"Please Send Money", a potentially useful book for the college-bound
I recently had the chance to glance at book called 'Please Send Money!" by Dara Duguay. Ms. Duguay is the director of Citi's Office of Financial Education, and seeks to give well-informed advice on the perils of student debt, financial irresponsibility, and strongly encourages all of us to be more realistic about our financial futures both during college and afterwards.
One of the amazing statistics she mentions concerns precisely this lack of realism most of us are heir to. In page 146 she quotes a Shwab survey that states
- most teens expect they'll be earning an average salary of $145,000 upon graduation from college
- currently, only 5% of the U.S. population earns that kind of salary
- the average national wage is only $40,000.
This final figure is most likely just the mean wage (taking the below-poverty-level earned annual wages, the highest wages, and everything in between, adding them all up and dividing by the sum of the total number of annual wages in the U.S.). I think knowing the actual most frequent range of wages would be more useful in this example, but in any event, if the statistical model for the expected wage is the same as the statistical model used to derive the actual wage, this is troubling news indeed. Essentially this says that people, even during college, start out life with a $100,000 wages deficit! I say deficit because, according to Ms. Duguay, kids in college start spending as if they already had the $100,000 on hand. Hence the student loan abuse, hence the credit cards, hence unrealistically choosing to attend a more expensive school with no real reason or benefit.
Any wonder student debt is a big issue?
She points to this by comparing what most people a generation ago considered to be "indispensable expenses" versus what people our generation do. Due to this, the student debt problem was far less. According to her, our parents, in school, only invested in books, supplies, food. They were happy to use the furniture provided by the housing authority; they dispensed with radios, TV sets, fancy matching lamps, gadgets, electric guitars... all those things she claims most students today consider indispensable to their success in college nowadays. True, nowadays technology IS pretty indispensable - a laptop is in many instances more useful than many textbooks. But aside from that, students nowadays spend far to much on what previous college-bound generations viewed as luxuries, and that's one reason students get into debt. The mismatched expectation of future earnings contributes to this, no doubt.
The availability of student loans and other debt instruments contributes to this generational difference in student debt, no doubt. Another statistic she cites states that back in the '70s, student loans made up only a 25% of college financial assistance to students. Nowadays, 80% of the typical financial package consists of student loans. Her response to this? Don't use it. Forego the fancy rugs, accept only the minimum amount of student loan necessary to cover books and tuition, and reject the rest. After reading that, I did remember that every semester the school granted me an option to reject some of the loan package, but I always considered it a formality! What, say no to money today? Inconceivable!
Her book is peppered with many ominous warnings and discouraging real-life stories of what happens to people who fail to take her message to heart, and reconsider their relationship with money as early as freshman year of college. Perhaps in relation to our times, an underlying message I get from the book is "get used to diminished expectations now, since you will probably never make enough money to support a higher standard of living comfortably." The message is a little depressing, though I suppose there's something to it. As for me, I sort of wish I'd read it when I was starting out my college career, though to be honest, I probably would have ignored all of it piecemeal. Not even really because I was one of those expecting to make 5 times what I make now, but because I simply didn't even think to wonder.