Out On Their Own

PERSONAL FINANCE

In This Economy, Small Steps May Reap Big Rewards For New Grads

April 19, 2009|By EILEEN AMBROSE

A year out of college, and Whitney Shaffer is a financial veteran, managing to live on a nonprofit organization's salary while saving for retirement and dealing with unexpectedly high utility bills for her South Baltimore apartment.

So the 23-year-old recently returned to her alma mater, the Johns Hopkins University, to speak to a personal finance class about being on her own. One question was how money affects Shaffer's relationship with friends who make more or less than her $31,000 salary at the American Visionary Art Museum.

Shaffer says she told the class that money hasn't been a wedge. "At the moment, all of us are still in the scavenging student mode" and happy going to free events, she says.

Soon, college seniors will be graduating and learning to deal with a whole new set of money issues. If you're one of them, the financial outlook has significantly soured, even since the time Shaffer graduated. You're graduating during the worst job market since 1983 - a few years before you were born. The unemployment rate nationally rose to 8.5 percent in March, but it was a hefty 14 percent for those ages 20 to 24.

"It is a tough time. They have to realize they are not in this alone," says Beth Kobliner, author of Get a Financial Life, a financial guide for those in their 20s and 30s.

On the upside, college students today tend to be more financially aware than students a decade ago. Kobliner's book was first published in 1996 and was recently updated. As she visits campuses on book tours now, she sees a difference in the students.

"They are much savvier and interested in asking questions," she says.

Part of this awareness is out of necessity, Kobliner says. Students carry more debt today, leaving college with an average of $20,000 in education loans and $2,600 on credit cards.

But they are also being shaped by the financial crisis and seeing their parents struggle in some cases, says Kathleen Cooter of Bellarmine University in Kentucky.

"They are warier of banking and financial institutions," with some saying they will put their savings in a credit union or have a parent invest it for them, Cooter says.

If you sent out dozens of resumes without any luck, you might find it hard to imagine things will get better. They will. But in the meantime, you can take small financial steps now that will pay big dividends later:

Find that first job: Getting a job now is more important than finding the perfect one.

"Don't be choosy. Ask yourself, 'What kind of skills can I learn in this job that would be transferable elsewhere?' " says Meir Statman, a finance professor at Santa Clara University. A job might give you experience with public speaking, writing reports or learning to work with those older than you, all skills that will come in handy later, Statman says.

Carry insurance: New graduates often are dropped from parents' medical insurance. Maryland law allows dependent, unmarried children to stay on a parent's policy until age 25 in certain cases. The law doesn't apply, say, to federal plans or self-insured plans where the employer pays the claims.

Ideally, you will find a job with insurance, a valuable benefit. Cooter says a senior recently griped about the $11 an hour she would earn on her new job. Her unhappiness disappeared after Cooter pointed out that the job included insurance, which is like being paid $13 an hour.

Don't go without insurance if you can't find work. You might be healthy, but that doesn't mean you won't get in an accident. Shop for a policy at ehealthinsurance.com or www.netquote.com, Kobliner says.

Pay off debt: You might have to juggle paying off credit cards and student loans at the same time. One option to get rid of high-rate card debt faster is to consolidate your low-rate federal student loans and extend the repayment term, Kobliner says. Your monthly loan payments will be less, and you can put the savings toward the card balance.

Build your credit score: Creditors look at this number to see if you're likely to repay them. High scores get better credit terms.

"If you're late just once on a credit card, it could result in your credit score dropping 100 points," Kobliner says. That can cost you tens of thousands of dollars more in interest over the years if you're buying a house, she says.

Save for retirement: Yes, it's a long way off, and the stock plunge might make you leery.

Shortly after Shaffer enrolled in the museum's retirement plan, the market tanked. Her account is down 30 percent, but she focuses on the big picture.

"I'm in this thing for 40 years. Just because Year 1 is terrible doesn't mean I should give up. I still have 39 to go," she says.

Time is your biggest advantage. The earlier you start, the less you need to save.

Sign up for the retirement plan at work, which might even match your contributions. If your employer doesn't have a plan, open a tax-friendly individual retirement account.

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