JASMIN: MoneySmarts U is brought to you by IU MoneySmarts.
PHIL: Arguably, the most important years of your financial life are your college years. The decisions you make in college can make or break your first few years in the workforce. This is exactly why you need to be money smart. Enter MoneySmarts, Indiana University’s financial literacy program for students. To begin, it’s free! Now that makes financial sense. At moneysmarts.iu.edu, you can learn how to budget, how to deal with your credit, living expenses, and student loans. You can learn how to leverage summer earnings to help you reduce your student loans. Indiana University MoneySmarts, creating a financially smart culture one student at a time. Visit us online at moneysmarts.iu.edu to learn great ways to maximize your money and wreck your debt.
ALEX: Welcome to another week of Money Smarts U. Here with me, this is Alex as always, Pete.
ALEX: We got a, I wanted to rename this week you made it weird with Pete and Alex.
PETE: That’s sort of we walk around with you made it weird but this week’s a little weird.
ALEX: It’s gonna get a little uncomfortable but that’s the whole point of it, so. It’s interesting. If you’re a college student listening right now, do not turn it off. It will be worthwhile, but it’s gonna get weird.
PETE: It’ll get awkward. So here’s what we do on the show every week, we deal with the financial issues that college students often find themselves dealing with themselves. I’m gonna say themselves and dealing with several more times. I think it would just sound really good if I do that.
PETE: But this week, we focus on the financial relationships between children-
ALEX: College students
PETE: And parents-
ALEX: The parental unit.
PETE: So from the time you enter high school, you began forming some strategy of independence from your parents. Some goes better than others and you all have friends that sort of process of independence is really dragging along. And they’re gonna be sort of on the family payroll for years.
ALEX: Yeah, for a lot of people there is not a strategy whatsoever, which is a problem in the first place. And I think that goes both ways a lot of times. You know, you can put that on the parents to a point where they need to be pushing that, especially going into high school that’s not something a kid is gonna be thinking about very much. But it flows on into college and college is kind of where you really start making some of these steps on your own and have to become a little bit more independent as you move towards the situation that I’m currently in which is a newly minted post grad.
PETE: The biggest challenge here is not only is financial aid and health insurance in general leading people to have dependency relationships with others. Just culturally we’re at a place where it’s fully the norm to have a financial relationship with your parents continue on and on and on.
ALEX: This is going to sound like an excuse as a millennial, but I’m going to go ahead and say it, and I’m going to blame all of the adults for saying that we’re too babied and being coddled. Well it’s your fault for creating the environment that’s causing it.
PETE: Yeah, and you look at health insurance under the Affordable Care Act. Commonly and colloquially called the Obamacare. You can remain which you are right now Alex, on your parents’ plan until you are twenty six years old.
ALEX: This applies to me, and I had zero idea that it was that extensive. And, if you get married, you can still stay on your parents’ plan after you become married. So it is a perfect example of saying, don’t worry about it, your parents will handle it.
PETE: And so I have children. And the idea of having my kids, and my kids are so young that if they think about getting married it’s a very weird thing. The idea that I would insure their spouses on my health insurance, that’s nuts.
ALEX: Yeah, and I don’t know specifically the numbers but it got to be hundreds of dollars a month per person. Right?
PETE: Yeah, I kind of think so but it all add up from like remain on the family car insurance students to be on the health insurance and in some instances you find new grads such as yourself from a practical standpoint. Shelter is shared in order for you to leverage your income. To get out of the hole is a pretty harsh way to say it but frankly-
PETE: To get out of the hole.
ALEX: I’m in the hole with student loans we don’t have to beat around the bush with it. And there are stages I think to becoming independent from your parents. And while some of the, I don’t know if institutions is the right word, but some of the way things work, right, with health insurance and financial aid, in keeping you kind of as one family unit with your parents, while those maybe will push you towards that as you’re staying together. There are stages that should happen, and things you need to go through to start separating yourself so that you’re ready. And if you are 22, 23 years old and you’re still completely living on your parents’ dime, especially if you just graduated college, it’s simply, that’s not where you need to be. And, I mean, it’d be a little hard. I mean, let’s just be honest, that’s not where you need to be. You’ve gotta be farther than that.
