Mobile apps teach college students to tackle spending habits — and debt

With students facing significant debt when they graduate, financial service providers can use technology to create a sense of empowerment around financial management for young adults.

Many young adults are packing up and leaving their college towns for good, while a new set of students are just starting their undergraduate or graduate school journey.

Every one of these students enters a financial reality that many older Americans never had to face. The rising cost of tuition is causing those entering college to take a closer look at the effect on their long-term finances, especially as they observe many recent graduates who are entering the workforce saddled with significant debt.

This phenomenon has led many graduates to seek guidance on how to address their finances in a way that’s specific to their own needs. They’re feeling empowered by their new status of adulthood and looking for guidance that allows them to make the right decisions, rather than make a series of guesses themselves based on incomplete or inaccurate information.

While this group faces a challenging financial landscape, they are also unique in their understanding and dependence on technology, giving financial service providers a great opportunity to deliver insights directly to them.

Through hyper-personalized digital financial apps, students can get a better grasp on how to handle the cost of college and learn valuable lessons on how to manage their financial wellness.

TAKING ON THE WORLD — AND STUDENT LOANS

Student loan debt in the United States reached $1.7 trillion at the end of last year, and more than a third of that debt is owed by those under 35. With the average amount of debt approaching $40,000 per person, it can be a lot to process.

That’s not the only debt many millennials face, as this group has an average of $4,600 in credit card debt and a higher rate of both unpaid medical debt and late rent or mortgage payments compared to older generations. Keep in mind that this is all as they are beginning their lifelong financial journey.

Personalized financial tools can help ensure that journey starts off right, providing guidance and actionable insights on how to keep up with spending, budgeting and savings decisions. With student loans offering different payment plans, students can even project their future income to see how changes might alter how they should pay their loans, as well as handle other aspects of their finances. Along with helping to keep track of debt, these tools can also assist in budgeting for larger goals, emphasizing the importance of financial wellness.

As college graduates begin to feel free and on their own for the first time, these digital tools can help empower young adults to take on their finances proactively. This will not only help with their loans today, but their financial habits down the line.

KEEPING UP WITH THE JONESES’ KIDS

Leaving home for the first time can be a significant test of a student’s financial responsibility. Peer pressure only exacerbates the issue, as nearly half of millennials and Gen Zers report their spending is influenced by social media. From the clothes they wear to the games they play, chances are some students will be able to afford more than others.

But just as much as these generations are likely to compare their spending to that of their peers, a view into their finances can help them learn to build better financial habits by focusing on the future rather than the moment. Seeing that other students have already begun saving might be the push needed to get them to create a budget and parse out what they can truly afford.

[More: Student loan debt linked to lower 401(k) balances]

With access to features like spending categorization and peer benchmarking, students can now see how much their peers are really spending on clothes or games, and then set a limit on their own spending that lets them set their budget to the experiences they like the most.

DON’T FORGET ABOUT FAMILY

With tuition growing more expensive each year, it’s no surprise that families are getting more involved in funding higher education. In fact, parents end up paying for more than 50% of college between their own savings and borrowed money.

From peer benchmarking to budget insights, these tools also apply for a student’s support structure, and can help keep budgeting for college manageable for families.

Additionally, parents can feel more comfortable in letting young adults begin to make financial decisions through digital experiences. They can also rest assured that their students are receiving proactive alerts as they reach spending limits, helping their child truly learn how to budget on their own.

In the end, young adults should be empowered to take control of their finances, not just today, but throughout life. And digital financial wellness tools both enhance that process and build trust.

Ashley Dahl is vice president of product management at Envestnet Yodlee.