Enlightened Grads Sit in Dark over Finances

By Mike Condrey, Northwestern Mutual Financial Network

College students graduating in the new millennium are seen as a very connected, career-minded and confident group, according to a Harris Poll that examines attitudes of the Class of 2001. But, as enlightened as they are, it seems as if these graduates of the new millennium could use further education when it comes to personal finances.

The poll of college seniors shows that nearly half of this group feels “not very” or “not at all” knowledgeable about investing and financial matters. Only 8% of this group categorizes themselves as “very knowledgeable.” This first graduating class of America’s newest generation – the Millennium Generation, which comprises those born between 1979 and 2001 – also feels as though it lacks knowledge on the various financial tools, such as 401(k)s, stocks, mutual funds, IRAs and life insurance.

While the Millennium Generation does not appear particularly confident about where they stand financially, 94% of these seniors are still optimistic they will eventually be able to afford the kind of lifestyle in which they grew up. That optimism was prevalent throughout the study. Just imagine their potential for fulfilling those dreams if they felt comfortable with finances.

The reality of tuition and plastic money

Part of the reason college students feel uneasy about financial matters may be their growing debt resulting from the climbing cost of college and the lure of credit cards. The average annual tuition at a four-year private university soared to $16,332 in 2000, from $7,207 in 1980, according to the College Board. Between 1991 and 2000, the average student loan burden among households under 35 increased almost 142% to $15,700, as reported by USA Today, February 13, 2001.

The increasing presence of credit cards in daily student life also appears to be catching up with students. According to Nellie Mae, the nation’s largest student loan agency, the average undergraduate in 2000 owed $2,748 in credit card debt. In addition, they say the percentage of undergraduate college students with a credit card jumped from 67% in 1998 to 78% in 2000. Many students are bulking up their wallets with cards – in 2000, 32% had four or more cards.

Communication pays off

Lack of communication about finances with parents might also be feeding this anxiety and lack of knowledge about financial planning. Another Harris survey found that most adults, 72%, rarely or never talked about how the family money was spent, saved or invested. However, those who did talk with their parents while growing up are more likely to have saved at least 20% of their gross salary in 1999. Parents would be wise to find opportunities to shape and influence their children’s financial futures.

Young adults and parents can use many financial resources – Web sites, books, classes and videos – to expand their knowledge and dialogue about financial matters. A few helpful Web sites include www.themint.org and www.jumpstartcoalition.comwww.kobliner.com,www.financial-education-icfe.org , and www.youngmoney.com.

What graduates can do now

As they take the move to the next life chapter, here are a few tips from www.money.com that college graduates can use to begin preparing a good financial portfolio:

  • Pay off all credit-card debt and student loans as soon as possible. Interest compounding is a vicious wealth-killer.
  • Ideally your future employer offers a 401(k) plan. If so, sign up and contribute the maximum, or at least as much as your company matches.
  • If your employer doesn’t offer a 401(k), see if you qualify for a deductible IRA.
  • Put aside three months’ worth of rent and expenses in a money-market fund or short-term CD as an emergency fund.
  • Allocate your 401(k) or IRA toward growth. Don’t be too conservative at this early date or you’ll miss out on maximum returns.

It may seem like college graduates’ financial futures are far away, but it’s never too soon or too late to start taking control of personal finances. What they taught in school really is true: Knowledge is power.

Mike Condrey, CLU, CFP is the Managing Partner with The Northwestern Mutual Financial Network based in Raleigh, for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin To contact Mike Condrey, please call (919) 834-7772 or e-mail him at mike.condrey@nmfn.com.

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