Wealth...Uncomplicated

College Grads Beware - you're screwed

Watching Peter Orszag, the Director of Office Management and Budget, with Charlie Rose, there was a very interesting, but little discussed statistic.  On the program, he states that on average, for every 1% increase in unemployment, a college graduate can expect to earn about 6% less in annual income.  While 6% may not seem like a big difference, it is.

Immediate Impact

Considering unemployment was let's say 5% before the sky fell and will go up to 10% or more, that equates to a 30% difference in income for new college graduate.  This means that new grads will earn 30% less in starting wages than those who graduated during more normal economic times.  Of course, the 30% can be overcome, but on average, our latest edition of young professionals will be earning less than the overwhelming majority of their predecessors.

Compounding the Problem

Adding to this wage disparity is the fact that over time, the gap will be compounded.  The reason for this is that if you start with a lower wage, when you receive pay increases, your increase is based off of an artificially lower wage.  For example, let's say that Armand takes a job upon graduation at $25,000 that a couple of years ago was paying $35,000.  When Armand gets a promotion or changes jobs to have a higher salary, he and his prospective employer will be considering his salary increase based on the $25,000, NOT the $35,000.  

Net Present Value of the Problem

So what does this gap really cost?  The answers vary from one study to another, but it's about $100,000 in net present value.  If you consider that the average 401(k) balance at retirement is around $105,000, this tells us that college graduates today will be at a decided disadvantage both today and over the long run.

Takeaways

While this information is pretty bleak, it doesn't mean that an enterprising college graduate is doomed to earn less their entire career.  There will always be a group on the right side of the bell curve, so how do you overcome the averages?  You have to be smarter with your financial decisions to maximize your resources - income and assets.  Here are some things to do now:

1. Get Experience - unless you want to have the lowest of low entry level positions, or even be shutout of your field, it's important to get some experience in the industry you want to pursue.  This could be an internship, a co-op, working part-time, or whatever, just get some experience.
2. Be Smart with Debt - graduating college is a major accomplishment and one that only 36% of the population has experienced.  However, that 36% also can tell you all about their student loan debt.  It's important to try to accelerate your debt repayment even if the loans are at 'good' interest rates.  The less debt you carry, the more options you'll have, the better your life will be.
3. Don't Fear the Boomerang - there was a concern with Boomerang Kids (twenty-somethings that returned home to live with mom and dad), but today it's something that has a new name - cocooning.  Don't be afraid to move back in with mom and dad until you can get on top of your debt with a decent income.  Who knows, with the market crash and unemployment figures, mom and dad might need you as much as you need them.
4. Delay Major Purchases - rather than go out and get a new car as soon as your first paycheck arrives or trying to buy a house out of the gate, put off these purchases for at least a couple of years.  During that time period, act as if you had these payments going out and see how the budget holds up.  This should give you enough time to accumulate a decent emergency fund.
5. Start Saving for the Long-term - the reason that the average 401(k) balance is only $105,000 at retirement is because the older generation failed to start saving early.  It has never been easier to start saving for the long-term with the proliferation of employer based retirement plans and individual retirement accounts (IRAs).  Just putting in 5% will put you well ahead of the game.
6. Get Something on the Side - whatever your job might be after graduation, try to find something to do on the side that will make some money.  It needn't be a lot of money, but try to do something that will further your career.  As an example, if you're a public relations nut, try to do some work with smaller companies on your own.  It could be as simple as setting up press release accounts for businesses or connecting them with simple solutions to create a web presence.

Bottom Line:  The numbers say you're screwed, but it doesn't need to be true for you.

When 2 Equals 10 - education pays

Last Sunday, I gave you President Obama's message on education that asks every American to commit to at least one more year of education or job training.  While I can't emphasize enough the importance of furthering your education and improving your job skills, I took a few minutes to find a clear cut example of how education pays.  In this post, we'll take a look at the world of nursing which is a high demand field that continues to offer excellent wages that are dictated in large part by education level.

