Financial Wellness | TERN Mentoring | Zoomcast with Tina Fox and Dr. Cathy Snyder
Tina Fox:
Hi everyone. This is Tina Fox with TERN Mentoring, and today is our first day. I’m very excited about launching this, what we call Zoomcast. There is too much great information out there, and there are too many wonderful people who know this information. The goal of this Zoomcast, here at TERN Mentoring, is really to partner you with this knowledge. And where are these topics coming from? Well, we’ve got a pool of mentors, and we’ve got pools of mentees. And at TERN Mentoring, we listen to what it is that our audience is most asking for. Today’s topic is going to be Financial Wellness. I was fortunate to bump into Dr. Cathy Snyder, at James Madison University, who is a senior lecturer for the class called Business Decision Making. Her emphasis happens to be on financial wellness. Cathy is also a former loan officer, so she knows a lot about this world of money and financial wellness.
Quick side note, for those of you who are into, well, “What else do these folks do?” Cathy is also a runner and a racer, and I was unbelievably impressed with the over 50 medals that are hanging in her home. She said she was inspired by the diversity of the events that she was attending and witnessing her son in these events. She saw a t-shirt that said, “But, did they die?” and that was kind of it for her. She decided, no, they did not die and entered into the next race. She’s been racing ever since. Welcome, Dr. Cathy Snyder. Thank you so much for being on our Zoomcast today.
Dr. Cathy Snyder:
Thanks for having me.
Tina Fox:
We’ve talked about this concept of financial wellness and what we’re hearing is that there are a lot of students who are attending university and yet they’re coming out of university and they’re not feeling as though they have the full knowledge of what they want to know as they’re entering into their very first job, maybe purchasing their home, maybe renting. Our mentors have also said, you know, can you give us some areas that we might be able to support the collegiate set? I know in teaching your class, there are three areas that you hone in on, and I’m hoping that we can touch on those today. The first being budgeting. The second being credit management. And lastly, basic investing. Seeing that you teach this to thousands of students and you have written a dissertation that even caught the eye of the Consumer Financial Protection Bureau senior counsel, as well as the Under Secretary of Education, I thought no better person than Cathy to share with us her thoughts on these three areas.
Dr. Cathy Snyder:
Yeah, I teach multiple areas like we’ll do and we’ll teach them how to do their taxes. And buy life insurance; most people aren’t having conversations with 18 to 22 year olds about having life insurance. But it’s also one of the easiest places to work into their budget when they’re young. But the three areas that people tend to struggle the most with are budgeting, credit, and investing. And they have the most questions around those because they, they kind of operate as a different language. And so we try and demystify some of the vocabulary that goes with that and give them at least a launch pad to get off the ground and hit their feet running as financially independent individuals or people that are at least working towards that goal. Any student development professional will tell you that moving students towards autonomy is gonna be a big goal within higher education.
So if we can’t teach them to be competent in running their homes, I’m not really sure that all the vocational knowledge that we give them for their career field really feels substantial enough at the point of graduation. So I get students at the entry point of college who may have had jobs, maybe not, who may have had responsibility with holiday money, birthday money, Christmas money, something along those lines, maybe not. So it runs the gamut in terms of experience with managing money. But I hear all the time “I need to save money but I don’t know how to do that”. And so what I found when I was working on the dissertation was that parents are sometimes pretty decent at modeling good behaviors, but they don’t wanna talk about them in depth. And so students perceive that they have this safety net at home, and they don’t really have to worry about money until they’re actually knocking on the door of having a real salary.
And their parents expect them to know everything about how to manage it despite the fact that they’ve shared nothing. So they’re nervous. And so if I can catch them on the front end and make them smarter about living off campus, then they’re gonna feel more prepared by the time it comes to manage their own salary. So on the budgeting front, I usually try and get them at least on the intake to understand that there’s a difference between their gross salary and their net salary. So the gross salary is the nice number on paper, and then net is what you actually have to work with. And so if we can then take that more realistic picture of what they’re going to make, because while everybody thinks they’re gonna make six figures straight out of college, that’s not necessarily true. So I want them to do some research on what the starting salaries look like for their career field, and then do some deeper dives into what it looks like to actually live on that.
