Thursday, May 24, 2007
I've been following Tenured Radical's thoughtful discussion of the realities of student debt, and the ethics of choosing not to pay attention.
It's a great issue. It's concrete, it's real, it has tremendous consequences, and it's something we can actually do something about.
I'll admit to taking it in a different direction than TR's discussion. That's because I think TR and her commenters largely nailed it, in terms of the economics of being a student at a pricey residential college. Students at cc's generally have different issues, since they mostly live at home and don't do 'meal plans.' For these students, transportation is a huge cost. They live at home, commute to college, and commute to work. What socializing they do also usually requires driving. (In four years at Snooty Liberal Arts College, I never had a car. Most students didn't.) When the only car you can afford is an oldie, you wind up paying extra in repairs and lost time. Insurance ain't cheap for young drivers, and, candidly, some of them haven't quite grasped the concept of “speed limits,” which raises costs even more.
Add to that the slow climb of the minimum wage (esp. as a fraction of tuition!), the frontal assault on the used-book market by publishers, the expectation of constant reachability by phone (creating a category of expense that didn't exist back in the Paleolithic era, when I was a student), the aggressiveness of credit-card marketing, and the general impulsiveness of youth (a wonderful lyric, circa 1990: “I spent my last ten dollars on birth control and beer...”), and financial solvency is an uphill battle.
All of that granted, I also think many students need a clue about the financial realities of leaving student-hood; the financial lessons people need to learn when going from student status – whether undergrad or grad – to worker-bee status.
Sometimes I honestly believe the best fifteen bucks I ever spent was on Personal Finance for Dummies. (This was around 1997 – I don't know what the 2007 equivalent would be.) As one who had gone directly from undergrad to grad school, I was badly naïve in the ways of the financial world of people who actually make salaries. That's not to say I was coddled – I lived in some real shitholes – but just to say that I had no more concept of a mutual fund than I did of fruitfly migration patterns. So when I got an actual job, and the grace period on student loan repayments ran out, I had to learn a whole new set of rules.
(In grad school, 'financial planning' usually boiled down to 'what will I do the next time I have a huge car repair to pay for?' It happened entirely too often.)
Some of the rules were of the “oh, yeah” variety. You kind of already know them, but you hadn't put them together that way before. My first “oh, yeah” moment was when I read that paying off a student loan early amounts to a guaranteed after-tax return of 8% (or whatever your interest rate is). Mathematically, this isn't rocket science, but I hadn't put it together quite that way before. Similarly, the rule of 'always contribute enough to the 401(k) to get the full employer match' is mathematically obvious, but sometimes you need someone to connect the dots for you. And there's the classic “houses appreciate, cars depreciate,” which isn't universally true but is a pretty good rule of thumb.
Other rules were more obscure. TW and I had been married for a couple of years before we discovered, via a passing comment by her brother, that a married couple insuring two cars together gets a much better rate than each of us insuring our own separately. Who knew? (Reason #53556 to support gay marriage – it'll save them a bundle on car insurance!) It was only about two years ago that I discovered that if you barely use cell phones, prepaid phones are dramatically cheaper. And I've become something of a savant about dodging ATM fees.
(Luckily, I was always healthily wary of credit card debt, which struck me as inordinately expensive, and car leases, which struck me as shady. Sometimes that Midwestern Scandinavian conscience actually comes in handy.)
There's even a whole vocabulary to learn. I had no concept of 'escrow' or 'equity' until I was thirty.
I don't know how or when to impart this kind of information to students. I've gone on record on my campus as opposing “student success” course requirements (“intro to college”), since they strike me as infantilizing. (Don't even get me started on the “time management” gurus. Time management tip #1: don't waste your time on time management gurus.) But some sort of “intro to life economics” elective – or maybe series of workshops with free food -- might be a good idea, particularly for the traditional-age students. Teach them about compound interest before they get sucked in. Apply critical thinking skills – the holy grail of the liberal arts – to economic situations most people actually encounter. That's not the same as the current Intro to Economics, which is more about methods and demand curves and the discipline of economics than about daily life.
Okay, I know this isn't going to happen, and much of it would fall on deaf ears if it did. But it would do a hell of a lot more good than much of what we do teach.
What would you include in a course on life economics?
Pay the highest interest loan off first. Make the maximum CC payment you can manage. Once you get rid of the old debt, make sure that you pay off your CCs in full every month.
If you can choose between an extra car payment and an extra student loan payment, make the extra car payment. Your car loan interest is NOT tax deductible, while your student loan interest is (up to a certain income level, but if you're juggling these issues, chances are that you haven't topped out the income level for deductibility).
Don't have multiple pets. Vet bills suck. Every time we start to feel a little bit more financially stable, we shell out a $1000 on a kitty enema or the like.
