Summer Jobs Offer Teens a Head Start on Saving

Summer Jobs Offer Teens a Head Start on Saving

Packet Magazine - PM Fine Living
Tuesday, 05 July 2011

Written by Ken Tarbous

For many teens, summer presents an unbridled opportunity to explore the world of fun and games, but for others intent on looking to the future and planning their careers and lives, it’s a time to gain valuable experience – and make some money.

According to a recent study by Junior Achievement and The Allstate Foundation, 98 percent of New Jersey teens plan to go to college. With education costs skyrocketing, landing a job and saving money needs to be a priority.

Dreams and plans are one thing, but when faced with the temptation of the mall, Slurpees and music downloads, teens can use proven strategies, beyond mere discipline, to start on the road to building their financial empires.

“The savings basics for teens are basically the same for adults and everyone in between. You want to start small, you want to start early and you want to pay yourself first,” said Paul Golden, spokesman for the National Endowment for Financial Education, a nonprofit that runs the High School Financial Planning Program, online at http://hsfpp.nefe.org.

“Even teens who don’t have part-time jobs can exercise that concept, because if they’re getting birthday money from grandparents, for those that are graduating high school now and are getting a huge windfall as graduation money, they can do the same thing with that as if they had income,” Mr. Golden said. “They can set aside a certain amount that they will put into a savings account.”

Goal-setting and budgeting hold the keys to future economic success, and whether it’s saving for school books, a car or the security deposit on that first apartment, the No. 1 goal for any teen working this summer should be to save at least some of their money, says Don Silver, author of High School Money Book and The Community College Transfer Guide (www.adams-hall.com).

“As a goal, I would think, if they can save half would be great; that’s not always possible of course,” Mr. Silver says. “This is a time to have some seriousness about the level of savings.”

Financial gurus recommend that teens avail themselves of accounts tailored to young people, or minors, which often have low minimum balance requirements and little or no fees. And direct deposit a set percentage of paychecks into a savings account, often where the money is out of sight and out of mind, is a wise choice.

“You have to make saving a habit,” says Jean Quinn, vice president of community relations at The Provident Bank. “If you wait to pay all your bills and do everything you want to do, there isn’t going to be any left over moneys.”

As part of its mission to help young people develop financial literacy skills, Junior Achievement’s $ave USA Interactive Lessons provide free online money management skill-building exercises, at www.ja.org/courseware. High school students can learn about planning to buy a car or pay for college; middle school students can discover the advantages and disadvantages of spending with cash and credit and elementary school students find out about spending and saving and the differences between wants and needs.

“Students have to own their future economic success,” says Catherine Milone, president of Junior Achievement for New Jersey. “Budgeting and learning about budgeting at an early age is probably one of the best ways that a young person can be successful in their lives.”

Catherine Milone, President of Junior Achievement for New Jersey

Part of that success lies in being wary of debt and the high cost of credit cards. As part of training to use credit responsibly, young people can opt for prepaid spending cards to practice using plastic money to get an understanding of account limits.

While establishing good habits and a credit rating, teens also must protect their reputation and their assets, because they’re not too young to have their identities stolen, personal finance experts say.

“There are instances where a young person has no idea there’s any problem until they apply for a student loan, and then they find someone has stolen their identity and run up huge credit card balances,” Ms. Quinn said. “They need to protect themselves by safeguarding their information, watching out for shoulder-surfing, Dumpster-diving, pre-approved credit cards that get in the hands of other people, phishing.

So it’s important that they shred documents, safeguard their wallets, use strong passwords, don’t give out their Social Security number.”

If all the talk of personal finance and responsibility seems daunting, the pros say teens need to think about retirement … yes, retirement.

“This is a great opportunity for teens, because the greatest ally for a retirement nest egg is time, and that’s one thing teens have a lot of until they’ll need to retire or want to retire,” says Mr. Silver. “It’s probably more important now than within the last 50, 60 years for teens to be thinking about retirement, something that is completely in opposite to instant gratification but we’re talking about ultimate survival here, possibly.”

Teens themselves don’t expect to learn about personal finance on their own or on the streets; however, many parents find talking to their kids about money more intimidating than talking about sex.

Ninety-two percent of teens responding to a recent Junior Achievement USA and Allstate Foundation survey said they learn about money management from their parents, but only 43 percent of families discuss money management as a family.