So they actually put papers together, budgets together, numbers in categories, and start giving every single dollar of that net income a job. And then we start sifting with what are your fixed expenses? What are your variable expenses? So the fixed expenses like rent or maybe a predictable cell phone contract, those kind of go in tougher slots. And then we have things like food and clothing and vacation, which are the squishier categories. But those are very behavior based and those have a lot of wiggle room. So we talk through some of the challenges of separating wants and needs because that’s a really uncomfortable conversation, but when better to have it than before graduating, when they have those real responsibilities and have to do big things with their money. So our starting point in establishing a budget is showing them where the templates are, which if you give access to the resources after this workshop, I have several outlined, but zero-based budgeting is a big concept that I like to hone in on because if you don’t know what’s coming in and if you don’t give it a purpose, you really don’t understand what’s going out.
And you can be left at the end of the month thinking, where did my money go? Like, it comes in, it goes out, it gets spent, and there’s no accountability for it. So a budget helps you get a handle on what comes in, what goes out, and where you have some wiggle room.
Tina Fox:
And Cathy, are you finding that with these students coming to college, do they, are they getting access to this in, in public high schools prior to coming to college?
Dr. Cathy Snyder:
It depends. So across the United States there, all of the financial wellness movements have happened primarily in K through 12. But only about half of the states have any kind of actual requirement for financial wellness to be discussed. And that could be in an economics class, in a health class, in a standalone personal finance class. And so that’s great, but even fewer actually assess what’s going on in those classes. My experience when I asked students what their content coverage was, it’s all over the map. Some of them are being sat in front of videos and on autopilot – no one actually teaches the material. EverFi is a popular product. Some students are being put in front of programs like Shark Tank, like that’s great, it’s a great program, but it’s more corporate finance and less personal finance. And so it’s basically the instructor that draws the short straw in the high school teaches this particular content area. And it’s not a good experience. It’s certainly not a standardized experience by any stretch of the imagination. So I have to start my classes as if we’re at ground zero. They don’t know anything. No one’s talked to them ever. They have no idea what good behavior versus bad behavior looks like. And we are starting from the beginning.
Tina Fox:
For the 25,000 students that are at James Madison University, is this an optional program or is this a mandatory program that students go through?
Dr. Cathy Snyder:
This is an optional program. I teach one of about six critical thinking options in what we call Madison Foundations. It’s a first year experience kind of coursework. So I do critical thinking by way of financial wellness, but there are philosophy courses, communication classes, history classes that plug critical thinking gaps across campus. So I’ll see about 200 students a semester – 400 a year. So I’m not even tapping into 10% of the incoming freshman class.
Tina Fox:
Well, good goal for all of us to reach for.
Dr. Cathy Snyder:
Or on the JMU parent page suggesting college business students in particular should take Cathy’s class <laugh>.
Tina Fox:
I would agree with all those parents. It’s funny when you were talking about the budgeting, and what’s the money coming in, what’s the money going out and putting the hard stops, and what’s the difference between gross and net? And so my first job out of school, I remember my net was $14,000 a year, and I couldn’t even afford to live in the town where I was living, so I still had to live with my folks, but they did charge me rent. And that was one of my line items on my budget, was the rent that my parents charged me in order to make sure that I knew what the real world was. So your budgeting class would’ve been very helpful. I kind of learned the hard way as I came out of school. I thought, oh wow. Well, what’s, you know, my salary says this, but then what’s this all about? All these different taxes? It was, it was overwhelming. Oh, yeah, it was overwhelming.
Dr. Cathy Snyder:
I had roughly the same experience. Like I did not make enough my first year, first couple of years out of college to actually have my own apartment. So I rented a room in someone’s home that lived close to my work. But I paid rent for that room. And I worked harder to get out and have my own space because one thing, one of the things I did not want to do was move back in with my parents, but I didn’t live in the same town as them. My job was not in the same town as them, so it wasn’t an option to move in with them. But it also wasn’t an immediate option to live on my own. But I craved that; I was so over roommates by the time I finished college.
Tina Fox:
I hear you on that. And, you know, thank, thank God for the parents, but at the same time, it was a great motivating factor to, you know, press on and then get your own place thereafter.,
Dr. Cathy Snyder:
We have that conversation in class a lot because I have students whose plan is to go back and live with their parents. And I’m like, okay, I don’t have a problem with you having an entry plan living with your parents. I just don’t want you to be that kid that’s still in the basement at 35 because you have an entry plan and did not have an exit plan. So parents tend to be pretty bad landlords. They don’t wanna charge their children anything to live at home, but they should, even if they don’t use the money, they should be setting it aside as a house down payment, or at least as a deposit fund for some independent living arrangement somewhere down the line.
