In March 2012, the Consumer Financial Protection Bureau announced that student debt had passed the eye-popping $1 trillion mark. Combined with?a weak job market and record low interest rates hurting investors, that means current students and recent graduates face an uphill battle when it comes to getting their financial lives in order. For some, it might take a long time before they can be debt free, saving for retirement and able to maintain the?necessary cash flow to handle emergencies, home payments and a lifestyle that they may have been accustomed to under their parents? roofs.
Four local professionals and three financial gurus weighed in on the problem and some possible solutions. There is no golden ticket, but all agreed?that spending needs to be reined in and education must be rethought. Also, some speculated that perhaps today?s new students and young professionals have gotten a bad rap; they might be learning from the mistakes of their parents and grandparents and wising up to the modern marketplace.
Greg Kasten:?Get tough on debt
?Most college debt is unnecessary, but the system has persuaded America that it?s normal,? said Kasten, a fiduciary. ?I actually believe it?s perfectly possible for a middle-class family to be able to put children through college and not have any debt.?
Making smart decisions and ignoring the lure of ?the college experience? will go a long way in preparing for a successful financial future out of school. Fortunately, he thinks some of the younger generations are starting to realize now that they need to save more after seeing what their parents and grandparents have gone through with low stock returns and home foreclosures.
His first order of business for a debt-ridden graduate, though, is debt elimination through a very disciplined budget. Then ?come to talk to me? about investing, he said.
?You don?t want to put any money in the stock market unless you?re going to have it in there for at least five to 10 years,? Kasten said. ?People are putting money in and then going, ?Oh no, I need to pay my bills.? You get a guaranteed rate of return when you pay off your debt.?
Kasten observed that recent graduates have not really seen good stock performances and are accustomed to low rates and low returns. Fortunately, there is a chance to start off right and reap the benefit of time. That?s not the case for folks in their 60s and 70s looking for good retirement income after years of investing. Kasten pointed out that investors in their 40s and 50s are ?frustrated, because they would like to see the stock market perform better, but they?ve seen that it hasn?t delivered much in the last 10 years.?
Regardless of age, debt status and investing savvy, Kasten said to follow the 80-10-10 rule ? live on 80 percent of what you make, give 10 percent to charity and save 10 percent.
Chris Lee: Education needs to improve
?I challenge educators, politicians, everyone,? he said. ?If I had a magic wand wand today, I would make it mandatory that every student in Kentucky, before they can graduate from high school, they have to take a financial management course.?
The education also needs to come from home, Lee noted. And on that note, recent graduates and 20-somethings have perhaps seen their parents or grandparents lose a lot of wealth because of a weak market ? a blessing in disguise that is beginning to create a breed of young people eager to take their finances into their own hands.
?A lot of younger people are much more open to investing in stocks and that type of thing, whereas their grandparents might have thought investing in stocks was only for rich people,? he said. ?In general, they are less cautious because they understand there needs to be more risk.?
He also sees many young people in a mess of student-loan debt, struggling to figure out a plan.
For this crowd, he recommends a three-pronged approach: debt reduction, a retirement savings plan and building an emergency fund. He said this balance gives young investors the benefit of time for their money to grow, rather than waiting until their debt is gone before they saving for retirement.
?If they?re doing all three of those things, then, in theory, they?re not having to go into more debt to fix their car that breaks, and they?re able to build up money, to put money down for a house, and they?re saving for retirement,? Lee said. ?There are those that are younger that are completely disengaged with saving; they are just out of school, a lot have debt, they are so eager to get a paycheck and disposable income, and all of that money goes to support a lifestyle. But for every one of those who is putting saving off, there are those who are extremely dialed in.?
Matt Briggs: Young people face uphill battle
?The cost of a college education has increased, housing has increased, and the cost of living in general has increased overall at a higher rate than salaries have,? said Briggs, the marketing and fulfillment coordinator at IMG College. ?There are always exceptions, but I feel like overall my parents and their generation had an easier time finding a good-paying job at a younger age than my generation is having, allowing them to cover their living expenses and begin saving for retirement easier than young people can today.?
All he can do is his best to plan and save, and he thinks 401K and IRA investing plans are reliable for people his age with plenty of working years ahead, especially since Social Security will probably get even less dependable, with higher eligibility ages.
The new father also expects current students and future students to have a tougher time with debt.
?I expect the students graduating now and in the last few years will have a harder time with their student loan debt,? he said. ?Hopefully, as the economy improves, students graduating in the future will have better job prospects coming out of college than recent graduates.?
Young adults now riddled with debt, he said, should pay off credit cards first.
?Retirement saving should take priority over student loan debt, if the student loan rate is lower than the expected return on your investment, especially as long as tax deductions are available for student-loan interest,? Briggs added.
