Recently in College Category

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I come from a very giving family, as is the case for most recent immigrants.  My mother and father, while lower middle class, have always provided their children with whatever was in their means.  As a small child, my parents purchased hi-quality clothes and shoes for us, paid for braces, prepared wonderful meals, purchased our first used car, and paid for about 2/3rds of our college educations (including our books).   My parents continue to be very giving (even as we've purchased our own homes and established our families); my mother will often pick up a few items at the grocery store if she sees a good deal and my father, as I've posted in the past, has acted as our general contractor on numerous occasions (painting, re-wiring, running copper water lines, installing windows, etc.). 

Given the above I'm wondering if it's generally a good thing for parents to help their adult children?  I know, for example, that if I had to pay contractors to do work on our home our personal savings rate would be much lower than it is today.  I also believe that if I had to foot a larger portion of my undergraduate tuition, and purchase my first used vehicle, I would not have been in a position to buy my first home in my mid twenties with a 20 percent down payment (as well as buy my first new vehicle in cash).  Some critics would argue that parents should let their adult children fend for themselves and that as soon as the child leaves the home at 18 to attend college they should provide for themselves.  Well, I think the aforementioned notion is silly and that getting ahead financially can't be done without a strong family network.

Given my experience, I think it's critical for parents to provide a stable financial foundation for their children; in fact, I think parents who force their kids to fend for themselves once they turn 18 is akin to financial child abuse!  Here are five tips on how parents can help their children/young adults get off on the right financial foot:

1.  Pay for your child's college education.  With tuition rising at 4 year colleges and universities at an astronomical rate, it's not uncommon for students to graduate with $20,000 - $30,000 in debt, not including credit card debt (see an older article from USA Today entitled, "Students Suffocate Under Tens of Thousands in Loans").  Now imagine starting your adult life (at the age of 22) in debt and with no promise of a job to pay off loans!  Don't get me wrong, I think students should hold a part time job during their undergraduate years (especially if it's related to what the student is studying) and apply for a few low interest loans, but the more a parent contributes towards tuition and living expenses, the better off the new grad will be come graduation.

2.  Help your young adult child purchase his/her first used car.  One of the best things my parents did for me was purchase a 1991 Honda Civic with about 75,000 miles on it (for about $3000).  I used the car to get to my first job after graduating from college and it was a huge relief to not have to make car payments so that I could focus on paying off my college loans.   The vehicle was reliable and bare bones and it got me where I needed to go.  I paid my parents for insurance and bought gas, but my parents did not require that I contribute towards the purchase of the vehicle.  The same vehicle was later used by my younger sister for the same purposes.

3.  Offer to house your children once they graduate from college.  Paying rent and utilities can be a huge expensive, especially if you live in or around a large city, so if you have the means to continue to allow your recent grad to live in the house it can be a huge money saver.  Some parents charge rent or even have their recent grad take care of a few of the utility bills, but if he or she is well intentioned and independent they will probably move out within a year or so (so asking him or her to contribute financially kind of defeats the purpose of living at home and saving).

4.  DO NOT offer to help pay for the young adult's first home.  Preparing to buy a home requires a great deal of discipline and sacrifice; more specifically buying a home requires, at a minimum, a 20 percent down payment and saving for a down payment is a great lesson in living below your means.   In turn, I think every parent (or close relative) should resist the urge to turn over a large sum of cash for a home purchase.  Moreover, saving for a down payment on a home is only the first step in the home ownership lifecycle, the home owner will need to save for costly repairs and maintenance, inevitable renovations, etc., so letting the young adult come up with his or her own down payment builds the necessary "saving" mentality needed for home ownership (a good general rule is that if you can't come up with the down payment then you shouldn't be a homeowner).  Plus, if you've helped by way of the three tips above your child should be in a good position to save for a decent down payment.

5.  If you have more than one child, provide the same financial help with each child regardless of financial situation.  One of the worst things any parent can do is play favorites, especially in a family with multiple siblings.  My view on parents helping their children is simple: give the same to each child regardless of need (this will keep things fair and prevent unwanted resentment).    

