Students get course in financial planning
Carolyn Bigda
September 2, 2007
You can take a course in calculus, Greek literature or
mechanical engineering in college. But if you want to learn about
budgeting and retirement planning, many schools have nothing to offer.
That was the case at Johns Hopkins University until last spring. Based
on the experience of young alumni working on Wall Street, the school
has begun to provide an accredited class in personal finance.
"A lot of them were telling us they would have benefited from learning
how to make personal financial decisions," said John Wierman, a
professor and director of the university's Center for Leadership
Education, which oversees the W. P. Carey Program in Entrepreneurship
and Management.
"They were handling the job fine," he said,
"but they weren't prepared to make decisions about medical benefits and
retirement plans."
Only seven states require high school
students to take a personal finance class. And while more colleges are
beginning to offer courses, it is mainly community colleges and public
universities, said Leslie Linfield, executive director of the
non-profit Institute for Financial Literacy.
"The financial
world is getting more complex with decisions you have to make about
401(k)'s and IRAs, long-term care insurance and what to do about Social
Security," Wierman said.
So students at Johns Hopkins are
learning how to crunch numbers -- say, the future value of an
investment -- along with the reasoning behind financial decisions --
for example, why people shop the way they do.
Said T. Rowe
Price financial planner Stuart Ritter, who taught the course last
semester: "The class was a blend of theory and application. I wanted to
help the students understand not only what to do but why."
For those who can't enroll, here's the Cliff's Notes version:
Budgeting
For most students, a primary issue is learning how to manage cash flow, Ritter said.
Track your spending and see where your money is going. More important,
ask yourself if this is how you want to spend your money. Budgeting is
about managing a finite amount of cash each month. You have to make
trade-offs.
"There is no right or wrong answer, and it's not
all or nothing" Ritter said. "You can buy a car and still go out to eat
-- you may just need to buy a used car to make it work."
Also, be realistic about your income if Mom and Dad paid your rent or wireless bill while you were in school.
"It's one of the big revelations when students put their cash flow
together," Ritter said. "If your parents pay $10,000 in rent per year,
you have to figure out how you'll make up for that when you graduate."
Saving and investing
It's tough to know how much you will need to save for retirement or a home when you're only 20.
Ritter said a good rule of thumb is 20 percent of your income: 10 percent for retirement and 10 percent for other goals.
What about making hot stock picks? Forget it. Instead, focus on your
portfolio's asset allocation and diversification, experts said.
In fact, over 16 weeks, Ritter dedicated only two classes to investing.
Credit score
For many students, the credit score is a mystery. But because it
affects the interest rate you pay on loans and your ability to rent an
apartment, among other things, the sooner you become acquainted with
your score, the better.
Ritter has his students request a free
copy of their credit reports from www.annualcreditreport.com. Some
students are surprised to discover they have no record.
"It's better to find out about that before you go to apply for an apartment or mortgage and get turned down," Ritter said.
Insurance
Finally, it is just as important to protect your assets as it is to build them.
Get both renter's insurance and health insurance. The former will help
replace your possessions if they become damaged or stolen in your
apartment.
You probably know why you need health insurance:
What many students don't realize, though, is that you generally are no
longer covered under a parent's health plan after graduation.
If you leave school without a job that offers benefits, find at least a
catastrophic policy that will pay for major (in other words, very
expensive) medical emergencies. Search for one at
www.ehealthinsurance.com, one of the largest sites offering that
service, or directly at insurance providers' Web sites. Your school's
alumni office also may provide information on these plans.
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Copyright © 2007, Chicago Tribune
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