PETE: Well, we were talking before we started today. The concept, is it a matter of leaching, or leveraging?
PETE: That’s what this is about, because to be honest with you, when I graduated from college, I went into a 100% commission sales job. And I also got married, one month after college, which was a whole different issue. And, my wife’s fixed income as a teacher helped support me so I could start my career. So I leveraged her income. We leveraged our family income at that point to allow me to take risks and be aggressive. And it’s not that different from, frankly, your situation.
ALEX: Yeah, a couple commonalities, one, a mutual decision. Both parties on each side of the coin deciding to work together to a common goal, something they’re actually working towards, right? There’s a plan, an end game that they’re moving towards. And I think that’s really important. So how we can apply that to living at home is, you know, mutually agreed upon. You know there are some situations maybe where you know students struggle to find jobs, it’s a necessity, things like that. But that’s where the other part of it comes in. You need a plan to get out of there. You can’t just be sitting there stuck and not have any sort of idea how you’re going to move on from this stage in your life. So, making sure you’re on the same page with your parents. Setting boundaries, rules, there are different things you can do to spur yourself forward and to make that more of a leveraging type of relationship that’s fair to both you and you’re parents as opposed to leaching off of it, and it’s going to set you back more. Because as you think about it from your point of view you graduate college you get married you have a job you’re out of the house you’re completely on your own, you figure it out, whereas even if you’re leaving at home, I’m living at home I’m still an adult in a lot of respects, right? Having a job, working, etc., etc. But there is still that point of living on my own that will still be different in some of the things I’m gonna handle.
PETE: So let’s do a couple things here. Let’s look at if the situation were different. Let’s for you begin with, let’s say you didn’t have student loans. Let’s say you graduated with zero student loan debt. However that happened, let’s say you were a talented athlete.
PETE: You are a talented athlete.
ALEX: D-1 club.
PETE: But it was a club sport. Let’s say it was a D-1 whatever, NCAA sport. You would have a scholarship, right? You were one of the better players, right?
ALEX: Sure, sure.
PETE: We’ll entertain that. Let’s say you graduated debt free. You still have the same job you have now, same income. You’re living on your own right?
ALEX: I wish you could see the wistful look in my eyes right now.
PETE: Yeah, I just thought you liked my outfit, no so yeah.
ALEX: It’s hard to put myself in that place, but I would say I would rather be living on my own right now, but I could be saving a ton of money. The problem is I work five minutes from my house. It’s so convenient. But, I would say, the time line that I have right now no question gets moved way up, no more than two to three months at the very most, which I’m already past, currently, living at home. So it definitely changes that decision.
PETE: That’s interesting.
ALEX: All that money that could be in my bank right now that I’m spending on student loans, brutal.
PETE: All right, so let’s do it this way. Let’s say your situation is exactly the same, you graduated what, May?
ALEX: Yep, May.
PETE: What if you want to move into a place right away? How does that change what has happened? Do you think it’s impossible?
ALEX: It’s possible for sure. I am a lot less aggressive with my student loans. Well, it’d be tough, because I would have had to buy a car immediately, which means I probably would have had to go in deeper in debt.
PETE: Cuz you’re using a third car, basically, of your family, just the family car.
ALEX: So my dad works at home.
ALEX: And my mom is semi-retired slash-
PETE: He’s a stay at home dad or he works from home?
ALEX: Works from home, yeah, he has a home office and my mom is kinda semi-retired right now. So, we have two cars but they don’t really need both in action so they allow me to borrow one.
PETE: And you have to juggle sometimes but, again, we’re five minutes from your house, it’s not really-
ALEX: Right, it’s not a big deal. I can bike to work if I really need to.
PETE: So if you moved out on your own, not only would you have had to purchased a car which, by the way, you wouldn’t have had the money to do.
PETE: You would have financed it.
ALEX: I would have had to have gone in debt.
PETE: Let’s say you would have gotten a roommate, just to be-
ALEX: I would have figured it out. Yeah, I would have figured it out. I’m pretty frugal about that kind of stuff. I would have been pretty stingy about it. I would be in a little more debt with the car. I would be a ton less aggressive, and I would’ve not made nearly the amount of progress I have with my student loans. And that is just pretty much summing it up, it would’ve been just slower.
