadline, you’ll have towait until January 1 of the next year toapply again. Also, if you must correctyour FAFSA, know the deadline thatcorrections must be submitted.

• Know the Title IV Institution Code foreach college or university to which youare applying. You will need this code tocomplete the FAFSA form. To get thecode, call the school’s financial aidoffice or use the search form onwww.fafsa.org.

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Student Aid ReportAbout four weeks after you send in theFAFSA form, you will receive the StudentAid Report (SAR). Make sure it is completeand accurate. If you find an error or youneed to make changes, talk with your college’s financial aid office before mailingin corrections.

The report also lists your “ExpectedFamily Contribution” (EFC). This is theamount the government and collegesexpect your family to pay. The differencebetween your EFC and the cost of collegeis the amount of aid you need.

The school you plan to attend will get acopy of your SAR along with the rest ofyour information. The school, then, willuse this information to prepare a financialaid package.

In general, the financial aid you are eligi-ble to receive goes directly to the schoolon your behalf. Typically, your schoolfirst uses the aid to pay tuition, fees, androom and board (if provided by theschool). You receive any remaining aid for your other expenses, such as books,lab fees, and so on.

28

RULESFamily Tax and Contribution Rules

Some college students get financial help

from their families. If you do, here are a

few things to keep in mind:

• Your parents may claim you as a

dependent on their income taxes.

If so, they will receive a tax deduc-

tion. In this case, you may not take

a deduction for yourself on your own

tax return.

• You may be independent of your

family for tax purposes. However,

the federal government may still

expect your parents to help pay

for college. This can affect the

amount of financial aid you are

eligible to receive.

• For financial aid, college students

are considered dependents of their

parents until the student:

1. earns his or her first

undergraduate degree

2. reaches age 24 (possible excep-

tions are military veterans, wards

of the court, married students,

single parents, or students with

other special situations)

• Schools expect students to

contribute a bigger chunk

of their income and savings

than parents.

• While a student (attending college

at least half time), you or your

family may qualify for certain tax

breaks. These may include the Hope

Scholarship Credit, the Lifetime

Learning Credit, and education

loans interest deductions. For

more information, call the IRS at

1-800-829-1040, visit

www.ed.gov/inits/hope, or

talk with a tax specialist.

29

30

ROTC scholarshipsThe Reserve Officers’ Training Corps (bet-ter known as ROTC) offers scholarships tosome qualified college-bound or currentcollege students. In general, if you receivean ROTC scholarship, the military branchthat awarded the scholarship will pay thecost of your tuition and other educationfees. You also will receive a subsistenceallowance of around $1,500 a year.

In addition to the four-year scholarshipprogram, there are a limited number oftwo- and three-year scholarships availableto students already in college.

However, an ROTC scholarship differssignificantly from other college scholar-ships: If you accept the scholarship, youagree to join the military for a number of years after graduation. The length ofyour military service will vary dependingon the branch of service and field of specialty; however, a four-year active duty commitment is common.

Because accepting a ROTC scholarshipmeans accepting a term of duty in themilitary, think this scholarship over care-fully before signing any papers.

To learn more about the ROTC scholarshipprogram, its eligibility requirements, andapplication deadlines, visit an on-campusROTC office or the Web sites for the mili-tary branches:

• U.S. Army at www.army.mil

• U.S. Air Force at www.af.mil

• U.S. Navy (which also includes information about the Marine Corps) at www.navy.mil

PROFILEMichael Herrera, School Psychologist

Michael Herrera, 35, is the youngest of six children. His family

emigrated from Mexico just before Michael was born. He worked in

cherry orchards and tomato fields before and after school.

Michael never considered going to college until a high school

counselor suggested it. His family did not support his decision at

first. “My dad thought I wanted to get away from the family and

mess around,” he says.

Michael attended the University of Hawaii before finishing his

degree in 1988 at Fresno State University in California. He went

on to earn a master’s degree in school psychology in 1991. Thanks

to financial aid, scholarships, working odd jobs, and help from

family, Michael paid for college.

“After a while, they saw that I was serious,” he says. “They saw

that I was going to college for a big purpose.” Plus, family friends

began telling Michael’s parents how great it was that he was going

to college. “That’s how they first began to think that college was

a good thing,” he says.

Michael takes his work as a school psychologist seriously. He wears a

tie everyday, even though his colleagues do not. “I wear that tie and

portray that level of professionalism for the Latino youth,” he says.

In addition, he is a role model and confidant in his family. When

anyone needs help, they turn to Michael. The pressure can be

tough at times, but Michael talks enthusiastically about his nieces

and nephews who are following in his footsteps to college.

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Of course, going to college meansattending classes, writing papers,and taking exams. But making

money choices also is an important partof your college life. Good money choicescan help you stay in college and keepyour energies focused on your education.In this chapter, we’ll offer some ideas forkeeping your money on track so you cankeep your college education on track.