I want to reiterate that I'm not advocating parents support their kids outright through early adulthood, but rather strategically help with life steps that can make or break a young adult's financial foundation.  After all, once a young person accumulates debt it's very hard to get back on track.  Parents should also be very aware of the type of young adult they are dealing with; obviously, you do not want to buy an irresponsible child his or her first used car (use common sense and know your children).

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Update: Mike from CleverDude.com hosted this week's Carnival of Personal Finance and this blog entry was included.  Click here to read the carnival!  A carnival is a collection of submitted links presented in a format decided by the host.

Graduating from college is a big adjustment for most students as s/he has to trade-in an insulated, academic, environment for the so-called "real world."  The transition from student to working adult is critical, especially in regard to getting your personal finances off on the right foot.  The foundation a recent grad lays in the 2-3 years after graduation often predicts how s/he will lead the rest of their economic life.  If the recent grad is interested in a flashy new car, eating out, and living in an expensive city, for example, then s/he often delays saving money, paying off student debt, finding the right career, and being financially independent overall. 

Here are some practical steps the recent grad can take to ensure that their personal finance life gets off on the right track (after all, you don't want to be worrying about credit card debt by the time you're 25, right?):

1. Begin paying off your student debt as soon as possible.  It's tempting to pay the minimum amount each month (especially if you have a low rate), but debt (outside a home mortgage) is a bad thing, so focus first on paying off your student loans (do this at all costs, no one wants to be paying off student debt at the same time they see their first gray hair!).

2. Continue to live with your parents and do not get an apartment.  If you're lucky enough to have parents who do not force you out (just because you're over 18) or charge you to live at home, then you've hit the lottery (just think: free food, heat, water, TV, Internet, etc.).  Your parents can actually be cool to hang out with (just make sure to have plenty of wine in the house)

3. Do not buy a new car.  As I've said before, a new car is a colossal waste of money (whether you are 22 or 60) given that most new vehicles depreciate an average of 45 percent in the first three years!  Take the bus or mass transit or look for a bare bones used car that has basic safety feature like stability control, airbags, ABS, etc.

4. Pay for things in cash and if you don't have cash then don't buy it.  This tip is really about controlling how you use your credit card.  It's ok to have one and use it but be sure to pay off the full balance each month (this will actually help you build a good credit score so that when you go and buy a house you'll get a better mortgage rate and don't have to ask Aunt Peggy for the down payment).

5. Max out your 401K contribution immediately, especially if your company offers a match.  There's plenty of data that states that the sooner you start saving the faster your money will compound.  And remember that you're saying no to free money if your employer offers a company match!

6. Create an emergency cash fund.  I like to have 6 months of living expenses as an emergency fund, some folks say 3 months but having more money in the bank makes me feel all tingly and safe at night.  

7. Take risks with your career / job.  Now is the time to develop a business or work extra hard at work and demand more responsibility.  Just think, there is really nothing at risk: most new grads do not have a family, mortgage, car payment, etc. so you can let your career or business idea be at the center of your universe.

8. Network.  Keep in close contact with ex-student friends, professors, etc.  The ex-Prof you had beers with may help you land a job or know of alumni that can help.

9. Think like an entrepreneur and don't settle.  Your brain is actually sharper in your early twenties and things like critical thought, logic, and creativity will only worsen with age so think big and try to develop the next great consumer product, web site, information product, non-profit, etc. Oh, on the settling part, if you think you have a certain feeling that you would be good at something, but see a direct path to be a lawyer or teacher don't settle for a teaching gig, for example, just because it's safe.  Anything that's worth something requires failure and not settling for mediocrity (nothing against lawyers and teachers!).

10. Delay getting married and starting a family.  This one may be subjective, but I don't see any reason to rush into getting married and starting a family.   If you get married you'll need your own place and kids are often a close second (and those little guys require $$$)

Are there things I've missed or that I've gotten totally wrong?

philpic.jpgI came across some old philosophy books in my study this morning and it got me thinking about the value of an undergraduate degree in philosophy.  And I can already hear the jokes, so please keep them to yourself!  ; - )  At first glance, a Bachelor of Arts degree in philosophy provides no real practical application in the real world.  After all, you will not receive any specific training that can lead to a job, are required to read esoteric texts, and will never arrive at a "right answer" during a final exam or short quiz.  So, why on earth are US colleges and universities struggling to keep up with the demand from students wanting to both take courses and major in philosophy?

