Young people and Massive Debt

Off Topic
21

Hey Bikeboy,

Schools in the US vary quite a bit. Small, junior colleges can be as little as 2,000$ per year (local JC’s). State schools, at least here in NJ, run from 10k-15k per year. The school where I got my first BA was 24k/year…my second one only cost me 18k. I’ve seen schools as high as 40k/year.
Just make sure you are getting a good value for all that money. My first school, La Salle (freshman year) was c. 30k…and they really didnt offer much…I transfered and paid 24k/year, but got a much better education and the school had much more to offer.

22

I thought this was one of the best lines in the article…especially for all of those who constantly debate (pointless, i might add) conservs. v. liberals…

“If the early rhetoric in the presidential race is any indicator, neither candidate cares a whit about the struggles of America’s young. George Bush and John Kerry are happy to trade barbs about draft dodging and flip-flopping. But they’ve yet to utter more than a few peeps about alleviating the unique economic burdens of the next generation, and the one after, and the one after. It’s almost as if Americans under the age of 35 don’t exist.”

23

Warhorse, great posts all around.

I agree that the article was nothing more but a whine-fest. It’s a great story, but that’s it. It uses the best numbers they can use, dismisses what they don’t like, and then simply suggests that if this is bad the other option must be good.

For example, while it points out that the typical undergrad degree carries a $20k debt, it simply ignores that their own numbers show that this debt will be made up within ONE YEAR of graduation ($52k v. $30k). Even accounting for lost opportunities/wages, you are going to make this up in no time and stand to earn about $800,000 more than just having a high school diploma.

Their law school comments were even worse. They use an example of a job that pays $36k/year. I can tell you right now, however, that STARTING salary for a firm in Minneapolis appears to be about $90k/year + bonuses. Granted, these are the large firms, but nevertheless. Even if you do take on a six-figure debt, you will make up this debt within TWO YEARS of finishing school. Account for lost wages/opportunites, you’ll make it up within 5-10 years. That means that you stand to earn an additional $2,000,000 over your life.

The housing issues are the same thing. Sure, houses are expensive, but you actally gain equity on a house. Houses go up in value, allow for using equity to secure loans (at a tax write off), and are often debt proof (via homestead laws). To not buy a house/real property is simply a mistake, no matter how much it costs.

The problem is that the article looked at a degree and a certain level of power as a matter of right by simply having a degree. This simply ignores the way the market works. As the supply of degree holders increases compared to the demand, the value of that degree is going to go down. One could say the same thing about a high school diploma in the 1920’s. They will probably say the same thing about graduate degrees in 2050.

People need to quit looking at a degree like it some matter of right and look at it like an investment. If you don’t like the way the number stack up or you can only get a degree from National American University (located at the Mall of America - and I’m not making that one up), then maybe you should rethink whether it’s a good investment to make.

24

There are some excellent points made by Warhorse and others. While this may simply be redundant, let me add my 2 cents:

  • In my opinion higher education generally pays for itself. The statistics are clear that over time, more education translates into more money. There are plenty of stories about the high school drop-out who made millions. Unfortunately, this is the exception, not the rule. While higher education is not a guarantee of success, it opens doors that would not otherwise be opened.

  • Generally speaking, people in the U.S. simply spend too much (yes I am in the U.S.). Rather than living within their means (like Warhorse has espoused), most actually live above their means with the expectation that their means will catch up. Of course by the time their means do catch up, they have increased their spending. How is this paid for? Debt.

  • As a result of the above, most people in the U.S. are within 2 paychecks of being on the streets (I may be a little off here, but I think that is the stat).

  • The remedy to the above? Live within your means and pay yourself first. In other words, get a budget together that enables you to live based on your current earnings, not your expected earnings. Pay down debt and start saving money.

  • If you go through those steps, you will begin to have some discretionary income. Start investing. For most people just starting out, mutual funds are a good bet, but you have to diversify. That is a separate post in and of itself (Equities vs. Fixed Income, U.S. vs Int’l, hard assets, real estate, etc.).

Debt is an existing and growing crisis in this country. From people taking out interest only mortgages in the expectation that appreciation of their homes will bail them out to people borrowing 125% of the equity in their homes. I could go on, but I think enough has been said.

Sorry for the rant.

25

I believe someone above mentioned socking away 10% of your income every paycheck. Do you count 401k investments towards that?

