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Wednesday, June 17 2015

Personal Finance for the young

On today's Diane Rehm Show show on NPR, they discussed the topic of young people and money for an hour. It was a truly bizzare conversation.

The first 10 minutes were focused around college-age kids - those thinking about going to college and those just graduated. This was mostly OK, but:

For a minute or two where the panel insisted that personal finance is complicated. It really isn't. Personal finance is pretty simple for the great middle - those who have enough income to be comfortable in their situation, but not so much income that they need an advisor and a CPA to handle it all. Make a budget, file your taxes on time, save a little bit, and know how to evaluate offers for credit.

The panel also seemed unwilling to point out an obvious cause for why kids seem to need more help from their parents straight out of college: graduates aren't getting married at 22 and 23 as often. Operating a household is expensive; sharing a household saves money. And unlike with a roommate, spouses typically pool money to reduce the risk of one person being laid off and falling into financial trouble. There are some drawbacks to marriage - for example couples with large student loan debts are likely to hit the cap on the student loan interest tax deduction.

The second segment was largely about teaching small children the value of money. One of the panelists suggested giving your kids an allowance, but expecting them to contribute to household expenses (ala rent) "depending on your means." How about, if you're of limited means, don't give an allowance at all, and if you're wealthy give an allowance.

Another suggested a "three jar" allowance where the kid would be expected to save some money, spend some money, and donate some money. The concept of charity is well beyond young children. Maybe this is a good strategy for a 10-year-old, I think it is enough to teach a young kid that you can't buy a new bicycle with $27.

The first caller talked about people who don't understand credit cards and the panel suggested that cash was the way to go. This is obviously outdated thinking - first, it is clearly easier to choose not to carry cash - $100 in a combination of 20s and small bills is a noticeable thickness to my wallet, and there's a good chance whatever I do I'll end up having to break a 20 anyway. Second, you get substantial value out of credit cards in the form of rewards. The same is true of debit cards, where many banks will pay significant interest on your checking account if you charge a certain number of times to their debit card.

A later caller wanted to thank her father for prohibiting her from taking out student loans, and the panel praised the pair for their decision. Similarly to the previous paragraph about credit cards, student loans aren't actually that bad, as long as you do the repayment math first. Taking out $6700 a year in loans for four years would result in a monthly payment of around $330 on a 10 year term. Not a small sum, but if you take a job out of college with a salary of around $38k, definitely doable. Probably doable on less depending on the cost of living in your area. And keep in mind that $6700 will actually go quite a ways to funding a year of tuition at a public school - plausibly more than 2/3, with the remaining third easily covered by a summer job.

The best commentary came from two educators, one from Tulsa and one from Cincinnati. They denounced the myth that secondary schools fail to put on programming for financial preparation for college to the best of their abilities and that schools don't teach kids how to calculate the interest on a loan (although I would argue that this kind of thing needs to be emphasized and things like trigonometry de-emphasized)

Some times the ability of the school isn't sufficient - it is ultimately up to a parent to figure out how they can help their kids save for college.

Now for some things I agree with the panel about:

  • Choosing an expensive college because it's expensive/exclusive is not a good idea, and declining to apply to expensive universities is also a bad idea because the financial aid packages can sometimes be very generous. Applying to a dozen colleges is also a silly exercise.
  • Personal Finance is certainly a topic every public school should cover in some detail and repeatedly. The panel on the Diane Rehm show called personal finance complicated, and I disagreed above - but I've spent many hours trying to figure out the finer points of IRA investing. Knowing to save 5-10% of your salary is easy enough, but comparing competing offers from employers is not -- especially when it comes to fringe benefits and culture.

Sunday, August 19 2012

A "Revolution" catch-22

Watching the promos for NBC's new drama "Revolution" (whose premise is a sudden failure the electric grid failed, along with all other fuel sources) tonight on NBC, a question arose:

How would the market deal with the sudden shortage of horses, given a lack of instant communication?

The easy answer, I guess, is that there is no longer a single market, but thousands of markets, and buyers might be unlucky or lucky about the price they pay in the first few days or weeks.

Sunday, November 13 2011

Internships: Required -- And Costly

The following is a survey conducted on the web by the University of Evansville campus magazine, the Crescent: Internship Importance

Almost 75% of respondents say that you must have an internship experience to be employable. I don't like that idea, but I understand a competitive job market in many industries can force students to become student-interns, or (worse) student-unpaid-interns

It seems to be a commonly accepted fact outside of Evansville. There are a number of universities where 60% or more of graduates held internships at one point. The linked USA Today article covers the main ground that is relevant here, but there's one more thing I don't understand:

Why do colleges charge full tuition prices for internship hours? It costs the school approximately nothing to administer an internship. Not a minute of faculty time is spent on internships (unless the internship is within an academic department). The clerks who do the processing are paid at a much lower rate than faculty, and probably only spend a few minutes on each student-intern.

What service does the university provide that's worth somewhere between $300 and $2500 (depending on your school's tuition prices and guidelines)?