Archive for December, 2006

Today I talked to a friend about the benefits of a 401(k). I have no idea if his company offers one, but it made me feel good that I can share a bit of personal finance information. It also made me think about the lack of personal finance education in high schools and colleges.

To be honest, if I haven’t stumbled into this VORTEX of personal finance-obsessed bloggers (I say that with love!), I probably wouldn’t know a 401(k) from my right foot. Or left foot. The internet provide excellent resources but it’s still not a substitute for personal finance education in the curriculum. It doesn’t even have to be a semester-long course – a series of 5 or 6 seminars would work just as well.

One 2-hour seminar each on credit card debt, student loans, car purchases, healthcare plans, and retirement plans would provide a baseline of understanding. Such a series would be so, so helpful for students about to graduate college (like me).

Many of my friends (being the smart and ambitious and awesome people that they are) are graduating with coursework in corporate finance, international finance, world-domination finance (maybe I made that one up). But there’s no class on personal finance. Knowing about the trade inbalances between U.S. and China might make interesting conversation, but setting up a 401(k) is probably more applicable to a recent grad’s financial future.


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The meaning of money

If you have a minute, take a look at this New York Times article that summarizes the findings of the Census Bureau’s 2007 Statistical Abstract of the United States. What I found the most interesting is the shift in what college freshmen described as their primary personal objectives. In 1970, 79 percent said their goal was developing a meaningful philosophy of life. By 2005, 75 percent said their primary objective was to be financially very well off.

From my impression of recent news articles, I thought young people today are more likely to search out careers that they feel passionate about, take more risks in opening businesses, going down unconventional paths, etc. It’s a little strange that the census data indicates that our generation actually places more emphasis on financial security than 20-somethings in the 1970s.

Anyone want to venture a guess as to why that is?

Also, I found this fact especially encouraging: in 1970, 33,000 men and 2,000 women earned professional degrees; in 2004, the numbers were 42,000 men and 41,000 women.

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Liberal arts to law school?

For a LONG time, I planned on going to a top law school, specializing in corporate law, and becoming a Big Law partner by the time I’m 35. Yes, I had that life mapped out when I was 13. I like to read, I like to write, I like to nit-pick. I’d be the perfect lawyer!

I talked about becoming a lawyer all the time when I was younger. So Mom tolerated my liberal arts degree because she always assumed that I’d go to law school. This is how I escaped the dreaded, “so, WHAT are you going to do with that degree?” question for the first couple years of college. But my focus changed. After seeing older friends struggle with the Beast (also known as LSAT), and really wanting a break from 3 MORE years of schooling, I decided that I wasn’t sure about law school. Mom freaked out. In retrospect, I couldn’t really blame her. I mean, she spent $100,000 for me to read great books and think and delve into the questions of life, which is all fine and good, but doesn’t even BEGIN to pay the bills.

But despite the tension and pressure from Mom (and myself), I am really glad that I didn’t let what-am-I-going-to-do-with-my-life-let’s-go-to-law-school! push me into applying. Because once I’m on that treadmill I would’ve ran with everything I’ve got. So I knew, if I’m serious about law school, that would require a huge investment in terms of time, money, and energy. Then AFTER I get into a school, comes writing the tuition checks for $50,000 a year. After thinking it over, I concluded that I should NOT go $150,000 into debt to be tortured by the Socratic method.

I think this is something that many liberal arts students don’t think about. If they’re smart and don’t really know what to do after graduation, law school is often the default option. A J.D. is a valuable degree, but law school is such a huge investment when you’re not sure if you want to do law. Unless you go into Big Law for several years, it’d be pretty difficult to pay back the mountain of debt that you owe to Mr. Socratic. Fortunately, things worked out for me. I got a good job. I’m happy. Mom’s happy. 😉

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For all this time I thought I had $20,000 in student loans. According to my financial aid summary that I just received, however, I owe $19,000. P It’s like getting a gift I haven’t been expecting. I guess my loan obligation puts me directly in line with the average college graduate. The American Council on Education has more in-depth information on amount of debt from different types of institutions and degree programs.

Also check out this 2004 report (pdf) from ACE about debt burden. It might be a bit dated as the data is from the 1990s. The report concludes that in general debt burden for students receiving their baccalaureate degree in the 1990s was manageable and unchanged at 7 percent. However, if borrowing levels continue to increase, interest rates rise, or recent graduate salaries decline, debt burden will increase.

According to an interesting article from the New York Times, apparently families equate the price of tuition with the quality of education – so that some colleges have increased their tuition (and aid) to attract more applicants.