As an ex-Philosophy major, I can tell you that my degree is invaluable and I would certainly study the same subject if I had to start all over again (I would maybe throw in a degree in Economics as well).  If we cut to the chase, a degree in philosophy provides the following benefits

1. How to read critically (i.e., a book, magazine article, newspaper, P&L statement, web traffic report, etc.).
 
2. How to write well. (this could be an email, letter, report, blog, or living will).

3. How to debate and speak in front of large audiences.

4.
How to create impromptu arguments and analysis (this may be the number one business skill of all time and I'd hire someone with this skill set versus a Harvard graduate any day).

5. How to figure out what is right and wrong (ethics) and identify with different sorts of people and cultures (this is critical in the modern workforce, think how different your job is from what you see on Mad Men each week).

6. How to apply logic to any problem.

7. How to think strategically or see the "big picture."

8. How to think about a problem by deconstructing the big picture and looking at the details.

I could go on and on, but I think you get the picture.  A degree in philosophy is not a degree in electrical engineering; that is to say, the degree will not train you specifically to go out into the world and be an electrical engineer but it will equip you to do really well in the workforce by adapting to any work situation. 

Philosophy also provides excellent training for a professional degree.  Considering the benefits I stated above, philosophy majors score in the very top percentiles on the GRE, LSAT, and GMAT exams. "For example, in a recent GRE study, philosophy majors were ranked among the very top majors in their mean scores on the verbal, analytic, and quantitative components of the exam; in a recent LSAT study, philosophy majors had a higher mean score than even pre-law majors; and for recent GMAT tests, the mean score for philosophy majors exceeded that of any type of business major. Virtually no other major does this well on such a wide cross-section of standardized exams.(quote from the University of New Hampshire Philosophy Department web site http://www.unh.edu/philosophy/index.cfm?id=39F7EBE2-C029-7E5B-F1371DFC37778362)."

Did you study philosophy, let everyone know about your experience by commenting above.

kant.jpgA college professor once told me that most adults finish all serious reading by the time they reach the age of 23.  He went on to say that most professions, even ones that require a four year degree, do not require the worker to engage in prolonged or critical reading.  And while I'm sure there are exceptions to the statement, I agree wholeheartedly with the professor's conclusion.  Ask yourself, for example, what was the last serious novel you read or the last time you read The Economist from cover to cover (that's Immanuel Kant on the left, by the way; he wrote a Critique of Pure Reason and should be on your reading list)?

wallace.jpgThanks to my cousin Mike for pointing out this article/commencement speech by the late writer David Foster Wallace.  Wallace hits on a few themes in the article, but he's mostly focused on biological preservation via putting one self first, worship (not just the religious or spiritual kind), and awareness/consciousness.  In sum, though, I think Wallace is making a simple point: it's tough being human.  Here's an excerpt:

Because here's something else that's true. In the day-to-day trenches of adult life, there is actually no such thing as atheism. There is no such thing as not worshipping. Everybody worships. The only choice we get is what to worship. And an outstanding reason for choosing some sort of God or spiritual-type thing to worship -- be it J.C. or Allah, be it Yahweh or the Wiccan mother-goddess or the Four Noble Truths or some infrangible set of ethical principles -- is that pretty much anything else you worship will eat you alive. If you worship money and things -- if they are where you tap real meaning in life -- then you will never have enough. Never feel you have enough. It's the truth. Worship your own body and beauty and sexual allure and you will always feel ugly, and when time and age start showing, you will die a million deaths before they finally plant you. On one level, we all know this stuff already -- it's been codified as myths, proverbs, clichés, bromides, epigrams, parables: the skeleton of every great story. The trick is keeping the truth up-front in daily consciousness. Worship power -- you will feel weak and afraid, and you will need ever more power over others to keep the fear at bay. Worship your intellect, being seen as smart -- you will end up feeling stupid, a fraud, always on the verge of being found out. And so on.