PETE: Your net worth has shifted. Net worth is a great thing to talk about on this show. Net worth is when you take the money that you have. Wether it’s savings or investing. And then you subtract the debts that you have. Student loans, credit cards, car loans, those sort of things. Your net worth because of the decisions you made to leverage your parents’ shelter has shifted dramatically.
ALEX: Thousands and thousands of dollars in the positive since I’ve-
PETE: Had you moved out right away. You would have been- No-
ALEX: It would have been backwards for sure. Because of the debt I’m taking out. It would have gone backwards.
PETE: It actually would have gone backwards because of the student loans. Or the car loan situation.
ALEX: Yeah, it would have definitely gone backwards. The distinction I wanna make right now too that helps make into this whole stages of separation idea is-
ALEX: Right now I’m an adult in certain senses, but I live at home. It’s the whole living on your own. But I lived on my own in college. In a fraternity it’s a little more of a dorm situation, but senior year I lived in a house with ten guys. I which you cooked for, so.
PETE: Those were your student loans. Right? Student loans funded some of that, or how did you fund that?
ALEX: No. My student loans only funded tuition.
ALEX: I worked over the summer. I had small, part time projects, gigs where I funded my living expenses. But I paid for all my own food. I went to the grocery store, cooked for myself, lived fully on my own. So I have that experience. It’s just I kind of moved backwards, in a sense. But at least now, through training. With air quotes, training myself in college to live on my own. I at least know what to expect now when I move out too.
PETE: I love those air quotes, cuz you realize.
ALEX: We’re on a podcast.
PETE: I don’t know. Look, I’m not a doctor.
PETE: How about this? Let’s set some rules here that we share and move on with. If you’re going to attempt to create independence which we think you should.
ALEX: Yes absolutely.
PETE: I think a good metric for that is, is your net worth going up as the relationship severs okay?
PETE: So meaning, are you staying at home, using mom and dad’s shelter to pay off your student loans, which by the way does what, Alex?
ALEX: Increases your net worth.
PETE: That’s right, if you save money for a car purchase, which you’re doing, that makes what?
ALEX: Increases your net worth.
PETE: Yeah, so both are great examples of how the net worth shifts. If you’re staying at home because you don’t have a job and you have no income, and that creates problems because, and you have student loans, your interest is building on itself and it’s going to get capitalized into the loan payment at the beginning of next year.
ALEX: Yeah. I think that’s a great way to put it for someone who maybe is living at home right now, who may be listening to this. Take the time from when you began living at home and go to now and see how your network has changed. Have you been paying down a bunch of debt, have you saved a bunch of money and if that number isn’t going in a positive a lot then you that’s the only metric you need to know that there’s a problem.
PETE: Alright, this is again a tough, at times, uncomfortable topic. But I always boil it down to this, as a parent, again I have very young children, not even close to college or elementary school for that matter, you just get dumb, when you’re a parent you just frankly get stupid and you will do anything for your kids which is a problem for everybody involved. Your job as the adult, the young student adult is to cut yourself off for everyone’s benefit and you do it by monitoring things like net worth, make sure that you’re making sure that you’re leveraging and not leaching. And it will pay off man.
ALEX: Yeah, and it can be done on different scales. There are the huge steps you can take, and then there are the little steps you can take. The bigger steps are living on your own and funding all of your living expenses during college. And then there are the little things you can do, that are simply, don’t ask your parents for money while you’re in school. So there are big and small steps that you can take. But the idea is that you need to move through these stages and get yourself to a point where you aren’t depending on your parents for money. And so, when that time comes when you can move out, you’re graduating, you’re getting a job, you can one, be more prepared, and two, it’s two tough sides of preparedness. So it’s the mental side of prepared and then there’s also you can be financially prepared for that.
PETE: And there are more resources available to people at moneysmarts.iu.edu. We’re glad you listened to this week’s MoneySmarts U, brought to you by IU MoneySmarts. Alex, we have a tag phrase or something we end these with, right? Like I you don’t do it right, wrong is right there.
ALEX: Wrong is right there?
PETE: If you don’t do it right, wrong right there.
ALEX: Waiting for you.
PETE: For you. Goodbye everyone.