Watching everyday spendingMost college students have to make everydollar stretch as far as possible. That’swhy it’s important to know where yourmoney is going—even the “small”amounts of money you spend on snacks,magazines, and pizzas. One way to knowwhere your money is going—and to seehow “small” purchases add up—is tokeep a spending diary for a month.

Your diary could be a small spiral notebookthat fits into your back pocket or purse.Then, write down everything you buy.Include even small items, like a newspaperor the cup of coffee from the student center.

Soon, you’ll be amazed at how those smallpurchases really added up. Think howmuch money is leaking out of your pocketsover the school year. So what can you do?You can plug those spending leaks.

32

CHAPTER 3 MONEYManaging Your Money

33

Plugging spending leaksComplete the chart below and see how much money you are losing on small items overthe school year. After you look at the total costs, you might want to make some changes.

After you find your spending leaks, you can plug them. That might mean giving up acostly habit, such as smoking. Or, it can simply mean making better buying choices.

For example, instead of buying two soft drinks a day at school (at a cost of $1.50 per day),you could buy a 12-pack on sale (for about $4) and keep it in your dorm refrigerator.Instead of paying 75¢ for each can, you pay only 33¢ per can—saving around $25 permonth or more than $225 a year.

AverageAverage Average Cost per

Item Cost Cost per Month School Year

Soft drinks 75¢/each from vending or $45 $405machines $1.50/day(2 each day)

New clothes

Long-distance telephone calls

Snacks/convenience store purchases

Eating out

Cigarettes

Magazines/books (not textbooks)

Movies

Video/DVD/video game rentals/purchases

CDs/tapes

Gifts

Other

Cutting expensesHere are more ideas for making every dollar stretch as far as possible:

• Buy only the things you really need.Before you buy something, ask yourself,“Do I need this? Or do I just want it?”Always put your needs above your wants.

• Take advantage of special student dis-counts offered by local movie theaters,restaurants, and stores.

• Compare prices on-campus with pricesoff-campus. For example, the schoolcafeteria may cost less than eating at arestaurant in town. The student healthcenter may be cheaper than going to a doctor off-campus. The recreationcenter probably is free. On the otherhand, school supplies might cost moreat the college bookstore than at a bigdiscount store nearby.

• As soon as you have your class schedule,start checking the campus bookstore forused books. If you don’t need your booksat the end of the school year or in the future, sell them.

• Plan and save up the money to buysomething. Do not take out a loan or use a credit card.

• Cut out costly habits, like smoking cigarettes or buying lottery tickets.

• Swap clothes with friends and relatives.

• Look for sales and “off-season” bargains. Compare prices.

• Share driving or use public transporta-tion when available.

• Go to dollar movies or rent videos.

• Give homemade gifts.

34

• Read books, magazines, and newspapers at the library insteadof buying them.

• Don’t pay twice. If you are livingin a dorm where the food isalready paid for, cut down on eating out.

• Know your school’s policies onassessing extra fees. For example,if you drop a class late, you mayend up paying part or all of thetuition for the dropped class.

Standing up to peer pressure to spendMany students report that they sometimesfeel pressure from college friends to spendmoney they don’t have. Some of these students find themselves overspending—often using credit cards—to keep up with friends. This pressure seems to beparticularly strong among freshmen.

There will always be people who havemore money than you or whose parentspay off their child’s credit card bills nomatter how big they get. Don’t try to keepup with them.

If you feel pressured to spend money youdon’t have just to “fit in,” you need todevelop a few strategies to deal with thesituation. Consider the following:

• Write down the reasons you are attend-ing college on a sheet of paper. Or, youmay want to list some of your long-termgoals. Read the list every day. You maywant to keep it in your wallet, close toyour money, so you’ll have to thinkabout your goals before you spend.

35

• Find inexpensive activities that you cando with your friends. College aboundswith low-cost events, from concerts tolectures by renowned authors to sports.Make financial room for some low-costfun, and suggest these options to your friends.

• Force yourself to acknowledge yourspending. Keep your receipts, and writedown how much you’ve spent on clothes,entertainment, and so on. Then, comparethese amounts to what you listed onyour spending plan. If you’re spendingmore than you can afford, you’ll haveto make some changes.

• Be prepared to say, “No, I can’t affordto do that.” There’s no reason to beembarrassed by limited funds. Manystudents don’t have a lot of money.Your willingness to be honest and tolive within your means sends a strongand positive message to your friends.

It can be difficult to turn down friendsand live within your means, but remember,college is about expanding your mind, notyour wardrobe. This also is the time foryou to move away from the concept of“fitting in” and move toward becomingyour own person.

36

Watching out for credit cardsAmericans love credit cards. In fact, thetypical American household has seven tonine credit cards, charge cards, and debitcards. Unfortunately, many Americans—including college students—also are headover heels in debt. According to one ofthe largest makers of student loans, theaverage undergraduate has $2,200 incredit card debt.