Sorry, that may sound like a stupid question, but I kind of don’t think about the money I put into my 401k much since it’s already gone from my paycheck every two weeks (currently paying 6% into it since that’s the max that the company will match, but thinking of increasing it to 10% once I pay down some debt). Thoughts?

26

Tyler - Yes, I would count your 401k towards that. However, in addition to whatever savings you are doing through your 401k, I would recommend making sure that you have a safety net of 3-6 months of living expenses set aside in a very liquid account. Life sometimes throws us a curve, and that safety net will prove to be valuable – Just don’t dip into it unless you absolutely need it.

27

One additional thought as an add-on to Warhorse’s comments on people that lost a lot of money from 2000 to 2002. The problem was that most people were greedy and forgot about common sense. Everyone saw the dotcom’s going up 100% or more and wanted to be part of the action. Unfortunately, in doing so, they lost sight of a lot of investment basics – diversification, risk analysis, etc. There is a lot more to this, but the rule is - don’t be greedy. The market has lots to give, if you are willing to be smart about how you take it. Some who are greedy win, unfortunately, most don’t.

28

Thanks, Maverick. I currently have a safety net of about 4 months. I would like to have a solid 6 mos in there before I breathe a little easier. However, I’m supporting myself and my girlfriend right now (she’s starting a business and it’s looking like it’s just about to take off), and getting more into savings or paying down debt right now is not really possible until we have some more money coming in… which should hopefully be soon.

I tell you, I am either hot or cold on saving money. I got raises over the years, but I just seemed to increase my spending rather than my savings. Finally wised up and realized there’s no reason I couldn’t start paying off my car loan. I was really serious about paying down debt and was on schedule to have it paid off within 10 months, then my girlfriend lost her job and now I’m supporting both of us. Murphy’s Law, I guess.

But now all I want to do is save, save, save. It’s a good feeling. We have a house together and got a nice tax refund this year because of that and she’s just a moment away from being successful in her new business so I’m not too worried. I just wished I would have wised up a few years earlier… I would have been in a much better position now. Oh well. Better late than never, I 'spose.

29

To me a lot of this is about options and freedom. I guess that is why you hear the term “financial freedom” thrown around a lot.

Here’s what financial freedom means to me:

I can quit my job tomorrow. This is pretty cool because it also means that the company had lost a lot of leverage over me. The CEO can’t threaten me with the fear of losing my job and consequently my car, house, toys, etc.

One time I got laid off in a big cut, (and it was no surprise because my then boss and I were like fire and ice.)

Afterwards my old boss was gloating to one of my ex-coworkers that I would lose my house (which happened to be a whole lot nicer than his since he was mired in debt).

He simply couldn’t comprehend that someone making less money than him could enjoy a better lifestyle.

30

Tyler - You should be commended for socking away what you have. The fact that you have 4 months’ worth saved puts you in a very small (but admirable) minority.

Warhorse - your comments are right on point. It is all about choices and financial security. A lot of people have the opinion that they might die tomorrow, so let’s spend it all today. Unfortunately, that doesn’t work for most people, cause they aren’t going to die tomorrow. I kind of view this whole subject like I view working out - nobody is going to take care of you except you. I take a lot of pride in the fact that I am 37 and will be able to retire by the time I am 40 (if I want) without radically changing my lifestyle. That said, I am a type A personality and would kill myself in “retirement”, but it is nice knowing that I will have the ability to choose when and how I want to work when the time comes. Moreover, if I do want to leave the workforce completely, it is nice to know that I can devote time to charitable or other endeavors without worrying about my (or my family’s) financial well being. Once again - it is all about choices. While I am happy with mine, some wouldn’t be. To each their own.

31

Interesting thread. I agree with Mavericks overall philosophy on this topic. Congrats to the guys who have stashed away three or four months of living expenses!

32

Sonny writes: [quote]…I guess you don’t live in the NYC area![/quote]

No shit, man! I do…I went house shopping this winter, as my lease was up for renewal. The best deal for an acceptable location was $315,000.00, and that house was a piece of shit ranch with no basement.

I renewed my lease.

I’ll probably end up buying a house just to rent it out. Long Island, NY is wayyyyy too expensive. My (cheap) rent is almost $1100/month, with hot water. Add expensive electric, TV, Phone and food bills plus my cheap ass car w/insurance & gas and I’m nearly tapped out. Good thing I dump 15% of Gross into a retirement fund! I feel bad for people who earn less than I do. They must be bleeding from debt, or waiting for an inheritance! Or maybe they just steal shit!

