A typical teenager spends several hundreds of Euros a year mainly on clothes, food, mobile phone calls and entertainment. Mostly, teenagers will be still at school but upon reaching and entering post-secondary education, they will significantly increase their purchases. This can be justified with the fact that many of them engage in part-time jobs, whilst other even find full-time ones, increasing the amount of money in their pockets.
Most teenagers are not well-prepared to make their purchases wisely. Some teenagers waste hundreds of Euros a year on purchases that do not represent good value. Much of this money comes from the hard-earned savings of their parents. Therefore, it is valuable to increase the awareness and appreciation to this age group with regards to the financial challenges faced by parents.
Student Bank Accounts
Getting ready for college or university can be an exciting and sometimes an overwhelming experience. For many of you, this will represent the first time you will have real independence and responsibility. You will have some big decisions to make – many that you’ve never had to consider before. Apart from the areas of study to choose, you have to focus also on money management and selecting the right student banking products for your individual situation and lifestyle.
The good thing is that you have options, however you should always study the options properly to ensure that you make the right choice.
Before we move on, there’s something you should know about banks and other financial institutions. Many banks are extremely eager to sign you up to meet their long-term customer acquisition goals. Depositing your stipend with them now, increases the chances that you’ll continue banking with them later in life. For instance when you need a business loan, buy a home or even finance your own children’s education. This means that most banks are more than willing to offer you all kind of incentives and schemes, which can be impossible to decipher and make comparison between the banks difficult.
Don’t just settle for the gifts. Throughout your student life you need more than just a onetime freebie. Making a decision based on freebies and incentives is not a smart money tip and could make things harder for you in the long term. Money is often tight as a student which is why it’s so important to make sure you get the best deal on everything concerning your finances. You will need to find a bank that will help you manage your finances, save that extra money you may earn and offers you some financial flexibility.
There are a number of things that you should take into consideration before you select a bank. The location might be an important factor if you will be making most of your transactions at a branch level. However, keep in mind that nowadays there are more convenient ways to access your accounts, like automated teller machines (ATMs), internet banking and also phone banking.
Nevertheless, the most important thing above all these will be the products which are offered by the bank. You should look for an institution that offers a full suite of products for you to choose from, including current accounts, savings accounts, online banking accounts complete with e-bill pay options, credit and debit cards and student loans if that pertains to you.
Choosing your account wisely
Once you have chosen which bank suits your needs the most, you have to work out which type of account is right for you. A good starting point is to think about how important different features are to you, such as ways to run your account, access to cash, interest rates and the services attached to the account.
Before opening the account, ask the bank for the terms and conditions governing such account and make sure to read everything well before you sign on the dotted line. Most importantly, check what charges apply, for example with regards to receiving and/or transferring money in and out of the account.
You might also want to find out what interest rates the bank offers to students, how the account can be accessed, any spending limits (if applicable) and what to do if things go wrong.
When opening the account, you will usually be asked to:
- Provide information about yourself;
- Fill in a form confirming details of the terms and conditions of the account;
- Provide proof of identity; and
- Pay some money into your account.
When the bank provides you with its terms and conditions, look out for any reference with respect to account closure fees. You might incur charges if you decide to close the account before a predetermined date.
You might also want to enquire on how a student account will be treated after you finish college or university and how to go about making new arrangements to open other accounts after you finish your scholastic years. Keep in mind that the bank that might have offered you the best terms on your student account might not necessarily afford the same level of excellence throughout the whole range of its products and services and therefore it is wise to start shopping around again for the best deals.
Have you ever wondered what charges banks and investment firms in Malta apply for their services? You can compare their fees and tariffs with a few clicks on this very website! Your first click starts here!
Credit and Debit Cards
Credit and debit cards have become a common electronic payment instrument. However credit cards are different from debit cards. While a credit card is a way to “pay later” a debit card is a way to “pay now”. When you use a debit card, your money is immediately reduced from your current or savings bank account balance. This means that debit cards allow you to spend only what is in your bank account. On the contrary, a credit card is a form of short-term borrowing from the bank. Indeed, some people find they do not have the discipline to control their spending especially when it is conducted on a credit basis, and thus make the sensible decision to do without a credit card. Therefore, if you are after the convenience but do not want to get into debt, you can use a debit card instead. Please read on!
Credit Cards
- a form of short-term borrowing, allowing goods and services to be purchased sooner, even if at a greater cost, than if we had to save up for them.
- a convenient payment instrument, reducing the amount of cash we have to carry around, including when we travel, for conducting purchases over the phone and over the internet.
- may have attractive rewards programmes associated with them.
- can also be useful as a source of emergency funds.
Do you qualify for a credit card?
If you are over 18, you may qualify for a credit card. Your bank will carry out a credit scoring exercise to assess whether you are eligible for such a card.
If you are under 18, you may qualify for a credit card if you are an additional cardholder. For example, a member of your family (e.g. your dad or mum) has a credit card in their own name and the bank issues a card to you as additional or “supplementary” card holder. However, your dad or mum remain liable for all amounts owing, including any losses from a secondary card-holder’s negligence.
How do credit cards work?
