One thing we’ve noticed is that grad students are often bifurcated into students recently out of undergrad (in their early/mid 20’s) and second career students that are typically 15-20 years older. This is one reason the average age of a Denver Seminary student is 32 years old.
This segment of “Adult Students” is getting more attention then they have in the past, including an article in the Wall Street Journal, for a couple of reasons:
- We’ve documented that older students are more vulnerable to high levels of student loan debt: Students over 31 years of age are significantly (almost 3x) more likely to borrow high levels of debt (over $50k)
- It’s a larger pool then we thought: Some 41% of students enrolled in higher education are 25 or older.
- 38% of these older students drop out in their first year. Students that borrow money then fail to earn their degree are among the biggest fatalities of the student loan programs.
Goldie Blumenstyk is a leading voice in this area. A couple of her resources to highlight:
Jordan Peterson is having “a moment”. A widely circulated interview brought his considerable platform into the spotlight with a variety of articles including this David Brooks piece which summarizes things nicely.
In the aforementioned interview, he uses a word I hadn’t fully considered: Competent.
“Competency is power”
I bounced that idea off my kids around the dinner table last night. I do want them to marry someone who is competent. Competent at cleaning the kitchen, competent at raising children, competent at balancing a checkbook, competent at managing conflict in a healthy way, competent at managing the many problems life brings.
When my wife and I started dating, my roommate and I were not competent at lots of things, not the least of which was cleaning. We once went an entire year without cleaning the kitchen. Don’t ask. The bathroom was worse, so it took most of the attention away from the kitchen. People would just leave rather then use the bathroom.
We aren’t born competent. We have to learn, and most learning comes from Someone who already knows how to do it.
It’s ok if we aren’t competent in our personal finances yet. It’s not ok for us to stay that way. We, our (future) spouse, our business partners, our children, and our parents deserve better. Have you ever had a friend (usually when you were younger) that always was asking to borrow money? It’s hard to be friends with that guy.
It’s important to develop competencies at:
- Earning an appropriate income
- Working diligently
- Saving for future needs
- Buying a house
- Getting out of debt
- Living on a spending plan
- Delaying gratification
No judgement. I doesn’t matter when we find ourselves today. I’m much better at cleaning my kitchen these days. Let’s pick one area, talk to someone who knows that area, and start making small actions.
You and I have the capacity to be financially competent.
Creating a little extra margin in our financial lives will radically change our relationship with money. Saving or earning an extra $1,000 would make a big difference in all of our lives. We can do it in 2018.
A spark of Hope let’s us Believe it’s possible. A little Belief starts our brains looking for Opportunities. An Opportunity seized creates an Action. Action leads to the physical changing of our circumstances.
Changing our physical conditions is “work” in all its forms. The work of creating order from chaos. “All hard work brings a profit, but mere talk leads only to poverty.”
Here is an article link to get your brain working and create some hope. Hope in this case being the persistent belief that its possible to change our physical circumstances through “work”.
The basics of personal finance are pretty straightforward, but it’s easy for us to think that because we’re in a specific season of life, like graduate school, they don’t all apply. Here is a basic list of finance fundamentals as discovered through extensive research for books like The Millionaire Next Door:
Those are pretty basic fundamentals – the only one I would quibble with is following financial markets, which many experts say is a waste of time. The reality is that following the market is probably an indicator of overall financial diligence. It’s correlation not causation.
It is easy to think that while we’re in a very tight season of life, as grad school is, that basics like spending less then we earn and savings aren’t possible.
While I would be the first to agree that it is very difficult, I would set it as a practice to live on a budget (spend what you earn) and save, even if it is a very small (almost token) amount. The point is that these practices will carry over into our future when our financial picture changes.
I’m continually challenged that to be “faithful with the little things” isn’t primarily a promise of future blessing, it is a promise that I will be changed. I continually screw it up, but let’s try again today.
