Inside Tomorrow's Pharmacist (2001)

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Finance

Finance by John Jaquiss

We live in a society where access to finance is made increasingly easy, and without careful management and control, it becomes all too simple to incur significant debts prior to the start of our working career.

An average pharmacy student will leave university after four years study owing around £14,000. Although some will owe less, and some nothing at all, there will be others who may have borrowed up to £20,000 and beyond. But through careful planning right from the outset, and throughout university life, it is possible to significantly minimise the amount you owe, and overcome the temptation that is constantly put in front of you.

Budgeting

The ultimate aim is to make your money go as far as possible, and careful budgeting is an easy way to achieve this goal. Forward planning is essential. Firstly, you will need to know your income, and an indication of your expenditure. Expenditure should never be more than income, and before going to university, you should have thought carefully about how you will afford your education, and what if any loans you will require.

You will need to be completely honest with yourself about expenditure, identifying regular payments such as rent, food, clothes and bills while leaving yourself with enough money to pay for those expensive irregular outgoings, such as books and university balls. The amount that you are left with is your disposable income. Remember — if you commit to costs that you cannot afford and discover part way through the course that you are in financial difficulties, it may have a negative impact upon your ability to study and concentrate.

If you have gone through all the planning processes but still encounter financial difficulties, then the first rule is "don't bury your head in the sand". Always address the issues straight away — don't assume they will go away by ignoring them. A debt problem can quickly get out of control to the point where a minor issue becomes an enormous headache. Contact your bank or the student debt counsellor immediately, and work through the problems with them. If the bank offers you an additional loan, make sure you consider the full implications. The loan will probably not be at the favourable interest rate offered by your student loan and any extra financing will still have to be paid back on graduation.

Student income

With the demise of the Government's grants for further education, the main source of income for students is the student loan. These loans are administered by the local education authority (LEA) and serviced by the Student Loans Company. All students can apply to their LEA for a non-means tested loan and for the first year of studying the amounts available (2001–02) are shown below. But remember — it is not compulsory to take the full amount. Your parents, however, will be means tested to assess their ability to finance the university tuition fees. Students who are deemed not to be eligible for the local council funding will be offered a further loan to cover their tuition fees.

Student loans are paid into the student's bank account in three instalments at the beginning of each term and while the individual is still attending university no interest will be payable on the outstanding balance. Interest is only charged once the student has graduated and is set each year in September according to the current rate of inflation. The interest rate for 2001-02 is a flat 2.3 per cent. For more information you should contact your LEA, details of which can be found in the local telephone directory.

Many students partly fund their education through part-time work while studying. Most university student service representatives will be able to help in recommending local employers.

Bank accounts

With all your planning complete, the next stage is to decide about your bank account. Theoretically, a student can open more than one student account but it is likely you would be persuaded to close one of the accounts if the bank became aware of the situation.

The competition among banks is significant, because they are keen to attract you as an undergraduate in the hope that you will maintain a life-long relationship with them and be one of their wealthy customers in the future. Research has indicated that people are extremely loyal to their banks, even though they may complain from time to time about the service.

It is important to select the best bank based upon cost rather than gimmicks. For example, a larger interest free overdraft will be far more beneficial than a few free CDs. You should also feel comfortable that the bank's approach feels right, after all, they may well be offering you a great deal now, but when you graduate owing a large amount of money will they be sympathetic to your needs?

Having decided on the bank, visit the branch to open your account and to take with you some identification documents to confirm your name, main address and visual identity. Such documents might include a passport or photo driver's licence. When opening a student account the bank may request your UCAS confirmation letter which states which university and course you will be attending. Having these documents to hand will speed up the process and ensure the bank can provide you with a chequebook, paying-in book and cash card within a few days.

Always keep a careful record of your bank balance, never exceeding an agreed overdraft without the permission of the bank. If you do, you will find that bank costs are exorbitant. For example, they may charge a daily fee for excesses, then a monthly service charge and, in addition, interest at a rate equivalent to say 30 per cent or more per annum. They will charge you for letters and for any cheques or standing orders that they decide to return unpaid. Why pay the bank fees when you can have that money yourself?