Coincidently, I must admit to owning Infinite Jest (bought it used about 5 years ago) but never got through the first couple of pages.  I did read through a collection of essays which I thought were quite good, but the aforementioned commencement speech/article in the Wall Street Journal was particularly well done.

Here's a nice interview with Wallace on Charlie Rose in 1997, I think:

collegegrads.jpgCharles Murray has written a brilliant essay (Are Too Many People Going to College) on the value of a BA and the dark side of encouraging every 17 year old to strive for an undergraduate education.

In my view, every high school guidance counselor and parent should be required to read Murray's essay.  Here's Murray on becoming a top electrician versus an average office drone with a BA:

We return to our high-school graduate trying to decide between going to college and becoming an electrician. He knows that he enjoys working with his hands and likes the idea of not being stuck in the same place all day, but he also likes the idea of being a manager sitting behind a desk in a big office, telling people what to do and getting the status that goes with it.

However, he should face facts that he is unlikely to know on his own, but that a guidance counselor could help him face. His chances of getting the big office and the status are slim. He is more likely to remain in a cubicle, under the thumb of the boss in the big office. He is unlikely to have a job in which he produces something tangible during the course of the day.

There has never been a time in history when people with skills not taught in college have been in so much demand at such high pay as today.

If he becomes a top electrician instead, he will have an expertise that he exercises at a high level. At the end of a workday, he will often be able to see that his work made a difference in the lives of people whose problems he has solved. He will not be confined to a cubicle and, after his apprenticeship, will be his own supervisor in the field. Top electricians often become independent contractors who have no boss at all.

The intrinsic rewards of being a top manager can be just as great as those of a top electrician (though I would not claim they are greater), but the intrinsic rewards of being a mediocre manager are not. Even as people in white-collar jobs lament the soullessness of their work, the intrinsic rewards of exercising technical skills remain undiminished.

Finally, there is an overarching consideration so important it is hard to express adequately: the satisfaction of being good at what one does for a living (and knowing it), compared to the melancholy of being mediocre at what one does for a living (and knowing it). This is another truth about living a human life that a 17-year-old might not yet understand on his own, but that a guidance counselor can bring to his attention. Guidance counselors and parents who automatically encourage young people to go to college straight out of high school regardless of their skills and interests are being thoughtless about the best interests of young people in their charge.

Full essay here

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If I were a high school guidance counselor I'd tell each one of my students (well at least the ones who displayed some intellectual curiosity) to go and pursue studies in any one of the cognitive sciences: neuroscience, cognitive psychology, neurobiology, etc. 

 

Our knowledge about how the brain works is just starting to develop and I predict a sort of "brain revolution" over the next 25-50 years.  So, "be all you can be" and sign up today to be a brain professional.  If you're not ready, then take a look at the current literature and catch up on your knowledge on the mind/body problem, parietal lobe physiology, and language acquisition from the New York Review of Books.

snob.jpgThe American Scholar recently ran an article on why a Harvard or Yale education may not be the best decision for most high school or post graduate students

The article is very compelling and argues that the Ivies are creating careers and not minds - an important distinction in higher education.

There's lots of talk about how traditional classroom learning is dead, see:

 

However, and I don't know about you, but I really enjoy the small lecture type experience (ask questions, get a response back kind of thing).  And I think deep learning is not about text messages, Facebook, or web enabled distance learning (they're not bad instructional tools), but a liberal education is about classroom debate, idea formation, writing and re-writing, 1:1 instruction, etc.  So, yes technology and educational theories change, but basic human cognition and learning stay the same (unless someone is predicting a big paradigm shift in human biology).  My advice: get out your copy of Plato's Republic and start reading.

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Scordo.com is a weblog about living a practical life, including tips and thoughts on "how-to" and saving money. Scordo.com is run by Vince, a regular guy who, raised by immigrant (Italian) parents in the US, saw first hand how to live a frugal life, save money, and not live like everyone else. You can read more about me here.

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