Archive for ‘post-college life’

July 11, 2014

Parents help sustain their adult children’s extended financial adolescence

by Grace

Most parents are providing some financial support to their children even after they graduate from college, thereby promoting a period of sustained adolescence among 20-somethings.

… nearly 85% of parents plan to offer their children monetary aid after graduation, according to a survey Tuesday from Upromise by Sallie Mae. Almost one-in-three parents plan to provide their grad with financial assistance for up to six months, and around 50% plan to foot bills anywhere from six months to more than five years.

The new normal means that adult children continue to rely on mom and dad.

So, what has changed since my son graduated a few decades ago? Sure, new graduates are entering a much more difficult job market than he did, and even those who do secure jobs are unlikely to have the job stability he’s enjoyed. But a difficult job market is only part of the story. Social norms have shifted so that accepting help from Mom and Dad well into your 20s is “OK.”

Psychologists call this trend “emerging adulthood.” As Eileen Gallo and Jon Gallo note in their paper “How 18 Became 26: The Changing Concept of Adulthood,” for a certain socioeconomic set, growing up and moving out—permanently—means downgrading your lifestyle. The authors quote sociologists Allan Schnaiberg and Sheldon Goldenberg as stating:

“The supportive environment of a middle-class professional family makes movement toward independent adulthood relatively less attractive than maintenance of the [extended adolescence] status quo. Many of the social gains of adult roles can be achieved with higher benefits and generally lower costs by sharing parental resources rather than by moving out on one’s own!”

Keeping their 20-something children on the family cell phone plan is one common example of how “sharing parental resources” makes it easier on young adults as they transition to financial independence.  Another example is health insurance, where Obamacare now requires family policies to continue coverage for children up to age 26.  Individually these are small examples, but in total many parents are heavily subsidizing their adult children’s lifestyle.

Retirement expert Dennis Miller says parents should consider tough love instead of risking their own future financial security.

Retiring rich is hard enough without paying for your child’s extended adolescence. The job market may be tough for new graduates, but forcing your child to navigate it anyway might just be the best way to help.

Miller believes it’s possible to be supportive without hindering a young adult’s financial and emotional independence, and has some tips that can be read at the link above.

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Kathryn Buschman, “The New Normal? Some Parents Plan to Aid Children 5 Years after Graduation”, FOXBusiness, May 27, 2014.

Dennis Miller, Paying bills for adult children? Try tough love instead, MarketWatch, July 8, 2014.

July 3, 2014

Advice for surviving, and even enjoying, your boomerang kid

by Grace

Many millennials are living at home with their parents.

Graduating with major student debt but without plans, as well as dropping out of college, unemployment, underemployment, poorly paid first jobs, sky-high rents and breakups or emotional upheavals can all create a perfect storm and send 20-somethings seeking shelter with mom and dad.

Thanks to closer parent/child relationships, smaller families, a later marriage age and the pressures of hard economic times, that’s a sharp shift since today’s boomer parents were launching their lives. Back then, one of the major milestones en route to adulthood was moving out of your parents’ home after high school.

Forbes offers five tips for surviving your 20-something child’s return to living at home.

  1. Encourage a plan.
  2. Treat grown-up kids as the young adults they’ve become.
  3. Let them know your expectations…before they move in.
  4. Have the money talk.
  5. Consider couple relationships — yours and theirs.

Are most adult kids who live at home paying rent to their parents?

… About half the boomerang kids who move home pay some sort of rent, and almost 90% help with household expenses, according to a 2012 Pew Report. But there are many ways to divvy up what it takes to run a household.

I have a boomerang kid at home, and two things I’ve found very helpful are making sure to treat him like an adult and finding agreement on a plan toward self-sufficiency.  I give some advice, but I also try to understand that he is in charge of his life.

Until a few years ago, I was resistant to the idea of a college graduate returning home to live.  But the high cost of living in my area along with the sorry state of the jobs market have softened my stance.  In fact, living at home is sometimes the better choice since it may be a way of getting a head start on saving for retirement.

Related:  “Parents have lower expectations for kids becoming financially independent” (Cost of College)

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Elizabeth Fishel and Jeffrey Arnett, 5 Steps To Survive Your Adult Child’s Return Home, Forbes, 6/26/2014.

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June 30, 2014

Advice for getting your first credit card after graduating from college

by Grace

A new college graduate has some questions about getting a credit card.

How do I get a credit card? You can’t qualify for a card unless you can prove you’re worthy by having a credit history, but how can you have a credit history when you don’t have a credit card?