Tina Fox:
So you mentioned in the budgeting that a lot of these students typically don’t have this conversation with their parents, but their parents are expecting that somewhere along the line. There is an opportunity to learn here. I also think about the fact that you’ve got a varied population that’s coming to you. So there may be some cultural things where we don’t discuss finances, and so the students aren’t even able to broach the subject with their family members because it’s just not a cultural thing, to speak of the dollars and cents. So how is that received in your class, and how do they do once they start talking to you about budgeting?
Dr. Cathy Snyder:
Well, we kind of do a Vegas mentality, whatever’s mentioned in the classroom, stays in the classroom because some of the best experiences and conversations have come out of those experiences. So culturally Hispanic individuals don’t like to borrow money. And so when we have financial wellness conversations across the higher education gamut, we actually worry about that particular population under borrowing and prolonging their degree progress, like taking six plus years to get through a degree because they’re paying as they go, they don’t wanna be indebted. And then we have other pockets of the population that believe everything should be on a student loan, get through as fast as you can, and they’re a hundred thousand dollars up to their eyeballs in debt without necessarily having a conversation about the return on their investment and what they will make in their career field.
So you’re right, there are some cultural aspects. There are some generational cohort aspects as well. So I had a class experience where I had taken a classroom of 60 down to four groups of 15, and we did a rotation a month on Fridays. And so I had no more than 15 kids working on a case at the time. And I had a budgeting case. There was not an easy solution to it, it was just more of a conversation starter about what do we do with college funds and savings and how do we stay in the house. And I had a very clear third-generation white female student who was like, you can’t stop contributing to the college fund. College is the gift that keeps giving. And there was no way that that was possible.
There was no way that that was gonna work given the employment prospects and the level of income after this major employment shift. And I had a first-generation African-American partial football scholarship student in the same classroom. And he looked at that student like she had three heads because he said, I have to send part of my scholarship money home, part of my financial aid home so that my mom and my little brother can eat. And it was, wow, probably one of the most classically educational moments to ever happen in my classroom. But it was a complete generational difference. His family had never talked about investing because they never had any additional money to invest. And so that was a completely new topic when he came into my classroom. And this other student had, you know, college funds plus fund money being sent to her and probably some stock portfolio investments on the side that her grandparents had set up because they were just in very different generational cohorts.
So, it runs the gamut, but there is a very clear expectation that a lot of this learning is happening in school. But I can tell you from my research, that real learning is happening with the parents. And the more the parents talk about finances, it’s a mixed bag of results. Sometimes the students really get the awareness factor tied to financial literacy and financial wellness and will do better because those conversations are open and others, their financial literacy scores coming into my class will actually be lower because there’s a perceptible safety net. Like I can mess up for a few more years because Mom and Dad have me covered. They know what they’re doing, but 90 plus percent of my students are getting their information from home and not from school.
Tina Fox:
That’s a fascinating story between, you know, the tale of two individuals in the same class when it comes to this concept of budgeting. Are there any other ideas or recommendations that you have? I know that we’re short on time today, and I am gonna tee us up for the resources section with what you’ve provided in your PowerPoint, but anything else on budgeting that you may wanna say prior to moving on to credit management?
Dr. Cathy Snyder:
I would say one of the first tools that I ever had as a 10-year-old that was teaching me budgeting skills is through my local bank, and it’s called a Christmas Club account. So when I got out, and I started working, like I tried to have my thousand dollars baby emergency fund. If you are a Dave Ramsey aficionado, that’s kind of the first step to financial security because by and large, a $400 expense will unravel probably 70 plus percent of American households. They just don’t budget which throws them for a loop, it just starts a spiral where things go on credit cards and people become unnecessarily indebted. So a thousand dollars emergency fund is a starting place. You can do nothing better for your credit, which is kind of a segue to the next section, but you can do nothing better for your credit than to have a solid checking and savings account to fall back on.
