Financial Advice to 20-Somethings
A colleague of mine, I’ll call her Debbie, called last week for an off-the-record chat. She wanted some advice on what to do with her life career-wise and the discussion of course ventured into the possibility of her leaving the organization where we are both employed, graduate school options, and financial concerns. After our chat, I was interested in looking up statistics for Debbie’s generation since it seems that the financial outlook for young people has shifted dramatically since I was in my mid-20’s.
The statistics that I found, and the anecdotal stories were shockingly depressing. It seems that about 1 in 3 are living at home (including returning after graduating from college or after being unemployed) for financial reasons. While I’m all for inter-generational living, I’m concerned that this housing pattern is more of a symptom and cause for delay of young people venturing out on their own, making their own mistakes and trying new things (like starting up businesses). The other shocking statistic was the amount of debt Debbie’s generation is incurring, especially for student loans. The National Center for Education Statistics puts the average cumulative loan burden of those pursuing a graduate degree at over $40,000. For things like law school and medicine, this cumulative number jumped to $92K and $127K, respectively. While law school and medical school are two areas where high wages might be expected, the student loan burdens of those obtaining an MA or Masters of Social Work did not seem to be adequately adjusted for substantially lower typical salaries.
In addition to 5 and 6-figure student loans, the average graduate student credit card balance was $8,600. Unlike student loans, credit card debt is usually at much higher interest rates and without repayment holidays. One of the saddest things that I came upon was a series on CNN that examined a number of new graduates and what they will be doing in the fall. While a handful have full-time jobs, more are still looking, piecing together internships and part-time positions, or reevaluating their choice of careers altogether. While I’m sure there was some self-selection in the profiles, it appears that the employment environment for young graduates is particularly challenging this year.
The advice that I gave Debbie was to take a hard look at the financial burden that she would be undertaking to go to graduate school, and to estimate how long that would take to realistically be paid off. In particular, I encouraged Debbie to reflect on the salary that she and her friends have been making over the last few years and if anyone had received substantial raises, promotions, and bonuses. I also encouraged Debbie to look at programs that would allow her debt to be forgiven in exchange for public service. I’m sure the conversation probably surprised Debbie as she probably expected me to be one of the cheerleaders for more education, but I think it’s time that those of us with more experience (I mean the older people) offer realistic advice rather than sugar coat the options.
posted at this week’s Carnival of Personal Finance
Good advice no matter the age. I think most college students expect a great job when they graduate and are not particularly concerned about the amount of their loans when they are incurring them. I know my son isn’t!
SimplyForties, yes, I’ve observed this too. I’m not sure if it’s accurate, but I seem to recall that when I finished my graduate degree in the midst of the 1991 recession that all of my classmates were concerned about jobs and living frugally and wringing hands over how to pay back debt. I’m not sure what’s changed. Thanks for commenting.
I think that many people look at grad school as a solution rather than a tool. Before going, a person really needs to evaluate if it is the title or the skill that they want to earn. Sometimes, an additional 2 years experience in the field is equivalent to a degree in the application process.
I’ve decided that, in order to pursue the career that I’m interested in, I’ll need the additional degree. I’ve also decided that I don’t want to take on all of the debt so I’m waiting until I’ve saved up the cash to pay my tuition upfront. It might take longer to get the degree, but the career will still be there when I’m finished
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Kasey, sounds like you’ve thought ahead and have a plan which is what most people miss. Best of luck with this!
I am encouraging my kids to work their way through college and incur as little debt as possible. In my generation, we all did that and we all graduated without debt. Of course, college costs have gotten ridiculously out-of-control. But, going into massive debt is a tough way to start out in life. It’s hard enough to make it in your 20s without all the debt.
Bret, indeed it is hard enough without the debt. Hopefully, more people will offer advice like you.
take a hard look at the financial burden