A section in the 9/14-15/19 weekend The Wall Street Journal headlined “The New Rules of Money.” The focus was on recent graduates dealing with a triple whammy─substantial college loan obligations driven ever higher by rising tuitions and fees at 4-year colleges; the soaring costs of homes; plus, stagnant incomes. Anyone who has lived beyond their scheduled expiration date (a.k.a., life expectancy at birth) may look at the emphasis on “new rules” and point out that it’s a fact of life that as soon as you learn the game, someone changes the rules. Old timers who eschew a trophy for everyone may be tempted to mutter, “Buck up, buttercup!” That’s probably not constructive and doesn’t qualify as direction or advice.
As fall, 2019, gets underway the focus for many parents of juniors and seniors in high school turns to a whirlwind of activities centered around sports, lessons of one type or another, transportation issues, and for many, college or vocational decisions. After high school, what’s next?
College juniors and seniors face similar determinations. What’s next? Graduate school, start a career, marry your sweetheart or move on, military service? College, especially a 4-year institution where one is away from home, is a bubble. Yes, life outside of the bubble can be hard. It may not be fair, especially given emerging views as to what’s “fair.” The Journal focused on financial hardships, problems, dilemmas (i.e., challenges) facing graduates and those early in careers. Here’s the rub. Redefine a challenge as an opportunity. If anything is too easy, rewards are skimpy.
Albert Einstein advised, “You have to learn the rules of the game. And then you have to play better than anyone else.” You do have to perform better than others to shine and move ahead above any average, including position, benefits, and pay. But constantly shifting rules are a reality that benefit the astute, the flexible, the nimble, the confident. Recognize that our country goes through cycles of constant change. Political and economic cycles, bouts of creative destruction driven by technology and global competition, with a short-term focus of distraction and confusion driven by 24/7 “breaking news” alerts. There’s an art to getting away to think and strategize, to discerning patterns and trends, to seeing opportunity, and devising an action plan.
In the 1970s, America experienced a severe inflationary cycle. Inflation and interest rates kept climbing, with the prime lending rate peaking at 21.5% in 1980 . First-time homebuyers felt lucky to get a 30-year mortgage below 13% annually. In 1980, the Federal Reserve Bank restricted the money supply to “break the back of inflation,” triggering a nasty recession with massive layoffs and a tanking stock market. Yet many of the successful people of today who graduated from high school or college in the late 1970s or early 80s saw opportunity, recognizing that every problem has a potential brass ring on the other side of the door. Finding the door and knowing what to do when you walk through it, is the challenge.
Juniors, seniors, and parents, plan carefully, grounded in well-researched reality. What will college, graduate school, or trade school equip you to do? Equip you to earn a living? How does that mesh with your internal MO, your God-given strengths and talents, the things that “light your fire?” If you borrow money, how does debt repayment mesh with the salary or other compensation you can expect net of taxes and other payroll deductions, and the cost of living where you want to live?
A 2017 LendEDU survey showed that over half of surveyed college undergraduates expected starting salaries in the $50K-$60k range. Data from Korn Ferry’s Hay group indicated that starting salaries for 25 jobs for 2018 graduates would average $50,390. That’s an average, with many jobs paying less, some more, with substantial differences based on location (Atlanta vs. high cost San Francisco, for example).
Reframe every problem as a challenge. For every challenge, what’s the best alternative to deal with the challenge? What resources are available to power the selected alternative? Financial capital and human capital may be involved. Lastly, given the challenge, deemed best alternative, and available resources, what should you expect as an outcome? What do you want to experience? Are your expectations based on informed reality?
Hope is not a strategy. Procrastination is a decision, but not optimal. To parents and students, classes of 2020 and 2021, time is short. Due diligence and life and financial planning should start now!
By Lewis J. Walker, CFP®