So a thousand dollars becomes your new ground zero. But the Christmas Club account, they’re available at every commercial bank, credit union, et cetera. But one of the things where I found it tempting to overspend was during the holidays, but my parents had done this instead in lieu of an allowance. My parents had set us up with, I think it was $500 Christmas clubs every year from at least age 10 forward. This is an era, and I’ll keep in mind, I’m gonna date myself. This is an era where we still had the Sears Roebuck and the JCPenney catalog <laugh>, but we had this dollar amount, it came into our accounts in October, and we could sit there through the catalog and kind of figure out what we’re gonna get mom, where we’re gonna get dad, where we’re getting our sibling, grandparents, the whole nine yards, and we figure out what was left. And that was kind of my first foray into budgeting. And so when I got married and my husband had never heard of this, he lived paycheck to paycheck. And I’m like, that’s not gonna work. That’s not gonna work at all for me. I can’t live with the uncertainty of that. I need a better plan. So it’s like this gets you hooked on this type of account. And so he was easily in his thirties before he started one, and now his has more dollar value at the end of the year than mine.
Tina Fox:
That emergency fund idea is so great because it becomes your own security blanket
Dr. Cathy Snyder:
As people age, we all have a number, like there’s a number that I keep in the back of my mind, I don’t want to see my checking account or savings combined drop below this particular number. It might be $5,000 for some people, it might be $10,000 for others. But really your true safety net, if you have a reasonably predictable income, should probably be somewhere along the lines of about three months of your gross income. That should be your safety pile. After you get past your thousand-dollar emergency, you should have at least three months’ savings just in case you get sick or have a prolonged illness or have to take care of someone or have a lot of emergency stash. You know, it’s not gonna unravel your ability to stay in your home and to continue to work. But what it does is it goes from October to October each year, you can jump in at any point in time, pays a little bit better interest than a checking account, a little bit less than a commercial bank certificate of deposit, but it gives you that fund.
The account matures in October. You go shopping October, November, you can actually like me target to have your Christmas shopping done before Black Friday. To me, black Friday was always a sport, it was always just for fun. But I was always done by that and none of it went on a credit card. So I, in January, February and March, I wasn’t reeling from overspending because I had a clear idea what I was working with, who I was shopping for, and I knew how to stay on budget with that particular fund. So I think one of the things with budgeting, and kind of segueing into credit management, is don’t overextend yourself. Don’t spend money you don’t have or that you have to replace later to impress people. And really kind of learn to dread the holidays because it’s sneaking up on you with an unexpected level of expense that you spend the next three or four months paying for.
Credit card companies will love you but you won’t love yourself as much. And it’s just such a simple thing and it’s predictable. Christmas comes the same time every year, so it’s really easy to plan for and it fits within that short term one year planning window. So it’s a great place to start. People think they have to start planning with a 30 or 40 year retirement window in mind, but honestly, the smart behavior is to start on a one-year scale. You can prove to yourself that you can do it on that scale. Then all the other stuff just falls into place.
Tina Fox:
Wise words. I think starting smart and giving this audience an opportunity to see where they can make an effective change right now is so important because we do tend to think of the thereafter, and it gets to be a bit overwhelming. So thank you for that tip. So, the second area that I know that you mention in classes is credit management. So I’m curious as to what you’re teaching in class on credit management and to tie in the budget with the credit management side and this emergency fund and everything else that we’ve spoken of. You know, you’re teaching this collegiate set where I feel as though, especially after Covid where, you know, people were saying only exact change, or you needed to put it on a credit card because we don’t want to touch money. And so this whole concept of physical money seems to be going away and everything’s moving towards credit. And credit is this, you know, ether sphere where if you’re not really smart about watching it, you can get yourself into real trouble. So maybe you can incorporate some of, you know, my thoughts on, so what about cash versus credit? And in this concept of credit management.
Dr. Cathy Snyder:
I actually still like using cash and here’s why. Statistically, if people are doing everything with card transactions, debit card, credit cards, et cetera, there is evidence to suggest that they’re going to spend 18% more on their purchases because it’s easy and the consequence, or the vision of the consequence is delayed. So the more that you pay in cash across the counter and you watch that money physically leave your hands or your account, the more cognizant you are of how much you have spent to that point rather than swipe, swipe, swipe and I’ll deal with the consequences later. So when I hear people say that they don’t have money to save, I’m like, you probably do, but you’re probably engaging in too many card transactions for the convenience factor and that extra 18% that either goes into generous tips or overspending and you calculate the cost later; that later is costing you a bigger portion of your income that you actually needed to save in order to retire well, or, or to have those nest eggs established much, much faster.