Chances are that you will be offered several credit cards as soon as you become

a college student. These cards are conven-ient, and they come in handy for emergen-cies if you pay them off every month.Problems begin when you start thinkingof your credit card as extra money, insteadof realizing that it’s really a loan.

If you have a balance on your creditcards, you probably are overspending.The low minimum payments are tempt-ing, but interest rates are high, and theultimate amounts you end up paying forthings you charge can be stunning.

37

For example, let’s say you make the mistakeof being one of those students with $2,200in credit card debt. This is what your balancecould really cost you if you just make theminimum monthly payment:

Worse, if you start missing payments, yourisk getting a poor credit record. (See page50.) Poor credit can follow you for years.It can hurt your chances of buying ahome or car someday, and it can evenhurt your chances of getting a job.

Credit Interest Minimum Years to Total CostCard Rate Monthly Pay Off to Pay

Balance Charged Payment Balance Off Balance

$2,200 18 percent $40 Nearly 10 years $4,680 (original $2,200 plus $2,480

in interest)

38

If you pay more than the minimum payment on your credit card bill, you can save thousands of dollars in interest.For example, if you owe $1,000 on a credit card and pay the minimum rate at 18 percent, it will take you almosteight years (94 months) to pay off the debt, and you will have paid a total of $1,880. The chart below shows that if you:

Add to Pay Off the BillEach Payment You’ll Save This Much Sooner

$ 5 $330 32 months

$15 $550 54 months

$25 $620 64 months

$50 $690 75 months

CREDIT CARDSParing down your credit card balance

39

Credit card guidelines

If you decide that you must have a creditcard, try to stick to these guidelines:

• Have only one major credit card.Multiple cards mean multiple chances of landing in debt.

• Get rid of store cards. They oftencharge the highest interest rates (oftenaround 22 percent a year). Don’t justcut up the card; call the store and havethe account closed.

• Shop around for a card that has noannual fee and a lower interest rate.You can shop for the best credit carddeals on the Internet. Try the Bank RateMonitor’s site at www.bankrate.com.

• Use the card only for emergencies. (Agood rule of thumb: If you can eat it orwear it, then it’s not an emergency.)

• Make sure you pay the bill before thedue date or you’ll face a hefty late fee—often around $30.

• To avoid interest rate charges, pay offthe entire balance each month.

• Avoid getting a “cash advance” on the card. The interest rates for cashadvances often are huge and the creditcard company will begin charginginterest immediately.

Avoiding expensive, easy fixes

You have probably seen ads for check-cashing stores, payday loans, and rent-to-own stores. You may be intrigued by theservices they offer. But these short-termmoney fixes will cost you big bucks.

Check-cashing stores

Check-cashing stores charge a fee forcashing checks. Often, it is as much as 3 to 4 percent ($3 or $4 for every $100).This may not sound like much at first, but if you regularly cash checks at one ofthese stores, it could cost you several hun-dred dollars (or more) each year. A betteroption for you is to have a checkingaccount at a bank or credit union. Thesefinancial institutions cash checks fromcustomers for free.

40

Payday loans

Many check-cashing stores also makepayday loans to people. Most stores willonly make payday loans to individualswho work full time. However, a growingnumber of stores are willing to makeloans to students who work part time orwho show proof of another source ofincome, such as a grant or scholarship oreven money from home.

Payday loans work like this.

• You show the store whatever proof theyneed that you can cover the check: paystubs, grant or scholarship letter, orother paperwork

• You write a post-dated check for theamount you want, plus the store’s fee.For example, if you want $200, you’llprobably write a check close to $250.The $50 goes to the store. The storeloans you the $200 and agrees not todeposit your check for a week or two.

• On the day when the store woulddeposit your check, you have a fewchoices: (1) redeem your check with amoney order or cash, (2) let the storedeposit the check, (3) renew the loan bygiving another post-dated check cover-ing the previous amount plus anotherservice fee. This last option can keepgoing as long as you pay the fees.

Over time, you could pay as much as 650percent in fees and interest charges. That’sbecause many states have no rules limitingthe amount of fees these stores can charge.

There are better options than using pay-day lenders. Many colleges have low-cost,short-term loans available through theirfinancial aid offices. Another option maybe a short-term loan from a credit unionor bank. And, of course, there’s alwaysthat dreaded telephone call to the familyfor more cash. You may not like the lec-ture you’re bound to get along with themoney, but it’s better than paying a pay-day lender’s charges.

41

Rent-to-own

Rent-to-own stores provide items, such asfurniture or appliances, for rent. Part ofeach rent payment goes toward buyingthe item. Be careful of such offers—by thetime you have paid enough rent to buythe item, you will have paid three to 10times as much as the item really costs.

Not convinced? Let’s say you and yourroommate want a TV. The TV costs $400at a department store, but you don’t havethat much cash. Instead, you and yourroommate agree to a rent-to-own plan forthe same TV. This is what your $400 TVcould cost you:

A better option would be to save untilyou can buy the item or buy a used TVand pocket the savings for school.

