Friday, July 26, 2013

5 Things New College Grads Should Know About Money and Credit


Let’s start with five things every new college graduate should know about money and credit. We will end with a few words of advice for new grads facing an uncertain economic future.

  1. Everyday, more and more employers are now looking at credit reports as a condition of employment. If you are responsible with your personal credit, you will likely be a responsible employee. Manage your credit well and enjoy the low rates and easy availability of money good credit management brings. You will want this when you buy a car or a new home.

  1. Review your credit report annually! Reviewing your report annually for free at can keep you abreast of your personal credit situation and help you spot Identity Theft.

  1. Paying Bills: Very simple, your utilities need to be paid on time just like your credit card bills. Sure, you can let your light or water bill float for a couple of months and paying them 30 or 60 days late won’t count against you. As a matter of fact, you have 89 days to make your payment and have your account reinstated. However, if you wait to that 90th day, you are now delinquent. Your water, light, or phone bill amount will now be placed in collection and exist as a negative item on your credit report for seven years whether you pay it or not. (Paid collections remain on our credit reports for the balance of the seven years after payment as a reminder to others that you were irresponsible once or twice or repeatedly depending on how many collections one has.)

  1. Social Security: Social Security will exist in a very different format for these Gen Y students. They need to be self dependent and plan for their retirement early. No one will do it for them. In my workshops, I often ask who wants to retire with a million dollars in their retirement account. Of course, multiple hands go up. The point: When your employer offers you a 401k, pension, or any other type of “qualified” retirement plan, simply say “YES!” Start contributing to the retirement account. Put in at least 6%. You won’t miss it, you will save a few dollars on your taxes, and you will be pleasantly surprised when you get your retirement account statements and see it growing. This is especially gratifying if your employer matches your contribution or provides pension plan contributions from profit sharing.

  1. Social Media: Restrict your personal information that is shared over the internet. Too many young adults share too much as it is and do not take proper advantage of privacy controls in websites like Facebook. If you don’t want your next potential employer to see your spring break photos of drunken debauchery in Palm Springs or Palm Beach, tighten up your privacy controls, Dude!

I think following these five ideas can save you from living in your Mom’s basement forever.

In my work with recent college students and grads, one of their greatest fears is that they will never own a house. Recent grads are facing a difficult time in some areas with the homes they may want to buy being priced out of site for them due to the current demand. Don’t worry. The average age of a first time homebuyer is 30 years old. Most people I know did not buy a home until they were well into their 30’s. There is no rush to buy a home despite the increases in overall prices. You have time to save your money. You have time to evaluate where you want to live and whether a house or condo would be best for you. You have time to gauge the economy and pick your best time to buy.

I have noticed it and it has been expressed to me by some students, the financial markets are too volatile. Why would they want to put their money into the stock market? They fear the return of the great recession. When I was 21 in 1981 there was a recession on and it was pretty serious. Interest prime rates had risen over 20%. No one could get a decent interest rate to buy a home. Unemployment was 8% and rose to 10% over the next two years. In the early 80’s, we had many of the same fears today’s grads suffer.

What happened? Eventually, markets went into recovery. Unemployment was under 6% by 1988. The stock market doubled, tripled, and eventually grew to 14 times its size by the present day. This didn’t happen in a nice even fashion. It took a market crash in 1988 (22% drop in the Dow in just one day!) and three recessions in 1992, 2000, and 2008 to get here. Financial markets are cyclic and, historically, have always recovered and surpassed previous high water marks. 

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