A credit card differs from a debit card. When making use of a credit card the money is not removed from your bank account after every transaction. However unlike repayment on a traditional loan such as a car loan, credit cards do not allow you to spread the amount you owe over a fixed period of time. Instead, you are required to make a minimum monthly payment, which is the smallest amount you can pay and still meet your cardholder agreement, that is the terms you agree to when signing up for the card. The minimum payment is usually between 2 and 9 percent of your outstanding balance. Unfortunately, by paying only the minimum each month instead of paying off your entire balance, your debt will continue to grow.
Questions you need to ask before applying for a credit card
- Do I need it?
- Will I be able to afford it?
- Will I be able to meet the monthly payments?
- If I decide to apply for a credit card what should I look for?
- What interest or finance charges will apply if I make use of the funds available to me on my credit card? These are generally shown as the Annual Percentage Rate (APR) of charge. Do I need to pay any annual fees?
- Does the credit card provide a time period where no payments are due before finance charges are incurred?
When should I use a credit card or make use of credit?
As a student/young adult, you will have to decide for yourself if you can handle the responsibility of a credit card. Credit cards are easy to get but not so easy to manage, especially if you end up with a high unpaid balance on which interest is accruing, and no payments are being made. Knowing when to make use of credit is the difference between purchasing what you need and paying for it or finding yourself in a situation of unbearable debt. The following are acceptable reasons to make use of credit:
- Purchase of items which will result into cost reduction.
- Purchase of a necessity.
What are the advantages of credit cards?
- Using credit cards can help you build a positive credit history. This can enhance your ability to seek a future personal loan or a home loan;
- Cash availability in the case of an emergency;
- Automatic record keeping;
- Internet orders;
- Combine many purchases into one payment.
What are the disadvantages of credit cards?
- They may be easy to get but not so easy to manage;
- Impulsive spending increases;
- Temptation to overspend;
- Non-essential items being purchased;
- Misuse of credit cards can lead to potential problems with your bank.
Will I be safe if each month I pay the minimum monthly payment only?
Although it may seem good to see that you have only a small amount to pay each month, in the long run if you continue to pay only the minimum payment you will never be able to pay the balance off. If you keep paying the minimum payment it might give you the feeling that you are on top of your bills and taking care of your responsibilities. This is a false illusion because if all you ever pay is the minimum, it will cost you money. Paying only the minimum payment amount or only a few euros over it, you will most likely take around 20 years to pay off your debt. After interest is added, your debt will be more than doubled.
The safest way is to carry no balance at all. If this is not possible as is generally the case you should pay at least an amount which is slightly above the minimum. This will also help you to slide a month or two when unexpected expenses arise.
If I get behind on my monthly payments, what should I do?
This is a situation that is easy to get into but tricky to get out of. The following tips are some precautions that you can take if you are not able to meet the payments:
- Cut any recreational expenses;
- Phone your bank to see if they can work out a new repayment schedule;
- Develop a budget and stick to it. Having an excess amount of credit may damage your eligibility for future loans;
- Use a debit card instead.
How is interest charged on credit cards?
Interest is generally either charged from the date of purchase of items or from the date your monthly statement is issued. For cash advances, interest is usually charged from the date of the withdrawal. Insist on seeing a copy of the Conditions of Use before you apply, so you can check because, other things being the same, you will most probably be better off with a card that only applies interest from the statement date.
Will I be charged fees on my debit card?
In Malta banks will give you a debit card for free, thus no fees will be charged when acquiring a debit card.
What are the advantages of debit cards?
- A debit card is easier to get than a credit card;
- A debit card frees you from carrying any cash or cheque books;
- Using a debit card instead of writing cheques saves you from showing identification or giving out information at the time of the transaction;
- Debit cards save you from carrying cash when you go abroad and are also more readily acceptable than cheques;
- Debit cards do not have any interest charges linked to them.
What are the disadvantages of debit cards?
- To make a purchase you need to have the money available in your bank account.
(As you can see, the advantages outweigh the disadvantages).
Watch out for fees
Depending on how you use your card, fees can add a lot to the cost of your card. Commonly charged fees include:
- annual account fees;
- fees to use rewards programs;
- fees for late payments;
- payment dishonour fees; and
- fees for exceeding your credit limit.
Fees must be properly disclosed. – They should be published in the institutions websites and should also be available in the bank’s branches. If a card is connected to a payment account the applicable fees and charges shall be also displayed in a Fee Information Document.
As long as the terms and conditions for the card give the lender the right to increase existing fees and impose new ones – and they almost always do – there is not much you can do, if faced with a fee increase on your card, shop around for a different card or a new card issuer.
Budgeting
Not only finance ministers prepare budgets
As in all stages in life, during college and university you have to learn what you really need and what you can do without. As a student it’s easy to get complacent when you don’t have a home loan to pay, children to feed, or other significant money worries. The problem is that during your scholastic years you will often have a limited income and if you don’t record your spending carefully it’s easy to waste money on things that you could otherwise save.
You may create a simple budget. It does not take long. But we know you’re terribly busy. So we have prepared an online budget calculator which you are most welcome to use (click here).
If you take the time to analyse your income and on what you are spending it, you can get a better idea of where your money is going and where you can cut back. More importantly however, is having the discipline to stick to your budget. After all, if you end up spending more money than you have coming in you are likely to end up with the problems above of getting into debt and possibly ruining your credit. So make sure to keep track of your finances.