Try to build up liquid savings--don't pour everything into your company retirement plan. You should work to build up at the very minimum two months living expenses (six months is better). If you lose your job, you will need the cushion to get you through (we haven't had a cushion like this since I got laid off in 2002--but it was a damn good thing we did...as soon as I'm working again (soon, I hope!), the cushion is the first priority).
Thanks for the props: one of the things I would tell students now is that immediately upon graduation, determine some sum of money you can afford every month (say the price of an evening out with friends, which is $25-$50, depending on where you live) and put it in a savings account. When you have enough to start a Roth RA, buy one. The compund interest over time is fantastic, and you get tax savings too. As your income grows, raise your monthly contribution.
The other thing I would tell young people is that most consumer spending should be in *cash.* Dont put gas, groceries, TV's (and here we are talking essentials and non-essentials) on credit crds, even if you have all the good intentions in the world of paying them off the following month. Why? Because you won't -- because you will have exactly doubled your budget for those things for the following month. If you didn;t have hte cash for htem this month, where exactly is it going to come from?
I now do a yearly budget where I "save" during certain months of the year because I will need to "spend" in others -- this is particularly critical in relation to energy costs.
Information on: 1) rental issues (rights, responsibilities), 2) low-income familiy issues (WIC, access to healthcare via our state's insurance plan for children, 0-3 programs, childcare), 3) employee rights and responsibilities 4) information on accessing healthcare for the uninsured/under-insured.
I think a couple of workshops coordinated by Student Services with a few guest speakers would cover all of that. :)
I'd be curious to see some numbers crunched to determind if a given student is better off cutting back on work (and income) in order to complete their degree more quickly (how long would it take for higher post-degree earnings to compensate for lost-earnings while earning the degree?).
Many of my students entered the working world straight out of H.S. so they are accustomed to certain accourtements of adult living and seem unaware of the ways in which they could economize in order to accomodate tuition.
That said, my sister took a personal finance class at her CC and it was great - for her because she learned how to manage things independent of our parents and for us because she taught us a lot of things we never knew about finance.
I would also say that most students would be better off not expecting to live in college the way they lived at home with their parents. The art of living on the cheap is a dying one but is crucial to leaving college with your fanancial future intact. Many students at my college "have to have" things I think they could do
A very wise adjunct professor (who made most of his living as a freelancer) took me to lunch in my senior year of college and told me about tax writeoffs (save those receipts!) and the importance of a good CPA. I'm still grateful.
I now make sure that my own future-freelancer students know how to run their own businesses as freelancers--down to the nitty-gritty of business permits, getting health insurance, planning for retirement, marketing themselves to potential employers/students, and collecting payments.
But the number one advice? Don't live off of those credit cards (of course). I hope some of them are listening...
One other thing that I would tell newly minted grads:
DO NOT sign ANYTHING until you have read it closely. No loan agreements, no employment contracts, no nothing. If there's something you don't understand, ask. And get the clarification in writing.
In reading all the articles about people who have been reamed by sub-prime lenders, I am shocked at how many people either didn't read their loan documents or who noticed discrepancies but didn't say anything, or who raised verbal questions that were waived away by the lender's representative. Sure, it slows down your closing, but YOU'RE SIGNING YOUR LIFE AWAY FOR 30 YEARS! I've bought two houses now and refi'ed twice on top of that, and each time, I read every document in the packet. If something seems fishy or questionable, then it very may well be. Sadly, it is all too often up to consumers to protect themselves from predatory businesses.
We got Suze Orman's book "Young Fabulous and Broke" for a niece when she graduated from college. It deals very well with all relevant issues (student loans, credit cards, housing, cars, insurance, investment), as does her call-in TV show (on CNBC cable?).
A student could learn a lot from all of the bad examples that call the program. Like dropping $500 on a 20% CC buying rounds at a NYC bar to impress people they will likely never see again.
Best idea I ever got, from a fellow post-doc, was to bring lunch rather than buy it at a nearby burger joint. $5 per day = $100 per month is a big chunk of a car payment or $1200 down on a purchase next year. Some could buy a house instead of *$ several times a day.
This is an excellent point, but at my school (wealthy private uni) I see students who are happy to slum it during college, but expect that their first job post-college will provide them with the same upper-middle-class existence that they see their parents living. I don't think the problem here is that students are unwilling to eat ramen occasionally while students so much as they expect to live in their own apartment with a new car and a great new wardrobe and eat out every night with their first job.
Anyway, on undergrads, two things:
a) Require two personal finance/management courses: one in the first semester of their first year, and the other in the last semester of their senior year. The "rules" are different for college and after;
b) Encourage students to try and keep their "college lifestyle" (assuming they were scraping by or being somewhat frugal) for the first two years out. This will give them a margin to slowly adjust to their bills and hopefully increased income.
