Friday, August 3, 2012

Living at Home Again: Financial Advice for recent Boomerang Kids

Recently I had an email from Bill H. who is a recent college graduate but was unable to find a job immediately in the current job market. He turned up on his parents’ doorstep like many other recent grads. This is often referred to as the Boomerang Effect: students returning home after college rather than striking out on their own right away. Often, this is not by choice; the student would rather be working and on their own.

He wrote:

Dear Credit Union Guy,

After graduating I had to move back home until I find a job. Do you have any tips for managing my finances at this stage in my life?

Bill H.

Dear Bill,

Here are some points for you and other Boomerang Kids:
  • Don’t take on any new debt while unemployed! Save your money to make the payments you need to make on any current student loan, car loan debt or credit cards.
  • Don’t ever use a credit card for entertainment purposes while unemployed. I have seen far too many pizzas, movies, and concerts on students’ credit cards. They have nothing to show for this debt that they are paying it off at 19%! Ouch!
  • Make all your payments on time. Late pays will show up on your credit report and many employers use a credit report to determine the personal responsibility of potential new employees. Current payments mean you will get out of the house soon. 30 and 60 day late payments may cause you to sleep in the bunk bed with your little brother for a while longer than planned.
  • Maintain your checking account, make regular deposits to cover your outstanding checks and debit card charges. If your account goes into a negative balance, get it positive quickly. Most financial institutions will only maintain a negative checking account for 30 days. Then they close it for cause and report any losses to a collection agency and ChexSystems, a credit reporting service for financial institutions. If you get reported to ChexSystems by your bank or CU, a ChexSystems record will prevent you from opening a new checking account at a member institution for the next five years! Most banks and credit unions are members of ChexSystems. Trust me, you don’t want your parents seeing mail for you from ChexSystems and collection agencies. That does not make for pleasant dinner conversation.
  •  Make sure you have the address of your student loan company and the payment due data for your loan. Generally, six months after you graduate you have to start paying your loan. If you are not employed, you can ask your student loan company for a deferral in payment; this is known as forbearance. Interest will still accrue on the loan and be added to the balance, but payments will be deferred for six more months.

Bill, you are not the first kid to come home after college and you won’t be the last. Returning to home after college can be a stressful situation for students and their families. It is not what you expected to do when you finished your college degree and it is not what your parents expected either. But you can make the best of a difficult situation.

Don’t let your finances become a regular topic of conversation at your family’s dinner table. While living at home and looking for your dream job, don’t overlook getting a part time job to make some ends meet. A little bit of income is better than no income at all and it helps pay your bills. Manage your debt well and keep on top of your checking account. In the end, you will be respected for handling your personal finances in a very mature manner.

Best of luck,
The Credit Union Guy

And for all of you out there looking for our next financial education workshops, your summer wait is over. Our next workshop will be "Reality Based Budgets for Teens" at our Milpitas Financial Center at 6PM on Aug. 22nd. 

Our next "Credit Myths and Repair Workshop" will take place at our Milpitas Financial Center on Aug. 29th at 6PM. 

I hope I will meet you at one of our seminars! Have a great week!

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