Gap year can teach valuable financial lessons

By Helen Fowler

Each year, hundreds of young people take a gap year to observe orangutans in Borneo, practise yoga in Kerala or build orphanages in Zambia. In a study by the Institute for Fiscal Studies through the Centre for Analysis of Youth Transitions, about 16% of the 4,000 participants took a gap year. For many of those students, a gap year is the first time they will handle their own money, and it can teach some valuable lessons:

1. Budgets are vital. A gap year typically costs between £3,000 and £4,000, according to the National Union of Students. If you are going with an organised programme, find out what is included (food, accommodation, transportation) and work out how much money you can afford to take with you. Set a budget, and stick to it. Planning in advance can save you from impulse buys later. From the minute you arrive, write down everything you spend; keeping written documentation will help you better see how much you've spent and where your money is going. This may be especially helpful if you are in a place where you can't check your account online easily. gap-year

2. It's hard earning your own way in life. The number of young adults living with their parents in the UK has increased by 25% since 1996. More than a quarter of 20-34-year-olds live with their parents. A gap year can teach you independence and ensure you do fly the nest. You can learn it is possible to survive without your parents bank-rolling you.

3. It's easy to spend money when you're away from home. But remember -- once you've spent it, it's gone. Blow the last of your Euros on coffee in the sun-lit village square and you will not have the money for your bus fare home. You can, however, recover financially with the help of Step 4.

4. Working -- no matter what job -- is not beneath you. Gap year activities can cost hundreds or even thousands of pounds. Without a job, it can be quite easy to end up with a pile of debt -- or worse, stranded in a foreign place. Never look down on any kind of work.

5. Foreign transaction fees stack up quickly. Depending on how long you'll be visiting a particular area, you may consider setting up a bank account while you're there. You could save on currency transaction fees by opening an account in whatever currency you're earning.

6. A credit card is not a "get out of jail free" card. Chartered financial planner Susan Hill advises against taking a credit card on a gap year. The experience can teach you to live within your means. If you do take a credit card with you, use it only in emergencies. Use cash or a debit card for everyday expenses.

7. Adequate insurance is important. Trips longer than one month may require a specialist policy. Standard policies may not cover riskier activities, such as bungee jumping, water sports or skiing. Be sure you're covered while working or volunteering, especially if you are doing any manual labour.

8. Learn to protect your money. Not everybody you meet on a gap year will be honest. It's impossible to tell if a stranger is a thief; even your roommate on the same good-Samaritan trip could be waiting for an opportunity to pounce. Never tell anyone a password or share sensitive information. If anyone suddenly starts asking for personal information, be wary.

See related: Your guide to student finance, Parents do more harm than good by shouldering children's debt

Published: 4 April 2014