“Little things make big things happen.” – John Wooden
I believe one of the most important ideas in understanding debt is what we call “Layers of Risk”. One layer that I have not taken the time to fully consider was brought to my attention in an article today. That layer of risk is student borrowers with children, and specifically single parents:
- Nearly 50% of undergrad students borrowers defaulted
- Of those, 70% were single parents
- 10% of borrowers are single parents, but they represent 40% of all defaults
These stats also include additional factors and layers of risk. For example, as the article points out if you’re a parent of a child under 3, a person of color, or enrolled in a for-profit school your default rates are even higher.
Additionally, many of these defaulted loans are for students that were unable to complete their degree so they are stuck with a non-bankruptable debt and no degree with which to increase their earning potential.
Any system that disproportionately penalizes the most vulnerable needs to be reformed.
From a Charles Schwab survey of Chicago residents.
When I counsel people (including myself) on how to make their budgets work, I often find that they are much better at EITHER controlling spending OR earning money.
As a reminder, there are two sides to each budget/balance sheet:
The old cliché is that we tend to be ‘savers’ or ‘spenders’. While that is often true, it is very difficult to win with money if you a thrifty saver but don’t earn enough money. Likewise, no matter what my income is I can always find a way to outspend it.
To make a budget/balance sheet work, we need to earn enough AND spend it wisely. The majority of people that volunteer to come talk to me about their money (grad students), tend to be thrifty savers but are having a hard time making ends meet without going into debt – something they don’t want to do.
For them, they don’t have a saving/investing type problem. Instead, we have to put our heads together on how they can earn more money. That can be challenging with the time constraints of school and family. It also isn’t a quick fix – there isn’t one change to be made.
The good news is that there are lots of options. Earning more money is a skill that can be built. The reality is that someone that has earned more in the past is significantly more likely to earn more in the future. Why?
It may be that they are more apt to recognize financial opportunity, how to leverage their skills in the marketplace, how to ‘sell’ themselves as a bargain to potential employers, or how to provide and communicate their value.
More on that:
Step one to any change is making a decision. If we decide we need to make more money to make our budget work, we will begin to look for and see opportunities. Prayer is a powerful tool in this. God can open the eyes of our mind.
From the event organizers:
“I’m pleased to announce we are hosting a free webinar at 12pm (Eastern) on Thursday, October 5, with attorney Richard Hammar on a critical topic: retirement planning for pastors.
Unfortunately, statistics from the National Association of Evangelicals suggest that few pastors adequately save for their retirement years. Often, it’s because the pastors and their church boards don’t know where to begin. In this one-hour presentation, Rich will cover key topics that pastors and boards should know with respect to the various plan options, how they work, and how to navigate the legal and tax implications of each. The material will be relevant to pastors at any stage of the career spectrum (early-, mid-, or late-stage). And perhaps most importantly, the information will be offered in a completely neutral manner, providing pastors and boards with an objective perspective that aids their planning and decision-making.
The registration link is http://churchlawandtax.com/webinar.
If you want more background information, this free blog post explains the event further: http://www.churchlawandtax.com/blog/2017/september/planning-pastors-retirement.html
An article passed along to me this week with a lead that caught my attention:
A couple of brief observations:
1.) 2/3 Borrowers with more then $50k in debt aren’t paying down their balances. It’s ‘compound interest’ in reverse – if you owe a lot, the minimum payments just barely – or in some cases don’t – cover the accruing interest. I noted this has a striking similarity to Negative Amortization Mortgages that contributed to the financial meltdown a decade ago.
2.) One of my major concerns two years ago was that the government could change it’s rules anytime on loan forgiveness. This article mentions several proposals that are on the table to do just that including eliminating the Public Service Loan Forgiveness plan altogether. It’s one of the main reasons I don’t think using any version of the loan forgiveness plan should ever be your primary payoff strategy.
3.) We’ve noted before about how the government makes over $50 Billion in profit from the student loan program each year. That enormous cash cow for those in power is the primary reason I don’t predict significant student loan reform for the benefit of the borrowers. In fact, this article says the proposed reforms will earn the government an additional $104 Billion over the next ten years. Incredible.
4.) If the government was actually serious about reform for the benefit of the American citizen, there are a number of options. For example they could put a hard cap on total student borrowing at the median household income ($55,775 in 2017), limit borrowing to the cost of tuition, or financially involve the educational institutions.