Expert says students need to save

All college students experience that moment of dread when looking at their near-empty bank… All college students experience that moment of dread when looking at their near-empty bank accounts. And if you’re a senior nearing graduation, the feeling can only get more pressing.

Last night, Pitt’s Department of Career Services hosted a talk by financial expert Ken Kamen in an attempt to assuage student concerns about post-college finances.

“You go to college to learn many things,” said the suave Kamen, “but the most important things, we don’t learn.”

Kamen thinks that students in college aren’t learning the principles of what he likes to call “financial literacy”.

In addition to having academic knowledge, some of which has little practical application, students should also be aware of responsible personal finance, something which can affect their entire lives, Kamen said.

In a moment of humor, Kamen quipped, “Managing money is more vital than your beating heart.”

While he conceded that this might be a lighthearted overstatement, Kamen was serious about the need for students to better understand important issues of personal finance.

The average college graduate finishes school with about $20,000 in debt from loans and about $2,600 in consumer debt accrued from using credit cards.

These amounts don’t even include interest payments on the loans and credit card payments, which can be just as crippling as the original payments themselves.

Kamen emphasized that these financial problems will seem less daunting in the future if students only ask themselves the question, “How do I pay my future self?”

“A lot of things are more manageable if you start early,” Kamen said.

He said that most people don’t know what they need to do until they need to do it and gave the explanation, “That’s why everyone starts a diet after they have a heart-attack”.

A major pillar of his presentation involved showing the surprisingly dramatic benefits of saving a meager $3 per day by ordering tap water instead of soda at McDonald’s or by ordering one less cup of coffee per day.

If a student sets aside $3 per day starting at the age of 22, it will yield $1,100 for the first year.

Projecting that into the future, if that same student increases his savings each year by 3 percent, and assuming a rate of return of 10 percent over the long term, he will have saved a staggering $1,682,657 by the age of 70.

Kamen was quick to point out that this compounding effect over a long period of time is enhanced if a student starts saving early. “The ability you have of compounding is a gift of youth,” he said.

He demonstrated the effect of compounding in other important financial areas as well, including the damage of compounding interest that can result from irresponsible credit card usage.

If used improperly, credit cards can be “personal weapons of your financial destruction,” Kamen said.

If a student neglects to pay $80 per month on his credit card statement, deferring the payment to a later time, this adds up to $4000 of unpaid debt over four years of college. This calculation doesn’t even factor in a common 20 percent-interest rate for students, which would bump the total debt to more than $4800.

However, Kamen pointed out that this isn’t even the worst part of credit card debt. The most crippling effect of credit card debt results from lowering one’s credit score, or FICO score.

“Everything you ever want in your life will be more expensive if you ignore your FICO score.”

Everything from the interest rate on loans and, more recently, premiums on car insurance, are partially determined by looking at FICO scores.

However, if a student starts out with a bad credit score, there is still time left to correct it.

“If you correct it very early in life, [creditors] will realize that those were the college days,” said Kamen.

Kamen also talked extensively about the kinds of financial options available to students directly out of college.

The average starting salary for a student is $30,000 after it is tax-adjusted for a Pennsylvania resident.

Kamen advised that students looking for employers should always look for an employer with the largest 401K benefits so that they maximize the rate of return on their starting salaries.

He showed that the earlier a young person throws money in a 401K plan, the more money will accumulate by the age of 70. If a person starts at age 22, the yield will be 2,523,985, but beginning to save at the age of 27 only yields $1,541,856.

Kamen also emphasized the importance of investing money in a diverse stock portfolio and not being cowed by the short-term pressures of the stock market into selling a stock prematurely. Long-term concerns are more important than short term ones in the world of finance.

Many students who will be soon graduating and entering the career world attended Kamen’s presentation and asked insightful questions.

One student was Todd Minnich, a senior who is concerned about his life after graduation.

“I came because I’ll be graduating in April, and I want to get a head-start”, said Minnich. He left the presentation with expanded knowledge of what he called the “full impact of starting your working life.”