Weekly rental $15.95 x 78 weeks = $1,244.10

5% sales tax 80¢ x 78 weeks = $62.40

Delivery fee $10.00 (once) = $10.00

Total cost of rent-to-own TV $1,316.50

42

Not giving upIt’s common for college students to hit afew money bumps. Try not to panic if thishappens to you. It does not mean that youmust drop out of school. Before makingany decisions, consider these options:

• Repeat any financial aid strategies that worked for you in the past.

• Check with your school’s financial aid office about help for students in this situation.

• Search for scholarship opportunities inyour field of study that target studentsbeyond the freshman year.

• Touch base with funding groups, such asthe Hispanic Scholarship Fund.

• Look into a better-paying part-time jobor ask for a raise at your current job.

• Ask family members for a short-term loanuntil you get back on your feet. Then,show how responsible you are becomingby repaying this temporary loan.

• Look into temporarily attending schoolpart time to lower your costs andincrease the amount of time you haveavailable to work and earn money.

• Check out additional student loanoptions, as a last resort.

You also may face a family situation whereyou are needed at home. Before you misstoo many classes or get behind in yourcoursework, you may want to talk to youradvisor or professors. There may be a wayto take an “incomplete” in your courses.An incomplete prevents a failing grade. Italso gives you the option to finish thecourse after things settle down at home.

43

Rules on campus may be confusing at

first. It helps to read student hand-

books you get at orientation. Don’t be

afraid to ask questions about things

you don’t understand. Take the time

to learn the ins and outs of college

systems, including transcripts, grade

reports, and financial aid.

Check everything you receive to be

sure your name is spelled correctly,

your student ID number is right, etc.

It’s your job to make sure that campus

computer systems accurately track

your course schedule, class credits,

and grades. Sometimes mistakes are

made. Students find and then request

corrections as needed.

In addition, know your rights on

campus. For example, you always have

the right to see your official transcript

and other documents. Check out the

procedures for filing grievances or

correcting errors in college records.

You also have the right not to be

harassed or harmed by faculty, staff,

or other students. Find out what the

procedures are for reporting any

harassment or crimes on campus. Be

your own advocate, and help your

friends do the same.

YOUR RIGHTSYour rights and responsibilities on campus

44

PROFILERosa Armendariz, Program Associate in Higher Education

Rosa Armendariz, 27, is a 1997 graduate of Stanford University.

Her immigrant parents focused on education as she grew

up. “I don’t remember what it was that I heard or what filtered

through,” she says. “I always knew that I wanted to go to college.”

Growing up, Rosa dreamed of being a spokesperson and political

leader for Hispanics. She realized that there were other paths

to advocacy during college. Today, she works for a private

foundation in California that focuses on college diversity and

access for under-represented students.

“Let your dreams ride,” Rosa says. “Let them take you where

you need to go.”

In addition, Rosa encourages students to consider all schools,

even private ones. “You automatically think you can’t afford it,”

she says. “Apply anyway and then see what your options are.”

She points out that private colleges often give more

financial aid than others, making them more affordable than

people think. She also tells students to not be afraid of student

loans. “It’s a worthy investment. You will be able to pay off

your loans,” she says. “But, apply for scholarships first!”

45

PLANNING

When you graduate from college,you most likely will feel a hugesense of relief. You also may feel

pride in accomplishing your goals and atremendous freedom and personalstrength. Good for you! These commonemotions stem from creating and then fol-lowing through on a solid plan.

Your future also depends on the decisionsyou make early in your career. Your dailydecisions about money are important toyour financial health.

Making new plansAfter graduation,you will havemany new expens-es. You’ll probably bepaying for rent, utilities,and a telephone. There’sfurniture, work clothes,and other items to buy.Maybe you’ll want anewer car.

You also need to think about paying backany student loans you have. To keep yourmoney on track, you will need to updateyour spending plan.

Getting a clear picture of your upcomingexpenses will help you know how muchyou need to earn on a yearly basis. Thatknowledge will make you better equippedto negotiate a salary that works for you.

46

CHAPTER 4Planning for Tomorrow

RISKSIt can be tempting to spend wildly when you get your first job. After all, you’ve

been living on limited funds during your college years. However, it’s always a

better idea to live within your financial means, rather than using credit cards

and other loans.

Decisions you make at this stage can have a critical impact on your future

financial power. For example, if you rack up too much debt and get behind on

your bills, you can ruin your credit record. (See page 50.)

It may not seem important now, but bad credit can lessen your chances of getting

a good job, paying low insurance rates, and qualifying to purchase a car or home.

You’ll want to pay special attention to your student loans. Defaulting (failing to

repay) on student loans that are federally guaranteed can be a big mistake. People

who default on these loans are disqualified from getting a Small Business

Administration loan. These types of loans often are used to start a business. So,

if you dream of being your own boss one day, be sure to pay off your student

loans promptly.