“We have to recognize that parents have the No. 1 influence on how their kids are going to manage money, whether those are positive behaviors or negative behaviors,” Mr. Golden said. “So they want to be involved … in helping them establish goals, helping them establish how much of their pay they’re going to save, and just opening the lines of communication and getting involved.

AVOID STUDENT LOAN MISERY

PM Fine Living
January 2011


Federal programs afford borrowers ways to manage out-of-control education debt

By Ken Tarbous

If you’re one of the millions of college graduates who left the halls of academia in the past decade, you’re probably still paying off your student loans. You might be among those burdened with student debt two, three or even four times your salary, facing years, if not decades, of excruciating monthly payments hampering your ability to save for the future, buy a home or raise a family.

You’re not alone. Debt for graduates in the Class of 2009 averaged $24,000, according to the Project for Student Debt.

But hasty decisions or ill-advised actions while handling your debts in your 20s or 30s can do irreparable harm to your credit rating and have dire consequences for your financial health.

“If you’re having trouble making your payment, affording your student loan payment, don’t ignore it,” says Edie Irons of the Institute for College Access & Success, a nonprofit independent research and policy organization. “Do not avoid the phone calls and stick your head in the sand and hope it’ll go away. It won’t. It will get worse. But if you find out what your options are and talk to your lender and get informed, there are actually a lot of tools you can use to keep your loan in good standing and make your payments more manageable.”

So it’s important to know what type of loans you have. Federal student loans, such as Perkins, Stafford and PLUS loans, have much more flexible repayment options, and protections for borrowers, than private student loans.

You might want to consider consolidating your loans with one lender to simplify your record keeping and payment schedule, although generally it won’t lower your interest rates unless you have older, variable-rate federal loans. Valuable tools are available to help you mange your debt if you have federal loans. You’ll want to check out a relatively new program known as Income-Based Repayment, or IBR, under which your monthly payments can be adjusted based on your income and family size. If you qualify, debt that remains after 25 years of repayment may be forgiven.

In addition, the Public Service Loan Forgiveness, or PSLF, program may lower payments or even cancel federal loans if you have a qualifying job in government service or the nonprofit sector, with loan forgiveness after 10 years.

Other avenues to explore for federal loan forgiveness are national service organizations like AmeriCorps and the Peace Corps, or jobs in education, health services and social work in underserved areas.

Private student loans, unlike the loans guaranteed by the government, often carry variable interest rates, and Ms. Irons warns that although interest rates are low now, the banks and other lenders might raise your rates at any moment.

If you can’t make your payments on time, lenders of both federal and private loans often grant forbearances and deferments. During those periods you won’t need to make payments, but use caution because interest accrues on unsubsidized loans, leaving you with higher balances due than when you started. If you take that route, ask about interest-only payments until you can afford full payments.

If you do slip behind on your payments, you need to stay in contact with your lender to ensure you don’t default on your loans. The federal government has powerful resources to go after defaulters. It can garnish your wages and confiscate your tax refunds among other things. And private lenders can secure judgments against you that can ruin your credit.

And don’t think bankruptcy is a realistic option in your struggle with the staggering student debt. It’s not. Federal loans are difficult if not impossible to have discharged or canceled through bankruptcy, and since the Bankruptcy Reform Act of 2005, private loans have special protection in bankruptcy court — so you’re not likely going to find solace in that forum.

So what to do? The first step is to create a plan that attacks the debt with the highest interest rates, like credit card balances, first.

Andrew Petrone, a financial adviser at Princeton-based Petrone Associates Inc., says learning to manage student debt can have a positive effect on future finances.

“You need to understand money, learn budgeting and regularly make repayments. These skills are valuable as you begin to save for retirement and other goals — like buying a house or saving for your children’s education,” Mr. Petrone says.

To save money, many recent and not-so-recent grads have moved back home, and if you’re among them you have a huge opportunity.

“In one sense that’s a good thing, because it obviously frees up a lot of money that would go into living costs that could be used for debt repayment,” says Barbara O’Neill, a Rutgers University professor of financial resources management. “If they’re going to be in that situation, it’s a window of time that they can really make a dent in that debt repayment, especially if Mom and Dad aren’t going to be charging much rent.”