Kerry Hannon, personal finance and work blogger, offers some answers.

First, some advice to pay off your balance each month.

Sure, you typically need a credit card to pay for big expenses from hotels to airline tickets. I get it. But repeat after me: “I will always pay my credit card bill each month when it’s due — and in full.” If you only make the minimum monthly payment, you’ll likely be slammed with a high interest rate.

Twentysomethings these days often pay credit card rates of 22% or higher (!) because they lack a credit history and may have a low credit score. The average credit score for Millennials, according to the Experian credit bureau, is 628; for boomers, it’s 700.

So when you do get a card, pay your balance each month and be happy that you get about 30 days to make the payment (that’s called the “float”).

Do your homework before applying for a credit card.

… if you don’t have a credit history to speak of, you might want to hold off applying for a card until two months or so after you start working. Card issuers want to see an income stream before they’ll approve you, so by waiting a bit you’ll boost your chances of getting plastic.

Before applying for a credit card, get your latest credit report (free from Annualcreditreport.com) and credit score (free from sites like Credit.com, CreditKarma.com, CreditSesame.com and Quizzle.com). These will let you see what a card issuer would find out about your credit history and prepare you for your chances of being approved. If you see a mistake in your credit report, fix it by following the advice in Next Avenue’s article, Why You Must Check Your Credit Reports for Errors.

Piggyback on your parent’s reputation.

An easy way to build a credit history is to ask your parents to add you as an authorized user on one of their cards. The card will then show up on your credit report, and it’ll have your name on it. Your parents must make on-time payments to the account to protect your credit record and theirs. After about six months as an authorized user, you can then apply for a card on your own.

Or check out secured credit cards that do not depend on a credit history, but require a security deposit.

… With a secured card, you’ll get a credit line of generally one to three times the amount of your deposit. Manage your card responsibly and you may earn credit limit increases. After several months, you can apply for a regular card from the same issuer or from another one.

Once you obtain an unsecured credit card, close your secured card account and your deposit will be returned.

Some recommended sites:

… CardHub.com, which just published its 2014 list of the Best Credit Cards for High School and College Graduates … also has a list of cards for people with no credit history.

…Visit Lowcards.com to find the best deal. In general, look for cards with no annual fees.

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Caitlin Bonney, “What New College Grads Need To Know About Money”, Forbes, 6/04/2014.

April 22, 2014

College IDs offer discounts, sometimes indefinitely . . .

by Grace

Apparently some college student IDs can be used long after graduation.

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I’m not endorsing this, but using old IDs may be fairly common.  Sometimes a cashier does not notice expiration dates, or in some cases the college IDs do not even have expiration dates.  Movies, public transportation, museums, clothing stores, and ski resorts are a few examples of places that offer students discounted prices.  Every little bit helps when making those student loan payments.

One Redditor imagines a future where he can enjoy double-dip discounts.

Imagine the savings when you’re in your 70′s. Student AND senior discounts. You can see a movie for only $49,99!

April 1, 2014

Turbo Tax being used to promote income-based student loan repayment

by Grace

The federal government has begun to use Turbo Tax to promote income-based and other income-dependent college loan repayment programs.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal….

Turbo Tax users will see information about loan repayment options and a link to the Department of Education website in a section of the program called “My Money Tools.”

They are provided with a link to a calculator that uses tax information, including their adjusted gross income, marital status and household size to determine eligibility for income-based and other income-dependent repayment programs.

The options allow qualified borrowers to lock-in monthly payments that are determined by how much they make, not how much they owe.

This new marketing push coincides with the upcoming introduction of more generous taxpayer subsidies for student borrowers.

Those graduating after 2014 will have the option of applying to an even more generous program Congress passed in 2009 that would set payments at 10 percent of discretionary income for 20 years. After that, the loan is forgiven.

The Turbo Tax promotion comes after the Obama administration and other supporters expressed concern that not enough borrowers were taking advantage of Income Based Repayment (IBR), a student loan forgiveness program.

Kelsey Snell, “Student loan debt deal comes with tax catch”, Politico, 3/26/14.

Related:  Federal student loan programs create perverse incentives (Cost of College)

March 31, 2014

Start saving for retirement in your twenties, if you can

by Grace

The power of compounding is a reason to start saving for retirement as early as possible.

J.P. Morgan offers an illustration of “the importance of saving sooner than later”.

