"The true cost of something is what you give up to get it.  This includes not only the money spent in buying (or doing) the something, but also the economic benefits (utility) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else.  For example, the opportunity cost of choosing to train as a lawyer is not merely tuition fees, price of books, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as footballer."

Although the Economist is a British publication, the concept of opportunity cost is as relevant here in Baltimore as it is in London or Liverpool.  Every decision you make about your future career and education has opportunity costs.  As an aside, Kevin "Kal" Kallaugher, UMBC artist in residence, has published editorial cartoons in the Economist for over three decades.

JUST LAUNCHED:  Financial Smarts @ UMBC

And while on the topic of local financial expertise, we here at Extra Credit are thrilled to inform you about the campus' new Financial Smarts @ UMBC website: http://financialsmarts.umbc.edu/. Check out the customized links, current videos, twitter feeds, Facebook postings and upcoming contests and surveys with prizes like a Kindle Fire!  The website is designed for all students at UMBC and we encourage you to visit, learn, interact and share.  

HOW MUCH DO YOU KNOW?  TEST YOUR FINANCIAL SMARTS

So amidst all this financial dialogue, perhaps an honest assessment of your current knowledge of key student finance principles could be helpful  Here's a quick diagnostic quiz to see how much you already know (since you have been learning about money almost from infancy) and where you need to step it up.  The answer key is at the bottom, but do not peek. 

1. The best way for a college student to start building a good credit rating is:

a. Having as many credit cards as possible
b. Being an "authorized user" on a parent credit card
c. Charging large amounts on your credit card
d. Have a responsible co-signer on your credit card
e. None of the above

2. A student should file a Federal income tax return for 2013, even if you are still a dependent on a parent's return, if your income was at least:

a. $400 in earnings from self-employment (lawn-mowing, dog-walking)
b. Any amount if Federal taxes are withheld
c. More than $950 in unearned income (dividends, interest, etc.)
d. More than $5,950 in earnings from a job
e. All of the above

3. If you file a Free Application for Federal Student Aid (FAFSA) as a freshman, when do you file again?

a. Never, if your family's circumstances do not change
b. When your family's financial circumstance changes (loss of job, adopt a child, etc.)
c. Once a year, by Valentine's Day
d. It depends, ask your Financial Aid Counselor
e. None of the above

4. What is the most serious threat to financial solvency for typical college juniors and seniors?

a. A latte habit
b. Parents with unrealistic expectations about how much things cost
c. Failure to budget in advance
d. Over-reliance on credits cards with high interest rates
e. Inattention to financial matters in general

5. What is the most egregious (look it up if you don't know it - it was on the SAT) waste of money for a typical college student?

a. Multiple parking tickets adding up to hundreds of dollars
b. Buying textbooks new when used are available
c. Leaving money unused on your meal plans because you ate out frequently
d. None are egregious
e. All egregious

6. What is the best thing a college student can do to prepare for a promising financial future?

a. Build and maintain a high credit rating
b. Start an IRA (retirement account) the minute you start earning money
c. Major in engineering
d. Run a business on the side while being a full-time student
e. None of these strategies is a standout

7. The most important reason to have adequate car insurance in force every minute you are driving is:

a. Insurance is required under Maryland law
b. Insurance will pay for repairs to your car if you have an accident
c. Insurance will pay the medical expenses of anyone injured because you ran in to them
d. If you do not have insurance and you injure someone badly, you or your parents could be sued and have to pay enormous amounts of money out of pocket
e. All of the above

___________________________________________________________

AND NOW, THE ANSWERS

Question 1: (e) None of the above

The key to building a good credit rating is to have a card in your name (not just "authorized user" status or cosigned), to charge either a small or large amount relative to your credit limit, and PAY IT OFF ON TIME!!! Timely payment is absolutely the most important factor.  And try to pay it off in full to avoid costly interest expenses.

Question 2: (e) All of the above

Figuring out if you need to file a tax return while still a dependent is a little tricky - depends on what kind of income you have.  But if you had a job that withheld taxes from your pay, you MUST file a return in order to get a refund.  If you do not file, you will have made an unsolicited donation to the Federal treasury.  (Source: IRS Publication 501: Exemptions, Standard Deduction, and Filing Information)

Question 3: (c) Once a year by Valentine's Day

You must file a new FAFSA every year if you wish to continue to receive Federal aid, including Federal loans

Question 4: (e) Inattention to financial matters in general

It is easy to get caught up in academics, social life, your job, etc. and not do the planning ahead that is needed.  And if parents are your problem, you need to PLAN how to make a strong case to them that additional funds are needed. 

Question 5: (a) Multiple campus parking tickets adding up to hundreds of dollars

This one wins because it is completely avoidable, not only wastes money but gives you a negative record with the university and a "financial hold" that prevents you from registering, sending an official transcript, or receiving a diploma. 

Question 6: (a) Build and maintain a high credit rating edges out (b) Start an IRA early

Your credit rating is so key to your future!  Not only does it affect whether you can get a car loan, rent an apartment, or what interest rate will be offered to you, it may even prevent you from getting certain educational loans down the road.  Did you know that the average medical student incurs loans of $170,000 and that 86 percent of medical students have indebtedness when they graduate?  (Source: Association of American Medical Colleges, Feb 2013 report on medical education costs) A poor credit rating could prevent you from being able to borrow the money you need for professional school.

Question 7: (e) All of the above

You need to know not only that there is insurance, but that payments have been made on time to keep it in force.  You also need to know whether it covers just the damage YOU do to others, or also the damage to your own vehicle if you are hit by someone without insurance, for example.  If you drive a car, whether your car or your parents' car, take time to understand your coverage and make sure it is adequate. 

SCORING THE QUIZ: HOW MUCH DID YOU KNOW?

1-2 questions correct:
Your financial literacy is lagging and you need to get busy learning about taxes, insurance, investments, loans, credit, and more ASAP!

3-4 questions correct:
You are heading toward financial competence.  Keep learning!

5-6 questions correct:
You are getting close to MASTER status.  Just fill in the holes. 

All 7 questions correct:
You  must be a Financial Economics major!  You show an unusual perspicacity and acumen in the financial realm at an early stage in your college career.  You have earned the title "MASTER of Money Management"!  But do not get complacent - continuing education is necessary. 

FOR MORE INFORMATION: 

"What Students Need to Learn About Money" by Seth Fiegerman on the Main St website

"College students and personal finance, Part 1: Credit-card debt" on ConsumerReports.org

This article also addresses the pitfalls of pre-paid cards.

"Top Five Money Mistakes College Students Make" by Jeremy Vohwinkle on About.com Financial Planning

EXTRA CREDIT DISCUSSION QUESTION

What "opportunity cost" dilemmas have you thought about with respect to your future career and/or graduate school plans?

Share your thoughts in the comments section below.