Three Tiers of Nursing

Loosely speaking, there are three major tiers of nursing:  (1) Licensed Practical Nurse or LPN, (2) Registered Nurse or RN, and Nurse Practitioner or NP.  These tiers are dictated by educational attainment and industry certifications.  As a nurse moves through the progression from LPN to RN to NP, he or she can expect to be compensated on an increasing scale.

Nursing Salaries

Based on information obtained from Salary.com, the following are the expected salary ranges for nurses from the 25th to 75th percentile in Cincinnati, Ohio:

• Licensed Practical Nurse:  $35,561 to $42,651
• Registered Nurse:  $55,508 to $66,867
• Nurse Practitioner:  $74,702 to $88,020

In light of the fact that the average hourly wage in February of 2009 as reported by the Bureau of Labor Statistics is $18.41, nurses entering the workforce can expect a wage that is above the national average.

Education Requirements

For hopeful nurses, the amount of education required depends on the end goal.  Generally speaking, the following is a quick view of the time required to obtain the educational credentials for each tier of nursing:

• LPN - 2 years, Associate's Degree
• RN - 4 years, Baccalaureate Degree
• NP - 6 years, Master's Degree

If you're starting out with no college experience, becoming a Nurse Practitioner may seem like a long slog to go through six years of school.  However, if this is broken down into say four years up front and two years at a later date, it's not nearly as daunting a task.

Two Years = Ten Years

The most common argument I hear against going back to school to increase personal income and better one's life is that it takes too much time.  We're already pressed for time as it is and many feel that it's impossible to squeeze even one more thing into an already busy schedule.  This couldn't be further from the truth...if you understand the long view anyway.

If you look carefully at the information I've already presented, you will see the the difference in income between each tier of nursing equates to about $20,000 in annual earning.  As an example, a 35 year old LPN could go back to school for two years to become an RN.  Over the course of 20 years, he or she would expect to earn about $400,000 more than by simply staying the course as an LPN.

This $400,000 in additional earnings equates to more than 10 years of earnings as an LPN!  In essence, two years of additional education adds up to 10 fewer years of work.  Do you get what I'm saying here?

President Obama is asking all of us to further our education to better our lives and the country, and as this post points out, it makes all too much sense.  The fact remains, however, that only a few will heed the President's call, and for those few, they will be richly rewarded with a far better chance at finding lasting financial security.

To learn more about how to go about going back to school and the special tax credits made available in February, click here.

If you'd like to see what various jobs are paying, click here.

Obama's Message on Education

A week ago today, I wrote about the educational tax incentives put together by the Obama Administration and signed into law as part of the American Recovery and Reinvestment Act.  Today, I ask if you have taken any steps towards making this a reality.  The link between education and prosperity is undeniable, and to help you understand the broader scope of this, here are some words from our President as delivered in his initial speech to Congress a few weeks ago.

     "The third challenge we must address is the urgent need to expand the promise of education in America. 

In a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity -- it is a prerequisite. 

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation. And half of the students who begin college never finish. 

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education -- from the day they are born to the day they begin a career. (Applause.) That is a promise we have to make to the children of America. (Applause.) 

Already, we've made an historic investment in education through the economic recovery plan. We've dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life. We've made college affordable for nearly seven million more students -- seven million. (Applause.) And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children's progress... 

...It is our responsibility as lawmakers and as educators to make this system work. But it is the responsibility of every citizen to participate in it. So tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma. And dropping out of high school is no longer an option. It's not just quitting on yourself, it's quitting on your country -- and this country needs and values the talents of every American. (Applause.) That's why we will support -- we will provide the support necessary for all young Americans to complete college and meet a new goal: By 2020, America will once again have the highest proportion of college graduates in the world. That's is a goal we can meet. (Applause.) That's a goal we can meet. 

Now, I know that the price of tuition is higher than ever, which is why if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education. (Applause.) And to encourage a renewed spirit of national service for this and future generations, I ask Congress to send me the bipartisan legislation that bears the name of Senator Orrin Hatch, as well as an American who has never stopped asking what he can do for his country -- Senator Edward Kennedy. (Applause.) 