Their example consists of three people who experience the same annual return on their retirement funds:

  • Susan, who invests $5,000 per year only from ages 25 to 35 (10 years)
  • Bill, who also invests $5,000 per year, but from ages 35 to 65 (30 years)
  • And Chris, who also invests $5,000 per year, but from ages 25 to 65 (40 years)

Intuitively, it makes sense that Chris would end up with the most money. But the amount he has saved is astronomically largely than the amounts saved by Susan or Bill.

Interestingly, Susan, who saved for just 10 years, has more wealth than Bill, who saved for 30 years.

That discrepancy is explained by compound interest.

You see, all of the investment returns that Susan earned in her 10 years of saving is snowballing — big time. It’s to the point that Bill can’t catch up, even if he saves for an additional 20 years.

 

20140327.COCPowerOfCompounding1


Saving for just 10 years now works out better than saving for 30 years later

Saving “$5,000 per year only from ages 25 to 35 (10 years)” will generate a larger retirement nest egg than saving “$5,000 per year, but from ages 35 to 65 (30 years)”.


It’s often hard for 20-somethings to save.

Many young college graduates are unable to start saving in their twenties because they are pursuing graduate degrees.  Others may be woefully underemployed or working in low-paying internships, understandable in light of the fact that we are experiencing worst unemployment rates for college graduates in 50 years.  Some are struggling to support families.  Other 20-somethings may simply be squandering their paychecks by living the high life of frequent traveling and expensive dinners with friends.

ADDED:  Burdensome student loan payments prevent many recent college graduates from putting money away for retirement.

Business Insider recommends that “Every 25-Year-Old In America Should See This Chart”.  Considering that decisions about how they will be spending their twenties are often made at a younger age, I think every 18-year old in America should also see this chart.  Realistically though, all this is much more clear in hindsight.

Sam Ro, “Every 25-Year-Old In America Should See This Chart”, Business Insider, Mar 21, 2014.

Related:  A quick way to calculate how much you’ll need for retirement (Cost of College)

March 18, 2014

A quick way to calculate how much you’ll need for retirement

by Grace

It can be complicated to calculate how much you’ll need to save for retirement.  Here is a method that is relatively simple, and will help most people get a general idea of their needs.

Start with assuming that you will live 20 years in retirement, and then modify that number based on your health, family history, and other factors.

Then use a replacement ratio to determine the annual income you will need during your retirement years.  Use your current income or the income you expect to have during your peak earning years, and apply a percentage according to the following guidelines.

Simple lifestyle versus current; little-to-no-travel; inexpensive hobbies: 80% 
Moderate lifestyle versus current; upgrades to home and car expected; some travel and hobbies planned, but nothing lavish: 90% 
Maintain your current lifestyle: 100% 
Improved lifestyle versus current; increased travel and hobbies: 110%

If you expect to have remaining debt upon entering retirement, add 5 percent to 10 percent to your replacement ratio depending on the amounts you still owe.

Once you know your replacement ratio, use this calculation:

(current income x replacement ratio) x 20 = your retirement savings goal

For example, if you currently earn $100,000 annually and determined your replacement ratio to be 90 percent:

($100,000 x 0.90) x 20 = $1,800,000

Again, this assumes you’ll spend 20 years in retirement, so adjust accordingly if necessary.

This method is streamlined, and excludes Social Security income as well as explicit inflation assumptions.  But it serves to give most people a sense of what their retirement savings goal should be.

ADDED:
This method does not account for families that live well below their means.  For example, a dual-income couple may live on one income and save the rest.  For these frugal families, it would be better to substitute “living expenses” for “current income” in this calculation.

For information about two other approaches, one more simple and another more complicated, go to this article at US News Personal Finance.

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February 26, 2014

Growing student debt may be a reason for weak housing market

by Grace

A recent headline from the Washington Post highlights the problem of how growing student debt may be hampering an economic recovery.

Student debt may hurt housing recovery by hampering first-time buyers

The share of 25-year olds who have student loans is now at almost 50%, with an average loan balance of over $20,000.  Instead of saving money for a down payment to buy a house, many of these young people must prioritize paying down their student loans.

The money going into paying down student loans is not going into saving for a down payment.

First-time buyers, the bedrock of the housing market, are not stepping up to fill the void. They have accounted for nearly a third of home purchases over the past year, well below the historical norm, industry figures show. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped.

The fear is that many young adults can no longer save for a down payment or qualify for a mortgage, impeding the housing market and the overall economy, which relies heavily on the housing sector for growth, regulators and mortgage industry experts said.

Recent changes place greater restrictions on the debt-to-income ratio allowed for mortgages.