Lucie Lapovsky, a consultant who was once president of Mercy College in New York, conducted a study asking students to choose between a college charging $20,000 and offering no aid, and one charging $30,000 and offering a $10,000 scholarship. Students chose the pricier option. “Americans seem to like college on sale,” Dr. Lapovsky said.

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Have credit, will travel

USA Today’s Young and In Debt serie presents Tolu Adeleye, a MIT Sloan graduate who charged $35,000 in credit card debt due to travels during business school (he also has $25,000 in business school loans). Out of all the stories, his is probably the one I can most relate to. I LOVE to travel, and I can understand how it’d be easy to swipe the card for plane tickets, hotels, and dinners when you’re at a top business school with prospects for a high-paying job. Now I know it’s not smart to rack up credit card debt, but I can see Tolu’s side of the story. He’s been to 22 countries! I guess you can say the experience was priceless. 😉

His $25,000 student loans was a good investment – Tolu has a $100,000+ post-MBA salary, with more opportunities for advancement. He lives in Minneapolis, so those six figures will go much farther than in New York or San Francisco. If he buckles down, I think he can pay off his debt relatively quickly.

I’ve heard that many MBA students take out more school loans than they need for tuition and room/board (which has a lower interest rate than credit cards), and just use the rest to travel. I know it’s not prudent, but when the travel bug bites, it bites hard! Most MBA students have worked for 4 to 6 years before school, and will be jumping back into the working pool after two years. B-school would probably be their only chance to be a globe-trotter for a long while, unless they become consultants or something.

Let’s see: I’ve been to Argentina, Bulgaria, Canada, China, the Czech Republic, Germany, Greece, Hungary, Japan, Korea, Mexico, and Uruguay. But some of these countries were only day trips, so they didn’t quite count. I’ve also had the pleasure of visiting England and Switzerland, but only if you count time spent in airport. Every time I get a new stamp in my passport I can’t help but smile. I want to visit Spain, Italy, and Morrocco within the next five years. Hopefully I’ll have saved something for a travel fund by the time I go to B-school.

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My money weakness(es)

Easy – eating out, home decor, and shopping. I’m a little embarassed that they’re so cliché.

There are a couple of blogs that I like to read – but they are “break the budget” blogs. Closettherapy is written by a young woman living the stylish life in Beverly Hills. She always have great posts about fashion, makeup, shoes, and sales. For example, I found out that there’s a sale going with a pair of Chloe cream flats for 50% off. Unfortunately, 50% off $325 is still more than I should spend on shoes. paaaaadobgdklbeb.jpg

Another blog I love is Apartmenttherapy, a home design site. Everytime I look at it I feel inspired to decorate my future apartment in a such a way that makes it worthy to be shown on the site. I know that great design doesn’t have to be expensive, but still. Whereas before I didn’t care much about mismatched linens or bare walls (I’m a college student – it’s allowed), now I do. And caring costs money.

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I went to a very competitive public high school. For a couple of students, it’s Stanford or Shut up, Berkeley or Bust, Dartmouth or Die. I had pretty good test scores but could’ve had better grades. Nonetheless, some lucky star must’ve been shining down on me and I got into a top-20 school. Every year since I’ve been at my college, our SAT and GPA median and number of applicants have been growing by leaps and bounds. I’m just happy I got in when I did… ’cause the incoming kids are truly frightening. See Exhibit A. It’s easy to understand why parents and students are more and more wiling to pay big bucks for a consultant to walk them through the process.

I didn’t use an admissions consultant service, but my parents spent a fair amount during the application process. I applied to 14 or 15 colleges, got a couple of fee waivers, so 13 schools at $50 application fee per school = $650. I didn’t visit any schools on my own dime. I took SAT classes (my counselor got me into a free class offered at school) and SAT 2 classes ($500-$600 total). I also took 5 or 6 AP tests at $90 a pop = $540. And then there are all the prep books that I bought ($100). So in all, my parents spent almost $2,000 before I ever set foot inside the hallowed halls of higher education. And THEN they had to shell out $25k to $30k per year for tuition and room/board. I bet Mom saw the irony in that. 😉

True, paying for college admissions consultants and to a lesser extent, SAT prep classes, are somewhat controversial. I don’t know how many PF bloggers would feel that spending a couple (or more) thousand dollars on their kids’ college application season is worthwhile. (I say yes to the $1k prep classes, am a bit iffy on the $15k consultant packages). From my personal experience, I am so glad that my parents let me decide what schools to apply to, wrote me checks when I asked, and were generally supportive without being overbearing.

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