Happy Friday to all of my readers! I hope you’re all getting ready for a fun and relaxing weekend. I’m a bit late with this post, as I have been traveling over the last couple of days. I attended my nephew’s high school graduation in Huntsville, Alabama. We had an awesome time visiting with family and celebrating my nephew’s big day. He had an exciting high school career and is understandably excited about his future.
And that leads me to . . . the Question of the week:
Do you ever have a depressing feeling when you look at a sea of new high school graduates?
I know, I know, I’m a real downer this weekend. Not really. Actually I strongly believe that the American dream is still very much alive. I know that this year’s fresh crop of students is more prepared to face the world than any that came before. Today’s technological advances are amazing! I often think of how much better my education would have been if I had all of today’s tools at my fingertips. Yes, I’m old — as in used a typewriter in college.
Anyway, my sense of depression comes not from a scarcity of opportunity in America but, rather, from the unbelievable financial challenges young graduates face in today’s materialistic world.
To be specific, here are just a few thoughts that crossed my mind as I spent time with my nephew this weekend:
Americans owe more than $1.4 trillion in student loan debt! This works out to an average of $37,172 per graduate. Here are a few specific examples of combined undergraduate and graduate debt by degree:
- MBA- $42,000
- Master of Education – $50,878
- Master of Science – $50,400
- Master of Arts – $58,539
- Law – $140,616
- Medicine and Health Sciences – $161,772
When you look at these numbers, you have to understand why my stomach tightened as I heard many of the graduates share their future career goals. Fortunately for my nephew, he was able to get a scholarship for his first two years of college. Further, he has an exciting business opportunity to learn the car dealership business with a profoundly successful mentor while he is getting his education.
Fast forward — our young graduates complete their college education and walk across yet another stage, this time pulling behind them the ball and chain of school debt. What do they do next? They start their first “big job” and immediately assume their civic responsibility of serving the market. They do this by adding piles of additional debt to their already heavy load.
Housing is a big one. Today’s young graduates face significant market and peer pressure to lease or purchase much more home than they need or can afford. The lucky ones who make enough to consider home ownership are encouraged to take on as much mortgage debt as they can afford over a 30 year period, increasing the stress of mounting debt just as they are beginning the game of life.
I’ve encouraged my nephew to stay home as long as possible and begin saving from day one. When he’s ready to move out, I’ve advised him to avoid allowing his lifestyle to creep up with his increasing pay. I hope he listens. As my readers know, I speak from experience. I had $200,000 of unsecured consumer debt plus a $250,000 mortgage before I turned 30 and read my first personal finance book.
Many young professionals feel pressure to project a successful image, and nothing says “successful” like a brand new luxury vehicle. I am amazed at the young people who will go out and buy a $50,000 car — a sum equal to their annual salary! When added to the school debt and housing costs, young workers can’t help but feel overwhelmed.
Fortunately my nephew is committed to driving his paid-for vehicle that he has enjoyed during high school for as long as possible. I have warned him about the temptation to upgrade that he will soon face, particularly because he is planning to take a job at a car dealership. I highly recommend driving a vehicle as long as it provides safe transportation. Personally, I strive to drive a vehicle for a minimum of 10 years.
The national savings rate is around 5%. That is a staggering statistic that doesn’t suggest many Americans are planning to have a secure retirement. Early saving is critical, but it is nearly impossible for young workers to start saving when they are loaded down with so much “start-up” debt. Consider the following savings example:
- INVESTOR A – saves $2,000 from age 19-26 for a total of $16,000 and never saves again.
- INVESTOR B – saves $2,000 each and every year from age 27-65 for a total of $78,000.
WHO IS THE WINNER? You probably guessed. INVESTOR A wins and finishes with a retirement fund of $1,035,160 from only $16,000 in contributions. INVESTOR B finishes with a retirement fund of only $883,185,even though she invested nearly 5 times more money into her retirement account!!
As you can see, we teach our young people to bury themselves in debt right at the time they need to be planting those early investment seeds. Using my example above, if we could teach our graduates to live simply for the first 8 years of their working career, they could make amazing progress, whether they are interested in traditional or even early retirement. The numbers speak for themselves.
So, it is easy to understand my feeling of concern for our class of 2017. I am going to make it one of my bucket list goals to find a way to teach personal finance to high school or college students so that I can try to make an impact on future graduates. I am so happy that I have the opportunity to teach my children a different path. I hope they can avoid debt, live simply, and really enjoy their lives without the burden and stress associated with excessive consumption.
Have a great weekend everyone!