When looking at charges and interest costs, try to understand the real cost in annual terms. For example, a bank or financial institution may charge interest at say 2 per cent per month, but remember it is per month and that may equate, depending on the way they calculate it, to at least 24 per cent a year.

Whenever you are looking at any financial information, always try to ensure that you compare like with like and understand that the bank or financial institution will not give you anything for nothing.

Plastic cards

There are two types of plastic cards — debit cards and credit cards.

Payment via a debit card is made by charging your bank account direct, and the recipient's name and details will show on your bank statement. Using a debit card saves the need for a chequebook and such a card normally doubles up as a cash card and also a cheque guarantee card where necessary. But remember — you cannot stop a cheque payment when backed with a cheque guarantee card. While payment by debit card is quick and simple, it is most important to keep a careful record of all transactions, to ensure that you know the precise position on your bank account and that you are able to reconcile the statement.

Credit cards provide you with access to credit and come with a pre-set spending limit. As a cardholder, you have the option of paying the whole or part (minimum 5 per cent) of the debt on a monthly basis. Credit cards can be extremely useful, if used sensibly. However, it is quite dangerous to use them for items such as college living expenses unless you are disciplined enough to clear the balance on a monthly basis, since they represent an extremely expensive way of borrowing money. As most students will not have a monthly income, a credit card can very easily become a source of unwanted debt.

The credit card companies are always keen to see people take advantage of their credit facilities, but when they are earning that interest rate wouldn't you? If you decide to go the credit card route, then a limit of no more than £500 would be wise. Many students graduate blaming the banks for their huge credit card bills when in actual fact it was the student's lack of discipline that caused the problem.

Accommodation

For many students, going to university represents the first opportunity to move away from the family home, meet knew people and experience the joys or otherwise of fending for themselves. Before taking the major step, it is worth noting that students normally spend in the region of 60 per cent of the average income on lodgings.

Many students will never have come across a contractual lease for a property before going to university, which leaves unscrupulous landlords the potential to take advantage. Remember that you do not have to be a lawyer to understand what a contract says about what you can and can't do in the property and your deposit is at risk if you fail to read the clauses.

At the start of the contract you should have agreed an inventory with the landlord which records the general condition of the property. Remember to be completely thorough recording all damage that you do not want accredited to you at the end of the contract.

Students do not have to pay council tax, so it is worthwhile ensuring that the local council recognises that the property is occupied by tenants in full-time education. Many students are also happy to ignore general bills relating to the property due to lack of finance. It is worth pointing out that not only will this put your house deposit at risk but may also result in your being black listed.

Insurance

It is a fact of life that students are considered to be a high risk with regard to having possessions stolen. As a result, it is essential to arrange insurance cover to avoid incurring unplanned expenditure buying replacements.

While banks, building societies and other financial institutions offer insurance packages, and some may include it as part of their account opening package, the cost will often vary considerably and you should review these options in a similar way to choosing your bank account.

When considering insurance, also look at the established services set up specifically for students, such as Endsleigh Insurance Services which was established by the National Union of Students. Insurance can be arranged for a wide variety of needs, to include personal possessions, but also travel and motor insurance. As always, research the market carefully, and ensure that you compare like with like, because some products can have hidden costs which make them very expensive.

After graduation

At last! Your graduation is around the corner and the world is your oyster. You can now get out and earn some real money. However, you still have debts and need to start planning once again.

The budget planning process you went through and have followed throughout your university life will remain relevant in business and the working environment. The first step will be to determine your income and expenditure before loan costs.

While you will want to clear your debts as quickly as possible, it is important to make sure that you can afford all of the repayments. Putting pressure on yourself to clear a loan quickly may result in increased pressure on more expensive overdrafts or credit card debt which will increase your costs long term. It is much better to set the repayments at a lower monthly figure, to minimise the possibility of incurring credit card or more expensive debts. Student loans can be deferred, based upon earnings, which will give you time to clear the aforementioned debt.

You are now receiving an income through full-time employment and all that hard work has paid-off! Although you are free from the pressure of study, life becomes more expensive as a graduate with factors such as tax, loans and your new lifestyle. An important rule to remember is that careful planning in advance linked with the strength of character to tackle problems as they arise will put you on the right track for a successful future.

Mr Jaquiss is controller, commercial support, Unichem Limited