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By KAREN BLUMENTHAL

This spring’s college grads are heading out into a world where jobs are tough to come by. The economic outlook is uncertain and all the older people they know are feeling the pain of stock-market losses.

 Worse, there are all kinds of nitty-gritty details to deal with: opening bank accounts, choosing health insurance, finding an apartment, lining up transportation and figuring out how to invest. How is a young person supposed to get ahead in this environment?

It’s not easy to master money management during the best times and it’s especially hard to navigate the challenges of a recession. Still, many of the same basic principles apply in good times and bad. And getting a taste of a downturn at the start may make current graduates smarter and more thoughtful than those who graduate during boom times.

Here are five broad financial lessons that can pay dividends for a lifetime:

1 Savings matter.

Whether you call it rainy-day money, an emergency fund or just reserves, having cash in the bank is important at any time, but it’s especially comforting and crucial these days.

In the bigger picture, having savings also means much more than just having money in an account. People who save, for the most part, have learned to live within their means. Most likely, they have a handle on how to budget and how to shop carefully.

The payoff is huge. People with savings have great options. If you aim to have at least six months of living expenses socked away, you can probably weather a job loss or a medical emergency. If you save more, you can take advantage of the downturn in home prices or take vacations and buy cars without getting in a hole.

2 Find the fine print.

Nearly every transaction these days seems to require a written agreement, from leases to health-club memberships to cellphone services. If you’re used to checking “I agree” every time you add software to your computer, you may take other contracts just as lightly. But you’ll learn quickly about the costs buried in the fine print once you miss a payment or find yourself on the hook for a $175 termination fee for breaking a cellphone contract.

To avoid that headache, look at agreements and contracts as though you were on a scavenger hunt for key facts: How can you end this agreement? How can the other side terminate the deal? What exactly will you be paying and when? And what happens if a payment is late or missed? Knowing the significant details will help you make better decisions and avoid much grief later on.

3 Focus on the total cost.

Over and over, salesmen will try to lure us into buying a nicer car or house or taking on a longer loan by touting the monthly payment. But if you want to keep more of your hard-earned money for yourself, calculate the full cost including interest and fees before weighing the monthly bill.

For example, some lenders may encourage grads to consolidate and stretch out their students loans, paying them off over 20 years instead of 10 to lower the monthly payment.

Repaying $10,000 in 6.8% loans over 20 years will cut the monthly payment to $76.33 from $115.08. But it will also more than double the interest paid — and your payments will total about $18,300, instead of $13,800. Understanding the total amount makes painfully apparent just how much money will go to someone else.

4 Debt is the great divide.

Taking on some debt can sometimes really pay off, such as when we borrow to buy a home or invest in education. At times, we need to pay off a major purchase or medical bill over a few months. But while debt can be useful, more often than not, debt is a continuing drag on our finances that limits our choices and separates the haves and have-nots.

That’s why you need to treat your credit card like a powerful financial tool that has to be managed properly and safely, in the same way that you had to learn the rules of driving a car. If you don’t already have a credit card, apply for one before you graduate, since getting a first card can be easier as a student. Limit yourself to one card or no more than two — one to use regularly and one for true emergencies.

Ask the bank to set a low initial credit limit of, say, $1,000 so that you can’t run up big bills. Use email or text message alerts to remind you when the bill is due and alert you if you are near your credit limit. Pay your bill on time and in full every month, or at least pay as much as you can possibly pay. Then, remember this last lesson:

5 There is a permanent record.

It’s not your academic transcript that will stick with you, but how you manage your money. Credit scores, calculated by credit bureaus based on how much debt you have and how well you manage it, will follow you through your adult life. Over time, that score will affect how much you can borrow, the interest rate you’ll pay, whether you can rent the apartment you want and sometimes whether you get a certain job.

Young people won’t start out with the highest credit scores because they don’t have much of a credit history. But your score will improve if you pay your bills on time, keep your borrowing to 20% or less of your total credit limit and apply for new credit only if you really need it.

A high credit score, just like a growing savings account, means you will have more options. Ultimately, that’s what a healthy financial life is all about: having choices to get to wherever you want to go.

Karen Blumenthal is a writer for the Wall Street Journal

This story is filed under: Business

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