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Did you know that the average household in America pays almost $700 in preparation for going back to school? That money covers a wide range of purchases, including supplies, technology items, clothing and shoes.

Depending on your age and your family’s financial situation, your parents are probably covering all your school expenses so far. Or, if you’re in high school or college, you might’ve been covering some of the costs yourself. Even if you aren’t, it’s important to start thinking about money and how to manage it. Find out what back to school for students means financially in this guide.

Common Ways to Pay for Things, Including School Expenses

The main two ways you can pay for things are with cash on hand and credit. It’s important to understand the differences between these two methods and what situations they are best for. 

Paying with Cash on Hand

This doesn’t necessarily mean you pay with actual cash. It just means that you have the money you are using to pay for the item. You could specifically pay with:

  • Cash money, including bills and coins
  • A debit card that draws the money out of a checking account
  • A written check that draws the money out of a checking account
  • A prepaid debit card that’s already funded with money

Pros: Paying with cash ensures you don’t go over budget and can save you money in interest that might otherwise accrue on a credit card.

Cons: If your school supply list outpaces your budget, you may not be able to get everything at once.

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Paying with Credit

Paying with credit means you borrow the money from someone else to cover the cost of what you’re buying. You often pay for this convenience in the form of fees or interest expense. You also have to pay this money back later.

Examples of paying with credit include:

  • Using a student loan to cover costs associated with college
  • Using a credit card to make a purchase
  • Taking out a loan for a vehicle
  • Borrowing money from a friend or your parents to buy something and promising to pay them back later

Pros: Using credit lets you spread the expense of school supplies over several months and payments to make it more manageable, and you might also be able to get some rewards if you have a card that provides incentives for purchases.

Cons: It’s easy to go over budget when you’re dealing in credit, and if you don’t pay it all off in full within the month, you’ll be adding fees and interest to your purchase total.

The Importance of Good Credit for Your Future

Toget credit in the future, you need a solid credit history and score. Your credit report is an official record of how you manage your debts and whether you pay them on time and as agreed. Your credit score is a three-digit number that gives a quick look at how creditworthy that history is. For your FICO score, one of the more popular models, the ranges include:

  • Poor: <580
  • Fair: 580-669
  • Good: 670-739
  • Very Good: 740-799
  • Excellent: 800+

When you first start building credit, it can be difficult to get loans and credit cards. That’s because you don’t have a lot of credit history for a score to be based on. But there are options for building credit when you don’t have any, including credit cards designed specifically to help build credit.

Once you do take out your first loan or credit card, make sure you make your payments on time. Payment history has the biggest impact on your credit score, making up about 35% of your score.

For more help building your credit when you’re just starting out in adult life, consider signing up for a service such as ExtraCredit. It lets you monitor your credit score and has a Build It feature that helps add your rent and utility payments to your credit profile to get credit for bills you’ve already been paying—which can be especially helpful for college students.

Other Important Financial Matters

 Learning how to manage credit and build a solid credit history is important, but it’s not all that financial preparedness requires. Here are just a few of the other aspects of financial responsibility and how to make sure you’re creating good habits.

Budgeting

Budgeting helps manage your expenses, ensuring you have enough to cover them. If you have a part-time job, you can start budgeting for how much you want to save and what you can use on non-essential things. Even if you don’t have a job, you can budget an allowance.

Credit Cards

Credit cards work like debit cards, except they don’t draw money from your checking account. They draw on a credit line and create debt. Typically, if you don’t pay the amount you charge off in the same month, you’ll owe some interest. However, credit cards can be a great tool for building credit history if you use them responsibly, and there are many cards that are great for new adults or for those who are in college. Below are a few of our favorites:

  • OpenSky® Secured Visa® Credit Card: This card doesn’t require a credit check and lets you establish your credit limit by making a deposit. It reports to all major credit bureaus so you can ensure that your timely payment history is making a difference in your credit score and reports.
  • First Progress Platinum Elite Mastercard® Secured Credit Card: Another secured card, this one lets you make a deposit of as low as $200 to get started, and you can get your deposit back at any time by paying the card off in full. It doesn’t require any minimum score for approval, which makes it a good option for both those with no and poor credit.
  • Group One Platinum: This card isn’t secured, which means you don’t have to worry about a deposit, but it does require you to have either an active debit or credit card already. It starts with an instant $500 credit line, and you may be able to build from there.

Loans

A loan involves borrowing money and agreeing to pay it back with extra fees or interest. The better your credit, typically the better loan terms you can get. That means your interest rate may be lower, and the loan is less costly. Student loans are commonly one of the first types of this debt that young people typically take on.

Savings Accounts

Savings accounts are a way to set money aside in a secure but low-yield investment. That means you typically make 1% or less on the money, but you are very unlikely to lose it. You might also consider higher-yield savings accounts. Savings accounts aren’t really about building wealth—they’re for keeping money set aside but convenient in case you need it.

Investing

Investing is a way to build wealth. You can invest in the stock market, money market accounts, retirement funds, real estate and many other options. Investing does come with risk, so it’s important to work with experienced advisors. You can also try micro investing with apps such as Acorns, which let you round up when you make payments with a debit card and invest that change.

Financial Aid

Financial aid for students typically refers to loans, grants and scholarships to help cover the cost of college. One of the best ways to find out what you might qualify for is to complete the Free Application for Federal Student Aid form, or FAFSA.

Preparation Paves the Way For Success

Whether you’re headed off to your freshman year of college or completing your high school education, it’s never to early to start making positive financial moves. From how much your spend on school supplies and how you pay to building your credit for the future, paying attention to money matters now and getting a solid start will bring big benefits later on.

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