These education policies will open the doors of opportunity for our children. But it is up to us to ensure they walk through them. In the end, there is no program or policy that can substitute for a parent -- for a mother or father who will attend those parent/teacher conferences, or help with homework, or turn off the TV, put away the video games, read to their child. (Applause.) I speak to you not just as a President, but as a father, when I say that responsibility for our children's education must begin at home. That is not a Democratic issue or a Republican issue. That's an American issue. (Applause.)"

Have you committed to at least one more year of education?  Are you walking through the door of opportunity?  I'm tellin' you folks, opportunities don't get much better than this.

Don't Forget Your $10,000 from Uncle Sam

This is some good stuff.  I just saw a classified ad that read:

     "The Federal Government is sending out checks for $10,000 to any American that desires to increase their earnings potential, improve their quality of life, benefit their community, set an example for their children, and generally get ahead in life.  To qualify, you can't be rich and you can't be lazy."

Alright, it wasn't a classified ad, I made it up...sort of.  While my ad is seemingly ridiculous, it's a pretty good translation of one of the provisions in the recently enacted American Recovery and Reinvestment Act that President Obama signed into law on February 14th.  In essence, the Act provides a $2,500 tax credit for up to four years of post-secondary education--a.k.a. college.

In order to claim your tax credit, you must be enrolled in college, earn less than $80,000 if you're single or married filing separately or $160,000 if you're married filing jointly, and your education must cost at least $4,000 annually.  The way the credit is worded is that $2,000 is a 1 for 1 offset against the costs of your education.  The next $500 in credit is on a 1 for 4 offset on the next $2,000 of costs.  In other words, spend $4,000 and you get $2,500 back through the tax credit.  This is a very, very good thing.

If you're not sure how to take advantage or what all the right steps are to go back to school, don't fret, just keep reading.

Step 1:  Select and Enroll in a Program

In selecting a program, pick one that meets at least these three criteria:  (1) something related to what you want to do, (2) something that you have the skills to complete, and (3) attend a properly accredited institution.  If you follow at least these three guidelines, your educational experience will give you enjoyment, confidence, and respect.

If you're not sure what you want to do, don't worry.  Most people don't figure this out until very late in their careers, if at all.  Even if you aren't completely sure, try to find something that you could see yourself doing day in and day out for the next decade or more.

As for your current skills, think about what you are good at.  Some are great communicators and will do well in sales.  Some are very good with their hands and might make good mechanics.  Still others are great at organization and would be very good administrators.  Something that you should note is that whether you are in sales, auto repair, or administration, there are jobs for those with low skills that pay $25,000 annually and there are also those in each of these fields making six figures.  The difference in pay is related to education being translated into job performance.

After you've selected a program, go ahead and complete an enrollment application.  This is usually a simple form and most colleges will require a small fee to accompany the application.  For adult learners, exams such as the SAT or ACT are often not required so you need not fear such things.  If you are going back for an advanced degree, the LSAT, GMAT, or GRE may be required, but you should consult with your selected school's office of admissions.

Step 2:  File Your Tax Returns

Murphy's Law--one of them anyway--says before you can do something, you have to do something else first.  In this case, before you can submit your Free Application for Federal Student Aid (FAFSA), you should first file your tax returns.  To do this, I recommend FreeTaxUSA.com whose banner is below.

Step 3:  Submit FAFSA and Financial Aid Paperwork

The FAFSA is actually a pretty simple form to complete if you have all of the documents you need.  These documents include the following:

• Social security number
• Driver's license or state issued ID
• Your 2008 federal tax return
• Your parents' 2008 federal tax return, if you are still a dependent
• Current bank and investment statements
• Alien registration or permanent resident card, if not a U.S. citizen

Having these documents available will help you finish the application quickly and relatively painlessly.  When you're ready to begin, click here to reach FAFSA's website.  Please note that there are important deadlines for federal and state financial aid so be sure to know when the FAFSA is due.