Overspending risks

47

Looking at more than salaryWhen job hunting, you will want to lookat more than just salary. Sometimes newercompanies pay well but scrimp onemployee benefits. To see how much youreally earn, it is important to include thevalue of benefits. These “fringe benefits”often are equal to 25 percent to 50 per-cent of a worker’s pay before taxes.

You will want to look at the relative valueof these benefits:

• health, dental, or vision insurance

• vacation, holidays, and other types of leave

• disability and life insurance

• retirement or profit sharing plans

• educational benefits

Before accepting a job offer, carefullyreview the company’s employee benefits.Ask if there is paperwork outlining thebenefits that you can take with you whileyou consider the job offer. This step willgive you or your family time to review thebenefits yourself or seek the advice of aknowledgeable friend or professional.

48

Filling in the gapsOf course, no benefits package is going to provide you with a complete financialsafety net. For example, employers typicallydon’t pay for your vehicle insurance. So,some financial matters, such as differenttypes of insurance, will be necessary foryou to consider and pay for on your own.Evaluate your potential need for the following:

• Health coverage. If your employer doesn’toffer a health-care plan, you will needto get health coverage on your own, andit will be costly. Still, a health-care planis too important to go without. Onegood option may be to limit your jobsearch to employers who do offer acomprehensive health-care plan.

• Disability insurance. Disability insurancereplaces a portion of your wages if youbecome sick or hurt and are unable towork. You are more likely to be dis-abled for 90 days than you are to diebefore age 65. Some employers offerdisability insurance. If your employerdoes, take advantage of this valuablebenefit even if you have to pay for partof its cost. If disability insurance isn’toffered, consider getting this insuranceon your own.

• Life insurance. Many companies offerlife insurance at no cost to theiremployees. This is a helpful benefit,but, over time, you may need moreinsurance than is offered by youremployer. As your life changes, reexamine your life insurance needs.

• Vehicle insurance. Car insurance canhelp protect you against a major finan-cial loss if your vehicle is involved in anaccident. This type of insurance is soimportant that in most states it’s illegalto drive without insurance. When look-ing for insurance, compare pricesamong companies—but make sure youhave enough insurance.

• Renter’s or homeowner’s insurance.This type of insurance protects yourproperty and possessions in cases offire, theft, and other events. It also canprotect you if someone gets hurt in yourhome. As your life changes and yourpossessions become more valuable, makesure you have sufficient insurance toreplace them if they are lost, stolen, or destroyed.

49

Knowing your credit history“Good credit” means that you pay yourbills and loans on time. A good creditrecord gives you the financial clout totake out a larger loan later. For example,you may need a loan to buy a car orhome or start a business.

Credit reporting agencies track how wellyou repay your loans. They also trackhow much debt you have and how oftenyou apply for credit. Businesses and land-lords can look at your credit report. Someemployers also check the credit records ofjob applicants.

You may want to get a copy of your creditreport once a year. If the report containswrong information, you have the right tohave it corrected. You can order creditreports from the agencies listed below.Each agency keeps its own records, so it’sa good idea to get a report from all three.

Equifax 1-800-685-1111

Experian 1-888-397-3742

Trans Union 1-800-916-8800

Depending on the state in which you live,the credit report will be free or costaround $10.

Building good creditYou can build good credit by taking thefollowing steps:

• paying basic expenses, such as rent andutilities, on time

• making loan payments on time

• paying loans before you spend moneyon other purchases

• only applying for the credit you need(if you apply too often, lenders may be concerned that you are using toomuch credit.)

• not bouncing checks

• using a credit card to establish goodcredit by paying off your balance everymonth or keeping the balance low

The National Foundation for ConsumerCredit and Consumer Credit CounselingServices provide help to people with seri-ous debt and credit problems. For moreinformation, call 1-800-388-2227 or visitwww.nfcc.org.

50

Planning for the long termAnother part of your life after college is tofinancially plan for the long term. Your lifewill grow and change, and it pays to beprepared. This means you need to bothsave and invest part of your income.

What’s the difference? The money in savingsusually is for short-term goals or to pay foran emergency. This is money you don’t wantto risk. However, with little risk comes littlereturn. In other words, your savings willgrow slowly. When you invest, you need tothink long term—like five or 10 years (oreven longer) from now. The good side ofinvesting is that you may earn much morein interest. The bad side is that yourmoney is at much greater risk.

Let’s look at common savings andinvestment vehicles.

Bank and credit union savings accounts

The federal government insures savingsaccounts at banks and credit unions(including certificates ofdeposit, or CDs) up to$100,000. Theseaccounts are very safe;however, you will earnlittle interest. In gen-eral, a bank or creditunion savingsaccount is a good

place to put your emergency fund. Thistype of account also works well for a short-term goal, such as a vacation or adown payment on a car. As the nameimplies, these accounts are savings (notinvestment) vehicles.