Federal rules that took effect last month grant mortgage lenders broad legal protections as long as they do not approve loans for prospective buyers whose total monthly debt exceeds 43 percent of their monthly gross income. The overarching goal is to protect borrowers against lender abuses.

Most who struggled to buy their first home blame student loans.

Of the 20 percent of first-time buyers who said it was difficult to save for a down payment, 54 percent said student loans made it tough to save money, according to a recent survey by the National Association of Realtors. About half of the people polled in another of the group’s surveys said student debt was a “huge” obstacle to buying a home.

On the other hand, my anecdotal information tells me that a reluctance to be tied down to one location may also be an important factor in why young people are reluctant to buy homes.

Related:  Amid declining household debt, rising student loans remain a drag on the economy (Cost of College)

January 31, 2014

Changes in marriage patterns have affected poverty and income inequality

by Grace

Florida Senator Marco Rubio’s recent comments on the benefits of marriage in reducing poverty were soundly criticized by some left-leaning voices.  Rubio had offered up “a very old idea”:

Social factors also play a major role in denying opportunity. The truth is that the greatest tool to lift people, to lift children and families from poverty, is one that decreases the probability of child poverty by 82 percent. But it isn’t a government program. It’s called marriage.

National Review Online clarified that “cajoling impoverished single mothers into marrying men who don’t have particularly bright labor market prospects” is not the solution proposed by Rubio or other conservatives.  Rather, the idea is to encourage marriage before having children.

Even amid strong resistance to this idea among liberals, the New York Times has reported about the effect of marriage on poverty.

changes in marriage patterns — as opposed to changes in individual earnings — may account for as much as 40% of the growth in certain measures of inequality.

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Another notable trend is how the rise of assortative mating has increased income inequality.

… Income inequality has gotten worse in past decades in part because college-educated, high-earning men and women are more likely to marry each other, rather than get hitched to partners with divergent education or wage levels.

This is the finding of a research paper, “Marry Your Like: Assortative Mating and Income Inequality”  authored by economists Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos.

No “solution” is proposed.

The rich, married, and educated get richer while the poor, single, and uneducated fall further behind.

… College-educated households are more likely to be married and thus more likely to have secondary earners contributing to household income.

… “assortative mating” … married college-educated persons are more likely to have a college-educated spouse. Thus, they are more likely to have a spouse with high earnings.

Related:  Lack of college-educated men may be a reason for declining marriage numbers (Cost of College)

January 24, 2014

Some career advice is timeless, and some is only recently relevant

by Grace

Successful entrepreneur Jason Nazar has some advice for 20-year-olds.

… Call me a curmudgeon, but at 34, how I came up seems so different from what this millennial generation expects.  I made a lot of mistakes along the way, and I see this generation making their own….

Some of Nazar’s suggestions have been around for many years, while others are new and relevant to the current business environment.  Here are a few from his list of “20 Things 20-Year-Olds Don’t Get .

When it comes to communication, young people seem to prefer texting and email over talking.  But sometimes a personal touch makes a difference, and the sound of your voice can be important.

Pick Up the Phone – Stop hiding behind your computer. Business gets done on the phone and in person.  It should be your first instinct, not last, to talk to a real person and source business opportunities.  And when the Internet goes down… stop looking so befuddled and don’t ask to go home.  Don’t be a pansy, pick up the phone.

When you’re new on the job, working hard is a must.  Maybe there will be time later on to coast, or maybe not.

Be the First In & Last to Leave ­– I give this advice to everyone starting a new job or still in the formative stages of their professional career.  You have more ground to make up than everyone else around you, and you do have something to prove.  There’s only one sure-fire way to get ahead, and that’s to work harder than all of your peers.

Nobody wants the challenge of managing an employee who lacks initiative and needs to be told what to do.

Don’t Wait to Be Told What to Do – You can’t have a sense of entitlement without a sense of responsibility.  You’ll never get ahead by waiting for someone to tell you what to do.  Saying “nobody asked me to do this” is a guaranteed recipe for failure.  Err on the side of doing too much, not too little.

This one caught me a little by surprise since I have sometimes found myself buying  into the idea that social media ranks highest in what makes a company successful.

Social Media is Not a Career – These job titles won’t exist in 5 years. Social media is simply a function of marketing; it helps support branding, ROI or both.  Social media is a means to get more awareness, more users or more revenue.  It’s not an end in itself.  I’d strongly caution against pegging your career trajectory solely to a social media job title.

If I thought they would take heed, I would send this list to some young people I know.  It’s mainly good advice.

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