33

Oh man, this has been pretty damned informative. I went to school for 3 years, racked up some debt and realised that I wanted nothing to do with what I studied. Too bad for me, I should have thought things through a little sooner. So now I am $30,000 in debt (canadian, so its not bad) and doing a grunt job to pay off my debt in 5 years. But the funny thing is, I am pretty damned happy, I don’t own a nice car, I don’t own a television, I don’t even have a credit card, and if I lost my job tomorrow I would find a new one, not a big deal.

So while I think that living within your means is great, I think being happy with your life is the way to go. Don’t get me wrong I am striving to make my life better, but I gotta say (and I know this is not original) Stability is one step away from stagnation.

34

Cory089 - Re: law school, remember that few lawyers get those high paying jobs. Just like every finance/ business major doesn’t get the 90K job on WallStreet. Most go into business for themselves and most will not make obscene amounts of money.

Plus, for those that do get the 126K starting salary out of law school, as someone I know who just graduated from a top 10 law school did, this is what they can expect:

Higher tax bracket means they lose 42K right off the bat, Federal (correct me if I’m wrong, but I believe its about 33%, maybe higher)
City taxes, here in NYC (awa as some other cities w/big time law firms), another 4,800

State taxes, another 3000 approx.

so we’re at 76 k.

Minus rent in a nice apartment, say 2500 x12 so 30K
We’re at 46

5 or 6 $900 suits, expensive shirts and ties, a few expensive shoes, watch, etc, prob another 8K in the first year
That’s 38K

Oh and you’re working 70 hr weeks and sleeping in the office a couple nights a week, so you’ll be spending a lot of money on food, takeout. Easily 100 a week =5200

Then since you’re working so hard, you’ll want a BMW and not a Civic, expensive vacations etc…
and its not what it seems to be. Plus in a big law firm there is a lot of competition for jr partner and partner.

If you don’t make jr partner by your 5th year or so, you have to leave because you’re never going to see the BIG bucks and the 3x a week golf games and steak dinners w/ impt’clients…

Oh and you’re basically working 2 jobs, so that 126 is really 61K a year.

And you’ve lost your 20s to your 70 hr workweeks. ANd even if you make jr partner, it’ll be another 5-10 yrs befor making partner and meanwhile you’re still working long hours.
If you do make partner though, you’ll be a rich mofo!

Grass isn’t always greener on the other side

35

Warhorse your sounding like Suze Orman with the Laws of Money: detemine on what you Need’s and wants.

36

ShortDave - “Stability is one step away from stagnation”

Before I hit on that comment, let me just say that I agree with your point that you should enjoy your life and strive to be happy. Everybody has a different lifestyle, so what is right for one person might be horribly wrong for another.

On to your quote – interesting, although I couldn’t disagree more. Your premise is that stability implies stagnation. In my view, financial stability provides one with the opportunity to take more risk and experience more, implying less stagnation. Just because you are financially stable doesn’t mean that you are on auto-pilot or that you have stopped taking chances. On the contrary, the stability provides you with more of a safety net, so you can take bigger chances because you have less downside. Just a thought.

37

Short Dave made a very important point about learning to be happy with what you have and where you are right now.

A lot of people wrongly interpret this as “stagnation” or whatever, but that isn’t it as all. You can still have tons of motivation and drive and dreams -and you should- but to not allow yourself to be happy until you achieve some arbitrary goal is pointless.

I’ve never experienced any lasting joy from owning a ‘thing.’ I tried that for awhile but the newness always wears off. The bigger better whatever doesn’t make you any more happy than the thing you used to have.

Happiness comes from within, not from external influences - whether they be people or material ‘things.’

38

Nice comments Warhorse. I know some people who live off trustfunds and are pretty miserable. They keep looking for that new Hummer, that new pad in Bali or whatever that will make them happy.

I was making decent bank in a high stress no life job, but it just wasn’t worth it so quit, moved to an area I want to be in, and started my own business. Sure its tough, very tough,but rewarding - I look forward to working and enjoy it now. The mantra now is “save, save, save, invest”. And looking ahead 10 years, assuming my health is good (why I’m here) then my family will be able to enjoy the benefits.

39

Kuri- I admire you for changing and more for having the balls to a)admit it to yourself and then b)changing your life. Takes strength, esp when you are making good money. If yoiu ahve a shitty job, its easy to say f you and leave.

WHat field are you in now?

And if your acquaintances aren’t happy, I’ll be glad to use their pad in Bali when they’re at home moping.

Let me know!