How Not to Move Back in With Your Parents

Financial Literacy 101 Podcast Episodes

The Importance of Net Worth

Listen to the Podcast

Pete and Alex talk about why your net worth is the best barometer to use in assessing your financial status, even if you're in college.

Read the Show Notes

There a lot of personal finance concepts that young adults should know and practice. Net worth is a simple one to remember: assets less liabilities equal positive or negative value or the difference between what you own and what you owe. Pete-the- Planner in his weekly podcast (accompanying this tip) believes net worth is a benchmark that needs to be front-and-center in every college student’s life.

During the 2008-10 collapse of the housing market we heard about many individuals “under water”, a term meaning they owed more on their mortgage than the property was worth. It is a good illustration to attach to net worth…. long-term, you don’t want your income situation to be described as under water.

About two-thirds of all college students use student loans to finance their education; the average student loan debt (borrowers) at Indiana University is about $28,000. In the podcast, Pete-the-Planner reminds students who have had to borrow that upon graduation they will probably have negative net worth, e.g., owe more than they own for a few years as a result of loans. And that’s okay because your degree is an investment in long-term financial wellness. [Note: It is possible to over-borrow on a degree. Future earnings can be guide as long as you utilize correct occupational data.]

A few years into your career you will probably buy a home and the mortgage combined with student loan debt will make you wonder whether you’ll ever have more assets than liabilities. The fact is that a positive net worth could be twenty years away. Net worth is a guide to help you move forward, to keep swimming and not be under water for too long. What you don’t want is for debt to become a controlling factor and influence typical “life” decisions you know will unfold in the next several years.

Economists are now concerned the current national trend of rising student debt will have consequences far beyond the balance sheets of individual recent college grads. Collectively, heavy debt load shared by millions of graduates can translate into reduced consumer spending, such as delaying home buying, not saving for retirement, even tying-the-knot. Yes, economists frequently point to the fact that the median age for marriage is the highest it has ever been with respondents often citing a desire for financial stability to have been a pivotal influence. [See tip #4 “Relationships & Money”].

So, why all the attention on this concept you generally ascribe to your parents? It’s about practicing good financial habits. Practice reducing debt at every opportunity. You don’t need to look at your net worth with the frequency of balancing a checkbook. Once a year is sufficient; make it an annual event. Add up all your assets and compare to liabilities. Even a partial degree is an asset; be generous with yourself.

In 20 years when you hire a financial advisor for the first time you tell him/her to forget the net worth analysis. Listen to the podcast by Pete-the-Planner and find out what he thinks you should focus on now to chart a course toward positive net worth.