It is now being touted as a national crisis. Student loan debt has overtaken credit card debt as the endemic among us Americans. Our culture is increasingly borrowing to attain or maintain a lifestyle. But is student loan debt all that bad? Financial advisors will tell you that the two good debts are mortgages and educational debt. When you get to that point in life, it will make sense to purchase a home rather than renting a place to stay. If you are diligent in maintaining a good credit, paying for a home can be significantly cheaper than renting a home/apartment on a monthly payment basis. Student loan is also considered an investment in your future. You are investing to attain a body of knowledge or skillset that can be translated into earning potential down the line. As you have surely heard or read, you have to borrow wisely. When I was an Academic Counselor here at UNLV, I found myself speaking frequently to you the students about financing and student loans. One of the points I use to expound was this, think of student loans as money that is not truly yours. It is easy to collect, cash, and spend the loans when receiving it. But like any adult in your life who has paid off student loans or is paying off student loans will tell you, making payments are more painful that cashing the checks. If you borrow only $3000 per semester, that is $6000 to get by for the year. After 4 years, that is $24,000 debt. Now, lets say you make payments of $200 per month after graduation. It will take you at least 10 years to pay off that student loan debt, not factoring the cost of interest.
SPENDING
Spending is also at the root of student financial insecurity. We are bombarded from every angle with advertisements for all sorts of products. A drive in any direction from UNLV and you will encounter billboards promoting all sorts of services and goods. Most of us tune out these advertisements but who can resist the current one from McDonald’s that the McRib is back. I generally avoid fast food, but I am even tempted to buy one and savor in the goodness that it looks. Shopping is also accessible for UNLV rebels, we can visit any of the two outlet malls, one north of Las Vegas blvd and one in south of Las Vegas blvd. Not to mention Townsquare or Downtown Summerlin! These places offer good deals on all sorts of apparel. And at an age where you are finding your identity, these options present a dilemma.
You have two consider two principles warring within you. Contentment and entitlement. On one hand, you say you have worked hard and you deserve to purchase what you want. On the other hand you recognize that you do not need everything that you want. Most of us who are now responsible for providing for children, will tell you to consider contentment as a principle. You see, a multitude of headache and financial heartache is prevented when you exercise contentment. Like a muscle, being content needs to be worked out. You won’t become content in an instant. You have to nurture the principle by exercising restraint in little things, and gain resilience that would make it easier for you to resist large unnecessary purchases. Delayed gratification is the principle.
SAVING AND INVESTING
Saving and investing go hand in hand in today’s world. In fact older adults would recommend that you invest as a means of savings to allow your money to grow. I keep speaking of habits because during the college years, you are away from your parent’s house for the first time and in many cases for good. You are now testing your principles and finding your way in the world. A lot of the habits you adopt will shape who you will be as you go through the stages of life. Having a modest savings account for emergencies is prudent. Opening and investment account is even more forward thinking. A lot of you are probably intimidated by investing as those of us who invest now were when we were younger. The truth is it is even more seamless that you envisioned. If you go to local branch of a bank and open a bank account, all you need is to talk to the banks investment specialist on opening an investment account. If you are adventurous you should consider stocks and if you are more conservative you should consider a mutual fund account. Remember to ask for no-load investments. They can also open a growth account that starts off aggressive while you are still young and gradually grows conservative investments as you age and approach retirement. Remember the principle is delayed gratification.
Most college students in their twenties are not thinking about retirement but you as a UNLV rebel can be way ahead of the curve. Even if you contribute a modest amount of $250 a month after graduation into a Roth IRA account, by the time you are 65 if the market grows at a modest rate of 8%, you will have a million dollars in retirement. The race of life goes to the one who gathers his fruits little by little and is patient versus the one who gains all in one big swoop.
YOUR CREDIT SCORE
Lastly, being mindful of your credit score will save you tons of money later on in life. It is very tempting to open up credit cards and purchase stuff on credit. But you have to remember that you will have to pay off this money. It is not your money! Also having credit cards maxed out and/or missing payments on debts, negatively affects your credit score! As anyone who is 20 years older than you would tell you with resound, be mindful of your credit score! Any major purchase such as a car, furniture, or home later, the amount you make in payments is based on your credit score. The interest rate that you receive on these major purchases depends on how good is your credit score. Therefore, be mindful and guard your credit score. There are numerous free credit score trackers out there such as credit karma that will inform you on any marks in your credit report. Remember, keep your credit card utilization low (under 10%), pay your bills on time, avoid derogatory marks on your credit history, and limit your credit inquiries.
Chapter 8 Reflection Questions
What are your financial habits? Do you consider yourself a spender or a saver? Why?
What actionable steps do you plan on taking to improve your current financial habits?
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