Money Talks are quick hitting posts on a topic that will help your students manage their loans and finances. With links, tools, and visuals, you can easily digest and regurgitate the info so your students can one day fly from your nest financially healthy and strong.
Of all the wonderful financial tidbits you share with your students, helping them see how today's financial decisions impact tomorrow is one of the most important skills you can foster in your students.
This skill has as much to do with understanding compounding interest as it does with learning to calculate risk when making financial (and life) decisions.
Here are 4 quick things to pass along to your students to get them thinking about forecasting a better financial future.
1. Where will you(r earnings) be in 5 years . . .
If your students have a major selected or a general field of study in their mind, they can get an idea of what their income could be when they are working in their field. SimplyHired has a good tool to help them explore. If I was planning to be a teacher in St. Paul, Minnesota, they would tell me that the average pay for jobs with "teacher" in the title in St. Paul is $50,000. Then, they provide national averages with more specific job titles.
2. How will student loans fit in?
A common concern rotating through the news channels is that many students don't know how much they've borrowed in student loans. The more pressing issue for students, however, is how their total balance will relate to a monthly payment. It's never too early for all borrowers to start using the Repayment Estimator. Seeing how a first-year unsubsidized loan (for example) will compound and what that means for monthly payments is hugely important.
Compare that estimated monthly payment with estimated income and you have the beginnings of financial forecasting and making knowledge based financial decisions.
Rule of thumb: Their monthly student loan payment will be challenging if it's over 10% of their gross monthly income.
3. This is a delicious $10 burger. Too bad it'll cost $20 when you pay it off.
According to demos.org, the average credit card interest rate in 2014 was 13.18%. It's quite possible your students are paying a higher interest rate because of their greater level of risk. It's disturbing to think that their $50 trip to the grocery store will cost significantly more if they are planning to wait until after college to pay it off. What's more disturbing, according to AARP in a February 2012 nationwide survey of 1019 adults 18-years or older
If your students are using credit cards for every day purchases, it's likely they'll feel more financially stressed which is harmful to their studies.They also will have a greater likelihood of poor student loan repayment performance. BankRate.com has a good calculator for your students to use to help them forge a path out of credit card debt.
4. The Rule of 72.
I have $5. I want to turn it into $10. How long will it take to double? The good old Rule of 72 is a nice tool to get students thinking about compounding interest. The Rule helps them see how quickly compounding interest can turn their $10 burger at first-year orientation into a $20 bill at graduation (4 years to double if their card has an 18% interest rate).
The Rule isn't an exact science, but at least it'll get your students thinking about interest and how they can use it to forecast their financial future.