I (currently) don't have a TV. I had one in undergrad. I had one in grad. But now I don't. Why? Because I did the math. Basic cable alone is nearly $500 a year. Add on the "necessary" TiVo with (required) land line monthly fees and that rockets to nearly $1500 a year!
I don't know why most people are unable to do this sort of math on their own. Maybe a class is necessary.
And a nice upside to all of this, aside from saving money, my house has never been so clean and I always have time to cook rather than eat out. :)
The assumption that they will go directly from college to the lifestyle their parents currently have (25 years out of college) could be partly the parent's fault. Someone should have been telling them the family history: what their first house or apt was like, how much they made that first year, etc.
But it all boils down to this:
"'My other piece of advice, Copperfield,' said Mr. Micawber, 'you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and - and in short you are for ever floored.
"As I am!'"
If I had one piece of advice for living cheaply: cook for yourself. Learn what foods are in season, and how to put together nutritious, inexpensive meals. It's part of the "not trying to live like your parents" and also figuring out what you really need and really don't need.
Oh, and libraries are good. (A piece of advice I take too rarely!)
The cable TV bill cited above is a great example.
I admit that I spend $1.80 a day on coffee during my commute in. Would it be cheaper to make it at home and bring it on the bus and train? Sure. I count this as part of my entertainment budget, rather than food, and I have it in mind as a place to cut down in the future. (How I miss the $1 cappucino's available in grad school town.)
The student struggles with costs are real. This year was the first time (at State U) that I had a student sell back their book before the course even ended. They borrowed my copy for the final.
After 38 years as a Physiatrist I put up my own websites.
They are two free sites.
One [http://www.myRay.com ] is dedicated to help sufferers of Emotional Stress. People, who feel depressed, stressed or anxious yet they are still functioning.
Sufferers of Emotional Stress can and will eventually suffer from Depression and Anxiety. They enjoy a persistent poor quality of life. myRay http://www.myRay.com
can correct this.
My other free site http://www.MyDoctorExplains.com explains all you need to know about feelings, thoughts, emotions, moods, depression, anxiety, what they mean, what you can do and how you can choose.
Both sites, http://www.myRay.com and http://www.MyDoctorExplains.com are free. They are designed to help you.
Use them as often and as long as you so wish.
I hope that they will be of assistance.
With kindest regards
Dr. Michael Benjamin,
The best thing I did was attend a financial seminar for women, sponsored by the women's center and the alumni/ae office. The workshops, which are run 2-3 times a year, was a 1-day event, and there were workshops on taxes, retirement, living wills, buying and selling a home, and so on. The workshop was open to women students, faculty, staff, and alums, which meant that there were women there in all phases of life and in all variety of income brackets; because the participation from hourly staff was relatively low, the class of participants was skewed toward the graduates-of-private-university end of things -- but that's something that could be ameliorated.
I learned a great deal from the experts who rand the workshops (tax, accounting, real estate, legal professionals). I felt comfortable asking questions. And I learned almost as much from the questions other women asked, as I did from my own, in part because there were women there thinking about things that are still 10-15-20 years down the road for me. I recommend this workshop to every grad student I know. And I'll probably go again in a few years, to ask a new set of questions as I approach graduation.
For me, this has been a model that really worked.
These are sponsored/co-sponsored by Career Services, the alumni office, the dean's office, etc. and include topics such as:
Life After College: Housing & Budgeting. This is easily one of the most popular things we do, because students recognize that they have to move out of the dorms and that they need a place to live. I do this workshop and pepper the links and general advice with stories of my own post-college rental apartment horror stories and finance wisdom. (for example, spending $6 on lunch per day is 1200 bucks a year on lunch, ordering pizza once a week is over $500 bucks a year)
Personal Finance (this is done by an outside person who is an alum of the college, but he does not promote his own firm/services to the exclusion of others). Also well-attended.
Cooking For One. Partnered with dining services, but it was not well-attended.
Young Alumni Panel. Had recent grads (1-2 years out) in both the Nonprofit and corporate worlds come back to talk about their experiences. This is hit or miss, because the info is good, but getting students to come is always a struggle.
Hope others find this interesting!
What we found most useful were actual skills along the lines of SURVIVAL skills. How to change a flat tire (bike and car). How to make dinner without an oven or stove. How to balance a check book. We would provide maps and schedules to farmers markets and flea markets. How to find, catalog and use coupons.
Things we might take for granted (I'm 45), but have likely never been taught to this generation.
Concepts are really good, but practical skills provide the foundation. "...teach a man to fish...."