Money market funds

A money market fund is another way to save—not invest—-money. Most banks and investment firms offer money market funds. The advantages of a moneymarket fund are that you can still get to

your money rather quickly andthere is little risk of los-

ing the money. In fact,the funds offeredby banks are federally insured.

51

The main drawback of a money marketfund is that the interest you will earn issmall—probably only a little bit morethan a savings account.

Mutual funds

When you invest money in a mutual fund,you are pooling your money with manyother investors. The manager of the fundthen invests this pooled money in stocks,bonds, and other areas.

There are two main advantages to amutual fund. First, the fund will be pro-fessionally managed. You won’t have topick your own stocks or bonds; someonewith more knowledge will do that. Second,your money is divided—or diversified—across a large number of companies. Thislowers some of the risk that comes withinvestments. The federal government doesnot insure mutual funds.

Individual stocks

When you own stock in a company, youbecome a part owner—albeit a smallpart—of that company. Because the valueof the stock depends on how well boththe company and the economy perform,stocks can be risky.

Over time (and the “time” part is impor-tant), many stocks do increase in value.You may be able to earn much more withstocks than with CDs or money marketfunds. Still it’s always a good idea not tohave more than 10 percent of your totalinvestments in a single company’s stock.That’s why mutual funds that invest instocks are a good choice for your long-term investments.

Bonds

When you buy a bond, you are loaningyour money to a company or government.The company or government agrees topay back your money plus interest at a settime—usually several years down theroad. Because the interest rate usually ismuch higher than bank accounts, bondsare a form of investment.

The amount of interest to be paid dependson the credit rating of the bond. Thehigher the credit rating, the lower the rateof interest. The lower the credit rating,the higher the rate of interest that will bepaid. Of course, the higher interest ratesmean there is a greater chance that thecompany won’t have the money to repaythe loan when it comes due.

52

The chart above shows the power of compound interest on a single investmentof $100, compounded annually.

Company-provided retirement plansOne favorite way for many employees tosave for the long term is in an employer-provided retirement program. Often thismeans joining a 401(k) plan. If your joboffers a retirement plan, take advantageof it. It’s one of the best ways to save forretirement. Sometimes, employers matchpart of your contributions. That’s like freemoney! You also get special tax breaksfor saving in a retirement plan.

53

Savings vs. Investing: A ComparisonInterest 1-Year 10-Year 20-Year 30-Year

Rate Total Total Total Total

Savings Account 1.5% $101.50 $116.05 $134.69 $156.31

Money Market 2.5% $102.50 $128.01 $163.86 $209.76

CD 3.75% $103.75 $144.50 $208.82 $301.75

Mutual Funds 8.0% $108.00 $215.89 $466.10 $1,006.27

Stocks 11.0% $111.00 $283.93 $806.23 $2,289.23

When you work, you earn credits that

count toward qualifying for Social

Security when you retire. That’s why

it’s a good idea to check your Social

Security work records and make sure

you get credit for your full work

history. Social Security computers

sometimes have trouble with names.

For example, names like de la Rosa

may confuse the computers.

The Social Security Administration

sends reports each year to the

following people:

• those who have worked in

Social Security-covered

employment or self-employment

• those who are not yet

receiving benefits

• those who have a current

mailing address listed with the

Social Security Administration

Statements go to workers older than

age 25. You will see an updated state-

ment about three months before your

birthday each year. To learn more,

visit www.ssa.gov/mystatement/.

RECORDSCheck Social Security records

54

55

PROFILETony Robles, Rocket Propulsion Engineer

Tony Robles, 30, dreamed of being a

space engineer in high school after

seeing space shuttle launches on TV.

Starting at a junior college,

Tony took courses in philosophy,

geology, history, ecology, music and

others. “I liked just about every-

thing,” he says. “I really excelled in

science and engineering classes. It

reinforced my dream.”

Tony initially saved money on

tuition because junior college is

less expensive than bigger universi-

ties. Unfortunately, he learned a

tough lesson when many of his

course credits did not transfer to

San Jose State University in

California. “I lost about a year’s

worth of classes,” he says. “That hit

the pocketbook really hard.” Plus,

living expenses in the Silicon Valley

were outrageous.

Because he was under age 24, Tony

didn’t qualify for grants or subsidized

loans on his own. His parent’s

income was still considered in the

calculation. He was stuck, with one

more year to go.

Tony took a year off from school

to work full time and save money.

Then, he was old enough to apply

for financial aid on his own.

Between the money he’d saved

and invested, as well as financial

aid, Tony only had to take out one

student loan for $2,500.

“I took the path of trying to take

no loans and get into the industry

a little later,” Tony explains. “I had

friends do the opposite. There are

pros and cons either way.”

ConclusionThe value of a college education cannotbe underestimated—neither can thevalue of money skills. This manual haspresented many financial concepts andideas. It’s a lot to absorb. We hope thatyou will keep this manual with youduring your college years and beyond,and refer to it from time to time.

