Give grads a financial education
- By Milt x_Zall
- Jul 06, 2001
This summer, thousands of new college graduates are plunging into the job
market, starting their careers. Although they may be well prepared to tackle
their new jobs, many will graduate with substantial debts and without having
learned the financial facts of life.
Here are some tips from certified financial planner Dennis Filangeri (www.myfrontdoor.com/ffs) to pass along to your kids or grandchildren
Determine Your Net Worth
Figuring your net worth is an assessment of your financial health: It is
your assets minus your liabilities. As a new graduate, you're likely to
have few assets and lots of liabilities in the form of accumulated student
loans and credit card debtin short, a negative net worth.
Even though your net worth is probably negative, calculating it is important
because it provides a benchmark against which you can measure your future
financial progress. For example, many college graduates will find good-paying
jobs. They'll buy a new car, new clothes, lots of other consumer items,
perhaps even a house or condo.
But unless you're putting away extra cash toward student loans and credit
card debt, and salting money away in savings and investments, you are not
improving your overall financial health. In fact, a new car and a new condo
only add to negative net worth.
By measuring your net worth each year, you can see if you are reducing your
debts and building toward a positive net worth.
Get Proper Insurance
Health insurance will be one of your first concerns because you'll likely
be dropped from your parents' health coverage upon graduation. Your new
job probably will provide health coverage, but it may not kick in for a
few months, or it might take you a few months to find a job. In the meantime,
consider buying a short-term medical policy. They can be pretty reasonable,
especially if you are young and healthy. Some colleges also offer temporary
coverage for recent graduates.
If you move into an apartment, don't forget renter's insurance. This covers
loss or damage to your personal property, which is not covered by your landlord's
insurance. It usually is very affordablesay $200 to $300 a year.
Shop carefully for auto insurance. It will be expensive, but as you get
older, costs typically go down because you are less of a risk.
As a new graduate, it's more important to have disability insurance than
life insurance (unless you already have dependents).
Reduce Those Debts
According to the American Council on Education, about half of all college
students graduate with student loan debt, averaging around $12,000 each.
In addition, students often have racked up thousands of dollars on their
Debt can be a huge financial drag, so you'll want to put any extra money
you can toward paying down that debt. Try to pay off the debts with the
highest interest rates first. And minimize accumulating new debt such as
a car loan or high-interest credit cards.
In some cases, employers might even help out with paying off student loans.
Budgeting isn't just a matter of making sure that your expenses don't exceed
your income. Otherwise, as noted in the section on net worth, you may just
be treading water financially. A good budget should allow you to sock away
extra money. Some of it might go toward paying more than the minimum payments
for student loans or credit cards, and some may go toward savings. Even
a few dollars can help, and get you into the habit of saving.
Especially important is to start a retirement fund. Participate in an employer-sponsored
plan such as a 401(k) or, for liquidity, open your own Roth IRA. Time is
on your side, and even a few dollars invested in tax-favored accounts early
on can compound substantially over time.
Educate Yourself Financially
High school and college graduates are notoriously poorly educated about
how to manage their money. Few students know even the basics about investing,
budgeting, taxes and work benefits. Yet one of the life skills necessary
for today's complex world is sound money management. Lots of good books,
magazine articles, seminars, and professional advisers, such as certified
financial planners, can help you learn the basics.
But watch out: There's also a lot of misleading information out there. Keep
in mind that money management is not about making money, it is about managing
well the money you make.
Zall, Bureaucratus columnist and a retired federal employee, is a freelance
writer based in Silver Spring, Md. He specializes in taxes, investing, business
and government workplace issues. He is a certified internal auditor and
a registered investment adviser. He can be reached at email@example.com.