Stay Financially Healthy While You Study

INTRODUCTION

The first edition of this book was written during the Covid–19 pandemic, that once-in-a-lifetime event that changed our world forever. Masks were everywhere, handshakes were nowhere, and if we thought that time was strange, the post-Covid period would prove stranger still.

Students entering university for the first time have always been confronted by firsts: the first time they are living independently, the first time they are really responsible for their own learning and growth, the first time they have to budget and cook, the first time they truly have to distinguish between needs and wants. It’s also the first time most are handling large sums of money (and the possibility of significant debt).

This has been a challenge for generations of students before, but being a student in the middle of a global pandemic… well, that was new!

One of the most immediate problems facing students was a drop in income, as the part-time hospitality and retail jobs favoured by students dried up. At the same time, inflation started to bite, and everyday items got more expensive. Budgeting became a greater challenge, and a 2021 National Union of Students survey found that 80% of UK students were struggling financially due to Covid-19.¹ And as of January 2024, almost 75% of Americans had yet to bounce back money-wise after the pandemic.²

Covid-19 is now in the rear-view mirror, but in many ways, the post-Covid period – our new normal – is more uncertain than the pandemic itself. As I write this book, we are in the midst of a slew of major adjustments to how we learn and study, how we work, how we interact with each other, and how we earn and spend our money.

Today’s students are entering a new world and handling money at the same time, and getting the most out of it remains a challenge for all. But if you’re one of those students – and feel like you need help handling your finances – there are ways of addressing these challenges, and they’re here in this book. In the following chapters, you will see how physical, mental and financial wellbeing are all connected. At the same time, you will learn how to:

•Prepare holistically for going to university

•Make your money work for you

•Deal with feelings of guilt, stress and anxiety

•Feel calm and in control of your finances

•Develop key financial skills for life

Through it all, you’ll find practical points of action so that you can make financial decisions confidently, knowing you’ve taken the most important factors into consideration. (There’s no guarantee you will make the right call every single time, of course, but at least you’ll know that your actions were considered, not impulsive.)

I hope that by the time you finish this book, you’ll feel more secure about handling your finances while studying and using your money well. I want you to have a greater understanding of your own financial priorities and objectives, too.

But mostly, I hope you learn to trust yourself when it comes to setting your financial foundations for the bright future you surely have before you.

The world has never presented as many opportunities and choices as it does right now, in this time and place, and life is yours for the taking.

Despite what people may try to tell you – and despite those two years spent in an unprecedented global pandemic – we are living through a golden age of humanity, in which you are only limited by your imagination and determination.

Your future is a wide-open blank page of possibilities – make your mark by being financially healthy while you study.

1

WHAT A DIFFERENCE A PANDEMIC MAKES

Covid-19 started as a health crisis, but it quickly became a mental health crisis and a financial crisis, too. Even now as I write these words in late 2023, the shadow of the pandemic continues to create uncertainty in things we have long taken for granted.

Whole books will be and have already been written about the health crisis aspect of the pandemic, so let’s jump right to the financials and how they have already affected and will continue to impact students, both while they study and beyond graduation.

First, let’s look at the timeline of events. I’ve deliberately oversimplified it because the nuance here is not important for our purposes. Rather, it is important to understand how the current high rates of inflation – and the consequent interest-rate hikes – came into being and what they mean for student finances.

Inflation

There is a delicate balance in the economy between supply and demand. When that balance is thrown off, inflation (or its opposite, deflation) occurs. In our case above, there were too many people wanting to buy from a limited supply of stuff, and this is one of the ways we get inflation.

But what is inflation?

Inflation is the rate at which prices increase (or decrease) over time. The inflation rate is usually an annualized amount, meaning that we measure inflation by comparing the cost of things today with how much they cost a year ago.

For simplicity’s sake, if inflation is 2%, then at the end of the year, £100 only buys £98 of stuff.

In simple terms, rising inflation means you’ve lost buying power.

So, if inflation is 8%, then at the end of the year, your £100 can only buy £92 of stuff. Higher inflation means that your money doesn’t go as far, and this gets compounded month on month, and potentially year on year, if inflation doesn’t subside.

Since 2008 inflation has been pretty steadily rising, and prices and wages were going up at about the same rate.

But post-Covid, inflation began to skyrocket.

In nearly every country in the world, it is the central bank’s role to streamline financial policies and keep the nation afloat money-wise, and this responsibility includes setting and monitoring inflation rates. These organizations – including the UK’s Bank of England and the US Federal Reserve – keep inflation around 2%, which is considered the target inflation rate.

What does this mean for students?

Students spend most of their money on rent, food, transport and utilities, and the cost of all these things has gone up – some of them dramatically.

According to the Office of National Statistics in the UK, food costs increased by 19.2% in March 2023, which was the highest annual rate the country had seen in more than 45 years!³ Similarly, in the US, food prices increased by 6.3% in 2021, and then again by 10.4% in 2022.⁴

Student loans, and in particular maintenance loans, which are designed to meet living costs, have failed to reflect these rapidly rising costs of living. In fact, students were already struggling with a funding gap – the difference between how much money they have and how much money they need to afford their life as a students – and because of inflation, this is only getting more pronounced with time.

Interest rates

Interest rates are the penalties that are applied to borrowing money, and the reward that is received for saving money. (We will touch on interest rates again in Chapter 5, in which we will discuss debt in more depth.)

Taking out a student loan is one way that you can borrow money, and that loan has interest attached. In general, your loan will incur a higher interest rate if what you’re using it for is considered high risk. So, for example, borrowing money to buy a home – a mortgage – is cheaper than borrowing money to start, say, a dog-grooming business!

On the other hand, when you put money into a savings account, banks are effectively borrowing that money from you, and they use your savings to lend to the lady who wants to buy a home, or the man who dreams of grooming dogs as his day job. As a thanks for lending them money so they can lend it to others, they will pay you interest.

Interest is calculated as a percentage of the amount borrowed or saved – the interest you pay will always be higher than the interest you receive because the difference between the two is the profit made by the financial institution. So, the lady taking out a mortgage is paying 6% interest, while your savings account accrues 3% interest. The other 3% becomes the bank’s income.

But how do the banks decide what interest rate to charge? They use the base rate designated by their country’s central bank as a starting point. Each country sets its own base rate depending on the market conditions domestically, but