The Hispanic Scholarship Fund and the National Endowment forFinancial Education congratulate you on your commitment to pursue a college degree.

56

Resource Review

Financial aid• Free Application for Federal Student

Aid (www.fafsa.ed.gov), providesinformation in English and Spanish

• Hispanic Scholarship Fund(www.hsf.net)

• College Board(www.collegeboard.com)

• FastWEB (www.fastweb.com)

• Scholarship Resource NetworkExpress (www.srnexpress.com)

• National Association of StudentFinancial Aid Administrators(www.finaid.org)

• Sallie Mae, scholarship service(www.salliemae.com/planning/scholarships.html)

• U.S. Department of Education, Officeof Postsecondary Education(www.ed.gov/offices/OPE)

Financial planning• National Endowment for Financial

Education (www.nefe.org)

Credit reportsEquifax: 1-800-685-1111

Experian: 1-888-397-3742

Trans Union: 1-800-916-8800

Debt help• National Foundation for Consumer

Credit and Consumer CreditCounseling Service (CCCS) 1-800-388-2227 or www.nfcc.org

57

Hispanic families foster strength, unity,and loyalty. In fact, 80 percent of HSFscholars name their families as a source ofemotional support during college. (Source:Hispanic Scholarship Fund.)

If your child is the first in your family toattend college, the college planning mayseem like a whole New World. The manyforms, rules, and deadlines may be frus-trating for you. We understand. Try notto feel overwhelmed by the paperwork,but stay focused on your child and his orher future. It is a bright future, indeed.

The Family Foundation: A Special Note to Parents

58

The importance of collegeThe Hispanic population in the UnitedStates is growing, which means thatHispanics are becoming a major influenceon American culture, economics, andpolitical policies. Your child’s college education can help position him or her to affect all of these areas. A college education also can open vast careeropportunities for your child.

The cost of collegeA college education does require aninvestment of time, effort, and dollars.The cost of college (tuition and fees)increases, as do the costs of most things.Here is what college students currentlypay each year for tuition:

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Type of College Average Tuition per YearFour-year private institutions $17,123

Four-year public institutions $3,754

Two-year private institutions $7,953

Two-year public institutions $1,738

(Source: The College Board)

The college payoffCollege costs may seem scary, but thepayoffs are big. By spending money oneducation now, your child can earn moremoney. Some 88 percent of HSF scholarsearn more than the national per capitamedian income. In fact, 60 percent earn atleast two times more than the Hispanicmedian income in the United States.Consider the chart below:

The best way to help: emotional support and moneyCollege students typically need twoimportant elements from their families:emotional support and money. Both ele-ments are important. Pursuing a collegedegree—especially if your child is the firstin your family to do so—can be intimidat-ing. Knowing that you are in his or her“corner” can help your child overcomedoubts and fears.

Of course, money also helps. Saving moneyto help pay for your child’s education (orbooks, fees, or meals) can help make your

60

Professional degree0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

$17,261$21,737

$35,744

$44,149$49,279

$64,406$68,804

$74,476

$97,325 $100,000

Less than 9th grade

9th to 12th grade

High school graduate

Some college, no degree

Associate’s degree

Bachelor’s degree

Bachelor’s degree or moreMaster’s

degree

Doctorate degree

Median Annual Household Income(by Educational Attainment of Householder, 1999)

child’s dreams a reality. Plus, your contri-butions make the goal of education evenmore of a family pursuit.

As some people might say, “It’s never tooearly.” This applies to saving for a child’scollege education. There are various collegesavings plans, such as the state-adminis-tered 529 plans and prepaid college tuitionplans that allow parents to save funds ona tax-deferred or tax-exempt basis.

Whether you start saving the day a babyis born or halfway through the child’sfreshman year at college, any amount ofsavings can put a student one step ahead.Remember, there are expenses beyondtuition that must be paid.

Ways to saveYou may say to yourself that finding moneyto save for your child’s college educationwill be tough. Although it may take somechanges, here are some ideas you can try:

• Pay yourself first. Think of saving foryour child’s college education as a “bill”you pay to yourself. Take some moneyfrom each paycheck ($10, $25, or $50)and put it into a special savings account.

• Save extra money. This extra moneymight include tax refunds, job bonuses,overtime pay, or raises. You may haveextra money after you pay off a bill. For example, say you pay off your car

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SHOULD YOU?Should you save in your child’s name?

Parents often wonder if accounts set up to save for college should be kept in the parents’ or child’sname. Keep these points in mind when making your decision:

• Recent tax-law changes have reduced the tax advantage of saving in the child’s name (called a custodial account).

• You give up control of the money if you save in the child’s name. When the child reaches “the age of majority,” he or she could decide to spend the money on a car instead of college.