Jennifer Quillen: Retirement is up to the individual
?We can be less likely to seek professional advice regarding how to proceed with our savings,? she pointed out. ?Removing the emotional buy-low, sell-high with every market swing and continuing to focus on long-term goals are where an advisor?s role should be.?
Quillen identified ways that each generation is dealing with retirement savings and debt in an ever-changing market and why getting help is good.
For the 60-plus crowd, ?they?re facing living in a low-interest-rate environment, trying to keep up with rising costs, and protecting their financial well-being?in the face of increased longevity. But some of the advantages are the opportunities for rising income, tax-free investments and tax-deferred investments.?
For the 40-to-50 crowd, the challenge is keeping long-term strategies in play and focusing on staying invested in light of bleak predictions for market performance, she said. Their general advantage is their ability to obtain and maintain a well-balanced portfolio and ability to grow wealth.
For the younger crowd in their 20s and 30s, Quillen said one challenge is information overload.
?They are living with an onslaught of information from multiple sources and need to be able to discern whom to trust versus what is just hype,? she said. ?Also, during these decades, many life decisions are taking precedence over long-term financial goals.?
However, they need to create the opportunity to save a little in tax-deferred accounts. On the other hand, student-loan debt can be a big hindrance to tailoring a good retirement plan.
?The goal is finding balance among debt reduction, saving for retirement, and living within their means today,? Quillen said.
She said keeping a liquid emergency fund also is a must.
Laura Kihlman:?Students should seek alternatives?in education
And consequently, employers? expectations will shift if and when the majority of young people cannot afford a traditional education.
?This same university cost has been an issue in the United Kingdom, and they?ve seen a rise in apprenticeship programs provided to individuals by certain industries to train them appropriately, instead of expecting a university degree,? Kihlman said.
On the bright side, she thinks this will create more educational options coming out of secondary education.
More opportunities will be key, because getting ahead is not easy.
?I think it?s definitely harder for 20-somethings and 30-somethings to get ahead financially than it was for our parents? generation,? she said, even though she and her husband?s debt only consists of minimal student loans. ?The cost of living has increased exponentially in the last 10 to 15 years with the introduction of personal Internet, cellular telephones, smart cars and other tech-savvy gadgets. People need more to keep up with the culture around them, and it has pushed most young professional?s focus away from saving for retirement.?
Barry Barret: Give school a second thought and get out of debt
?Too many kids go to school, and I know that sounds crazy,? he said. ?But even if they know what they are going for, odds are that doing it will make them more successful. Unless you want to have a professional trade where you need the training, then sometimes it is a better idea to just go work.?
He said these days too many kids seem to go to school for the sake of going to school; meanwhile they are racking up debt and are still unclear of a career because they have little work experience.
?I think it?s going to be easier for kids to go to college, but I think they?ll be in debt up to their eyeballs if we don?t pay for it,? Barrett said. ?Colleges are going to make money ready for anyone who wants it, just like they do today.?
For those young adults already out of school riddled with debt, Barrett thinks becoming debt-free should trump retirement saving.
?Interest and inflation catch you from behind when you have interest going against you,? he said. ?[Younger generations] are inundated with debt. They are taught that debt is the way to financial security. That?s counterintuitive, and their parents at least had a chance at not getting into debt.?
Then saving can start, and it is of utmost importance, since Social Security is a wild card.
?It?s social insecurity,? Barrett said. ?I couldn?t care less about that. I believe more in martians than that ? and I don?t believe in martians at all.?
Instead he said, look at things like Roth IRAs, if you qualify.
Gordon Walls:?Prepare for anything and plan?earlier for college
?These are uncertain times,? said Walls, 55. ?We have to walk by faith, not by sight.?
A father of two with three grandchildren, he sees some turbulent waters for folks like himself who are nearing retirement, as well as younger generations. Issues like Social Security will look different than they currently do, he said, and younger generations should be responsible and not plan for stability from programs like Social Security.
The other big issue he sees is debt. Whether it is from college or living beyond one?s means, debt is a growing problem for younger people.
?They have much more college debt, as many spend time on multiple degrees and battle rising tuition,? he said. ?They are entering the workforce later in life.?
And for parents with young children at home, a college education will take more planning.
?I think it will be much harder for them to go to college,? Walls said. ?Parents will have to start saving and planning and equipping their children earlier.?
The discipline to do that could be a problem, because ?this generation is troubled by tremendous marketing pressure, available credit, instant gratification and the desire for more,? Walls said.
But there is a silver lining ? there are more opportunities to learn about investing and finances.?
Source: http://bizlex.com/2013/01/a-graduating-debt/
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