In addition to the FAFSA, you should also complete any financial aid paperwork required by the financial aid office at your school of choice.  By completing the FAFSA and your school's financial aid application, you can be sure that federal and state aid will be credited to you properly.

Step 4:  Finance the Gap

Even if you qualify for federal or state grants, there will still be a significant gap that will need to be paid somehow or another.  This gap can be filled in many ways depending on your situation.  In order of best to worst, here is a list of how to finance your education:

1. Federal and state grants - if you qualify, you will be notified through the financial aid process at your school.  There are a wide range of grants available, but most are reserved for low income households and the disadvantaged.
2. Tuition reimbursement - if you're fortunate enough to work for an employer that will pay for your education, take advantage of it.  Employers offer these benefits because studies have shown that employees typically stay longer and are more productive if tuition benefits are paid.  One caveat:  most require a minimum tenure after completing your courses so be sure that you'll want to stick around for that length of time.
3. Scholarships - there are billions of dollars in scholarships and anyone that is willing to put in the time can be confident that some money will flow in.  One of the amazing things about scholarships is that they are available to a wide range of individuals and some are as simple as having the right last name.  To complete a search, use FastWeb or ScholarshipExperts.  Both services make finding scholarships easy.





4. Cash - the next best source of funding is cash out of your own pocket.  While it will certainly put a cramp in the budget, it beats paying interest.  Use it if you have it.
5. Federal student loans - there are two kinds of federal student loans bearing the Stafford name.  Subsidized means that interest will be suspended during while you are enrolled in school while unsubsidized means that interest will accrue from the time the loan is disbursed.  Start with SimpleTuition.com.



6. Private student loans - if you are attending a pricey institution (I would question whether this is a good idea or not), you may need to obtain a private student loan to fill the gap.  These loans are typically at higher rates and have less favorable terms than Stafford loans.  However, if it is necessary, then a private student loan through a big name bank can take care of the difference.

Step 5:  Translate Your Education

The English word education has its roots in the Latin word educo which means to foster or draw out.  The single most critical factor in increasing your earnings as a result of education is how well you translate your education into useful, on the job skills.  This factor is why traditional college graduates enter the workforce in their early twenties and have a difficult transition.  It is also why I typically suggest traditional graduates go back to school later to earn a Master's degree.

If you are able to take what you learn in school and apply those learnings properly to your career, you will increase your earnings as a result.  While the academic world can sometimes seem like a parallel universe to the real world, the lessons that are taught are valuable if, and only if, they can be translated to the job.  To put it another way, if you're going there to get good grades, but can't translate it into the real world, don't bother going--or become a professor.

Summing Up

Education is one of the core tools that helps people increase their earnings.  Formal education through colleges and universities serves the purpose of teaching valuable lessons that can be applied to your career and those that understand this and take advantage of it will have a far easier path to financial security than those that do not.

If you know you should go back to school, but don't do it under these tax incentives, you're crazy.  Think about it.  When was the last time the federal government told you, "We have a check for $10,000 with your name on it."  The answer:  NEVER!

CiN Weekly Column: What to do after baby

Checkout my CiN Weekly column on the racks or find it online here.

Free Money for College...seriously

  It's not often that you can get free money with no strings attached, but that is exactly the case with Upromise, an affinity rewards program using credit, debit, or store loyalty cards.  In essence, when you spend using your registered cards, selected merchants will deposit a small percentage of your purchases to a college savings account.  These monies can later be transferred to a 529 plan or withdrawn to pay for qualifying higher education expenses.

At last count, Upromise had over 10 million registered users and has dispensed millions of dollars for education--all without any strings attached.  Among those taking advantage of this free money are students, their parents, granparents, and other relatives.  By registering multiple family members, savings can be compounded at a faster rate.

There is one important note to remember.  When you setup your account, please remember to use your junk email address to avoid receiving a pretty fair amount of spam.  While most of these are offers that can increase your savings with Upromise, but beware as these offers will also induce a higher level of spending--the real purpose of the program.

I urge you to sign up for this free savings opportunity by using the link below.

Upromise - Turn your everyday spending into college savings