• More money in a child’s name could mean the child will qualify for less financial aid. When calculatingthe amount of financial aid a student may qualify for, schools expect students to contribute a largerpercentage of their income and assets than parents. That is why some financial planners recommendthat college savings be kept in the parents’ name rather than in the child’s name.

loan. You can take the money that wentto your car payment and put it in thecollege fund instead.

• Suggest gift ideas to relatives. Many relatives never know what kind of birthday or holiday gift to give. Helpthem out and suggest a contribution toyour child’s college savings fund.

• Spend less. Find ways to cut back onspending and put what you save intothe college fund.

Other college planning tipsHere are some additional tips from theHispanic Scholarship Fund on preparingfor college on a shoestring budget.

Talk to a guidance counselor

When planning for your child’s collegeyears, don’t do it alone. Ask for advicefrom an expert, such as a concerned highschool counselor who is knowledgeableand can provide reassurance and guidanceso that the right steps are taken.

Apply for financial aid

Before applying for financial aid, students must meet the following basiceligibility requirements:

• financial need (you and your child willneed to disclose information about yourincome and savings)

• high school diploma or GED certificate

• valid Social Security number

• enrollment in an eligible degree program

• U.S. citizen or an eligible noncitizen

• a record of satisfactory academicprogress once in school

Help your child assemble the importantrecords and papers and then submit a Free Application for Federal Student Aid (FAFSA). (See page 26 for more information on the FAFSA.)

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Look into Advanced Placement courses

Encourage your child to take advancedplacement (AP) courses in high school,when available. The extra work andstudying will pay off if the student passesAP exams with a grade of 3.0 or higher.Students with high grades on AP exams inmultiple subjects may be granted a fullyear of course credit in college. This savesboth time and tuition.

Review your child’s options

A four-year college is not the only way togo. Sometimes students enjoy easing into thecollege experience by enrolling in a two-yearcollege program. Local community collegesusually are the least expensive and often arelocated in an area where the student alreadylives. The student should check on whatcourses will count toward a bachelor’sdegree at the four-year college of choice.

Research other resources

Help your child reduce college debt asmuch as possible by considering grantsand scholarships from organizations tosubsidize an education. Don’t forget toexplore what your own employer offers.Some businesses or unions offer scholar-ships or grants to children of employeesor members. Grants are awarded on thebasis of financial need, and scholarshipsare awarded based on criteria, such as

academic performance, leadership skills,athletic ability, and so on. Grants andscholarships do not need to be paid back.

Reapply for financial aidFinancial aid paperwork is only good forone year, so parents and students mustcomplete a new FAFSA each year torequalify for financial aid. Missing thedeadline will put a serious damper on college plans and budgets.

Prepare to pay back student loansIf your child receives financial aid in theform of student loans, he or she needs tobe ready to pay the money back withinterest after graduation. Before acceptinga loan, parents should discuss with theirchild the cost of student loans.

A final thoughtThe Hispanic Scholarship Fund and the National Endowment for FinancialEducation know that you want what’sbest for your child. You want your childto dream bigger and go farther than youever imagined. We hope you will use theinformation in this manual to help make a college education a possibility for yourchild because the advancement of any one of us is the advancement of all of us.

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The Money Manual: A Personal Financial

Guide from the Hispanic Scholarship

Fund was written and produced for theHispanic Scholarship Fund as a publicservice by the Denver-based NationalEndowment for Financial Education®

(NEFE); William L. Anthes, Ph.D.,President and CEO; Brent A. Neiser, CFP,Director of Collaborative Programs; andJeannette Herreria, Project Manager.

NEFE is a nonprofit foundation committedto educating Americans about personalfinance and empowering them to makepositive and sound decisions to reachfinancial goals. The National Endowmentfor Financial Education, NEFE, and theNEFE logo are federally registered servicemarks of the National Endowment forFinancial Education. For more informa-tion about the National Endowment forFinancial Education, visit www.nefe.org.

The Hispanic Scholarship Fund (HSF) isthe nation’s leading organization support-ing Hispanic higher education. HSF wasfounded in 1975 with a vision to strengthenthe country by advancing college educationamong Hispanic Americans, the fastest-growing segment of the U.S. population.In support of its mission to double therate of Hispanics earning college degrees,HSF provides the Latino community morecollege scholarships and educational out-reach support than any other organizationin the country.

Headquartered in San Francisco, HSF hasexpanded its operations in Southern andCentral California, the Northeast,Southeast, and Midwest. In addition, HSFlaunched the Washington, D.C.-basedHispanic Scholarship Fund Institute togenerate public partnerships in support ofits work. During its 27-year history, HSFhas awarded more than 54,000 scholar-ships in excess of $89 million to Latinosfrom all 50 states, Puerto Rico, and theU.S. Virgin Islands who have attendedmore than 1,300 colleges and universities.For more information about the HispanicScholarship Fund visit www.hsf.net.

Design: Nancy Chambers, MontanoSolaria

Photography: National Endowment for Financial Education/John MuellerProductions, David Muenker, and Povy Kendal Atchison

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Acknowledgments