I want to take a moment to more fully flesh out my Pre-Signing Considerations post.
Who typically makes the decision on where to go to school and what program to study? A 17-year-old. That’s the standard the age at which teenagers start applying to schools.
To all the 17-year-olds who read this blog…wait, are there any? If a tree falls in the forest…
17-year-olds need to start reading this blog ’cause it’s about to get real. Anyway, I digress.
How many 17-year-olds know anything about personal finance? How many of them have invested their money, even if it’s just $100? How many have more than three digits in their savings account? How many of them even have a savings account? How many of them know the definition of simple financial terms like:
- Compounding interest
- Mutual fund
- Certificate of deposit
- Return on investment
- Portfolio diversification, alpha, beta, covered/naked put and call option, annuities–okay, okay, I’m getting ahead of myself…
Parents, if you’re not talking to your kids about these terms before they become teens, you’re doing them an incredible disservice. When I was five years old, my parents gave me a long list of weekly chores and a $5 weekly allowance for completing them. They forced me to save my money so I could buy my things on my own–besides my bicycle, they didn’t buy me any toys if it wasn’t my birthday or Christmas. I got a savings account when I was seven; they told me to invest in CDs when I was 12 so I could experience a positive ROI; I got a checking account when I went off to college; I wasn’t allowed to have a credit card until I graduated from college and got a job.
How can we expect the 17-year-olds of this nation to make a smart choice on student loans if they don’t even know the basics of money management?
I’ve read some of the 5,400+ comments on the NMHD Yahoo! article, and a lot of the snarky ones say something to the effect of, “Oh, sure, if I got an MBA from Harvard, I could pay my student loans off in seven months!” Or, “If I made six figures, I’d easily pay off my loans!”
Exactly. You’re right. You got me there, buddy–I really can’t argue with that! A Harvard MBA will connect the grad with jobs that will enable them to pay off their debts very quickly if they maintain a low cost of living.
I got my MBA at Harvard and I took out $100k in student loans because I saw–before taking out loans and making the investment–that the median salary for grads was in the neighborhood of $120k. It doesn’t take a financial guru to see that the ROI is incredible. However, it does require at least understanding the expected return and the investment required to calculate a return on investment. And that understanding begins at a very young age, like five.
When a 17-year-old from a middle-class family decides to takes out loans to finance his entire social work degree at Columbia University, the most expensive private college in the US at $45k/year (before room and board in super-expensive New York City!), I have to wonder what the heck is going on inside his head and what his parents taught him about personal finance. Am I knocking social workers? No. Am I knocking Columbia? No. Am I knocking student loans? No. I’m knocking the combined trio.
There’s nothing wrong with studying social work, and in fact, I’d argue it’s one of the more noble professions out there. I’d just implore students to not pay $200k to study it. Why not? Because the average salary for social workers is $41k. So after-tax, you’re looking at, what, $30k/year in take-home pay? And if you need an apartment for $500/mo or $6k/year, you’re down to $24k/year. So that’s $2k/month for all of their other expenses, which will include student loans. If my $100k of student loans required a monthly payment of $1,057, and this person took out almost $200k just for tuition, then we can safely assume they’re going to be paying about $2k/month on their student loans for 10-15 years.
Wait, isn’t $2k/month that what they had left over for food and clothing and transportation after paying for their $500 apartment? And by the way, where exactly does one find a $500 apartment?
And I’m not knocking Columbia, either. I’m sure there are a lot of great programs at that school that can put students on the fast track to earning a solid salary that will enable them to pay down their student loans quickly–as long as they maintain a low cost of living. It’s just that social work isn’t one of them.
And I’m not knocking student loans. For students who are strapped for cash and already working a job just to survive, student loans put an otherwise unattainable education within reach.
While this post was targeted mostly at teens, college grads who are eyeing a grad program aren’t going to get off so easy, either. Do any 22-year-olds read this blog? If a tree falls in the forest…
But check it out. Here are five graduate degrees that aren’t worth the paper they’re printed on:
- Master of Fine Arts
- Computer Engineering
- PR, Advertising, and Mass-Media programs
- A Law degree from a fourth-tier school
- Atmospheric Sciences and Meteorology
The same premise applies to both high schoolers and pre-graduate students: consider the ROI.