Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=164582
Story Retrieval Date: 10/1/2014 7:19:52 PM CST
Courtesy of Neil Ellington,Consumer Education Services Inc. Debt Solutions
1. Use cash to buy beer and food. Don’t use credit cards or loan money to buy “necessities” like food and living expenses, but instead get a part time job. It is a challenge to work and go to school but it will make your life MUCH easier upon graduation to have a manageable level of debt.
2. Freeze Your Cards. Toss your cards into a Tupperware bowl full of water and throw them in the freezer. If you have your credit card frozen in ice, and you have to let it thaw it out for an hour just to use it, what are the chances you will still want that $150 pair of shoes? Not using credit cards is the first step in not taking on more debt. You’ll never successfully eliminate debt if you continue to accumulate it.
3. Go overboard. Look at your credit card bill. Thanks to the new credit card act, your monthly statement will show you how long it will take to pay off the balance if you only pay the minimum versus how long it will take if you throw in a few extra bucks. Believe me, a few extra bucks pays off in the long run – literally.
4. Put that iPhone app to use. There are dozens of free apps to help you create a realistic spending plan you can live with and follow. If something doesn’t fit in your spending plan, evaluate it carefully.
5. Credit is NOT FREE MONEY. It’s plastic. – This is tough to grasp sometimes for kids who are used to their parents being the primary spender. You think you’ll remember those pair of Nine West shoes when you’re 40? Probably not. Well, they could end up costing you thousands if you purchase them on your credit card and only make minimum payments.
6. Get a job. No, seriously, get a job. Go to school and find a way to earn money. This may seem difficult, but student and personal loan debt is much easier to handle than credit debt. Live within your means and make any purchases that HAVE to be made (i.e. tuition, car repairs, room & board), so they can be handled by means other than credit cards.
7. Get help. We know that it is difficult to understand debt, credit cards and money management. It is why there are so many graduates in this country in trouble. We’ll give you free counseling, and if you need it, we can negotiate extremely low rates with your creditors so you can pay back your debt in ¼ the time it would normally take – without damaging your credit.
8. Get Real. Ask a family member how tough it is to pay for everyday living expenses with debt. Better yet, ask them how much debt they had after college and how long it took them to pay it off.
9. Be realistic on your starting salary after graduation. Don’t be disillusioned to think you will definitely make a big salary right out of school (especially in this competitive job market). Chances are that you will make a humble salary starting out. Think about how quickly that money is drained after you pay for rent/mortgage, groceries, gas, utilities, cable, cell phone and credit card payments.
Neil Ellington is executive vice president of CESI Debt Solutions, a nonprofit organization that educates and counsels consumers on how to become debt-free. Neil and his team of counselors help hundreds students get out of debt and keep their credit scores intact every month. www.cesidebtsolutions.org
Twenty-two year old Mary Klette, a graduate student at Montana State University, thought she would always be able to spend $130 to $180 on a pair of Joe’s or Seven for all Mankind jeans.
“I had this mindset that I had a really good job and I thought that I always would,” Klette said.
But things changed when Klette was laid off from her job and learned quickly that she had to adjust her spending habits.
“I could have been saving. I should have been saving,” Klette said. Speaking of her generation, she added, “A lot of us are not in the real world yet. We haven’t totally fully realized how to pay for everything by ourselves."
Klette’s revelation is hardly a surprise. When the economy plunged into its deepest downturn since the Great Depression, the millennials, people born after 1980, faced higher tuition, rising debt and stagnant wages or, more frequently than older folks, unemployment. Something had to give.
“The early evidence is that it [spending habits] have changed and it will continue to change,” said Brent McGoldrick, senior vice president of Americas of FD International Ltd. “They understand that things might not get better.”
The Allstate Corp.-National Journal Heartland Monitor poll, conducted April 22-26, 2010, found that 32 percent of millennials feel like they are barely making ends meet. It also found that the individual millennial carries an average personal debt of $21,900. Their research indicates that millennials these days are more focused on paying down debt than investing in the stock market. The poll found that only 16 percent of millennials feel they can support themselves and have saved enough money.
TRU, a branch of TNS Custom Research Inc., recently reported research that found 20-somethings now are more focused on paying off credit card debt. Before, people surveyed had an average credit card debt of $5,000 and were adding to it. Within six months, during the height of the recession, people in their 20s paid down their credit card debt to an average of $4,500.
“They are much aware that their priorities are to pay down debt and save,” said McGoldrick.
There are plenty of reasons why millennials have become more cautious about spending on the latest new items and hottest trends. According to the Bureau of Labor Statistics, the seasonally unadjusted unemployment rate in April for people between the ages of 16 and 24 was 18.5 percent. For those between 25 and 29, the rate was 10.7 percent. The rate for all ages was 9.5 percent.
“There is a big unemployment rate now,” said Ted Goldstein, an economist at Conference Board Inc., which produces the Consumer Confidence Index. “For college students, high school students, there is not much out there.”
One way of coping: more millennials are relying on their parents for a little extra help. A recent Heartland Monitor poll, which focused on millennials between the ages of 18 to 29, found that 39 percent of those surveyed regularly received money from their parents or other relatives. It also found that 33 percent of millennials currently live with their relatives.
“The baby boomers had a much more adversarial relationship with their parents,” McGoldrick commented. “For millennials, the clash of values is not as strong. The parents are much more part of their lives. Parental help is more of a potential financial solution than it is a stigma.”
Even young people who are still working may not be making as much money as they used to. TRU’s research found that the median income for millennials fell to $22,000 a year in 2010 from $30,000 in 2009. Rob Callender, TRU trends director, attributed this drop to a shift from full-time employment to part-time employment.
“If there wasn’t a recession, I would probably be getting paid more,” said Nicole Kaufmann, 23, an associate consultant in Chicago. “If my salary doesn’t increase, I would not change my spending habits.”
In sharp contrast, some millennials say that they haven’t changed their spending a bit, despite the recession.
“Every few months I’ll get a nice bag, Louis Vuitton, Marc Jacobs, something I’ll wear everyday,” said Pegah Shahriari, a 27-year-old entertainment lawyer in Los Angeles. “When you buy a bag, it’s like an investment.”
Shahriari attributes her ability to keep shopping not only to her job but to parental infusions.
“If I didn’t have help from them, I would stay at home,” Shahriari said. “I wouldn’t buy anything. It has everything to do with their support.”
Similarly, Emily Cwidak-Kusbach, 23, of Chicago, still likes to shop and hasn’t curtailed her spending on clothes, going out to eat, and jewelry.
“Clothes, for sure, I’m always buying a new cardigan or shorts,” said Cwidak-Kusbach, who works as a collaboration specialist for InterCall Inc.
She does acknowledge, however, that she's become more aware of debt and the importance of savings.
“I am more conscious of my money,” Cwidack-Kusbach said. “I do put a lot in savings. It [the recession] made me think twice before I buy something.”
Kristen Brickley, 24, of Chicago, has always been conscious about what she spends money on, but doesn’t necessarily see that quality in other people her age.
“I definitely save way more than I spend,” said Brickley, who works in commercial real estate. “I still see a lot of people spending money on frivolous things.”
While many have been affected by the recession, Brad Sago, a professor of marketing at Whitworth University in Spokane, Wash., thinks the economy will have to get worse to fundamentally change the spending habits of the millennial generation.
“The Great Depression’s generation spending habits truly changed. I am not quite sure that we have seen that now,” Sago said. “If it doesn’t deepen, many will return to pre-recession spending habits and spending levels.”