Thursday, May 24, 2007

Life Economics

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 na├»ve 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?