Tina Fox:
18% in
Dr. Cathy Snyder:
18% more in card transactions than in cash transactions.
Tina Fox:
So then how do we manage this credit thing? Since everybody’s swiping, swiping, swiping,
Dr. Cathy Snyder:
My biggest piece of advice is to hold off getting a credit card as long as humanly possible. It seems to be the one thing that college students want because they’re 18, they can be an authorized user with someone who’s older. There was actually a movement probably 10 plus years ago at this point where 18 year olds were not allowed to get credit cards because they were being preyed upon on college campuses specifically. There’s now a law that says credit card companies have to stay off campus by at least I think a thousand feet. Because they would come on and they would have students fill out just bare bones, name, address, social security information, birthdate. So they could do a credit check, but they would, in lieu of income, they would use the tuition at the university as a proxy for income.
And then they would give them these cards, sometimes $1000, $2000, $3,000 limits and it just became a big party weekend. And then they spent the next four years kind of digging themselves in a hole that they couldn’t dig out of, but they didn’t understand anything about how that revolving relationship worked. Like you charge it up, you pay it down, you charge it back up, you pay it down. And so that’s one of our key conversations is understanding the difference between installment credit, like what your student loan or your car payment or your house might be structured to be like versus these revolving accounts where the account starts and it just goes on and on into perpetuity until either you, the card holder or the company cancel the relationship. We’ve come from a time where the average American had roughly nine cards on average in their wallet down to about four.
But instead of about $12,000 on those cards, now we’re up over $15, $16,000. And that 20%, 25% interest is a death spiral in terms of people being able to pay themselves out of those credit card relationships. So we talk about how it’s easy to get them, but it’s not necessarily easy to get out of them. So the difference between installment and revolving credit is a big conversation. We also have a conversation about how your credit score is calculated because that’s a big factor in terms of getting car loans and particularly home loans down the line. So in addition to having your three months of savings in place, you need to have a decent looking credit score in order to qualify for a home. So we talk about how that’s constructed and the biggest pieces being paying your bills on time and charging less than, or carrying less than, 30% of your allowable credit limit.
So if you do have your entire credit profile made up in credit cards, it’s not ideal, but you don’t, if you have a thousand dollar credit limit, you really don’t want to be above $300 on that card for any kind of consistent time period. You want to look like you’re using credit for convenience purposes but not living on credit. And those are two entirely different things that get communicated when somebody looks at your credit report. So there’s a small sliver of your credit score that ‘s dependent on how much installment versus revolving credit you have, but it’s very small compared to the paying bills on time and managing the amount that you have of credit relationships in total.
Tina Fox:
I remember this was the story within two years after I graduated from college and I was talking to one of my best friends and she had a credit card and she was a teacher and she had said, oh my gosh, I just got a bonus. And I said, wow, you’ve only been teaching for 18 months, that’s really great that you got a bonus. They must really love you, you know, what did they say? And she said, oh no, no, no, my credit card moved my limit up by $2,500. And I said, I don’t think that’s a bonus – that has nothing to do with your job. Like, you know, you gotta pay that back. And so it was my first realization that thank goodness that my parents had taught me a little bit about credit cards, but that this is the underlying thought process that as credit companies give you an upper limit, you’re more than welcome to spend to that upper limit. Anything, any thoughts on that or any comments you’re hearing in your class with the students?
Dr. Cathy Snyder:
I’ve actually had parents that are at the upper end of their limit and trying, trying to help their student establish their credit, wanting to put cards in both of their names. So I had a student come to me in a panic. He had a credit card. His mom, his parents were divorced, but his mom’s story was, we’ll help establish your credit profile. I’ll be on this card with you. It was just supposed to be for gas and incidentals. He had a part-time job and he took care of most of the expenses and her deal was she was gonna make the payment. What she didn’t reveal is she was only ever going to make the minimum payment. So we’re almost to the end of my course, and out of this $1000 card, there was $900 charged on it. And the balance wasn’t going down, because all she was ever doing was paying the minimum payment, which barely covered any interest. And then she came to him with this idea of transferring that balance and putting it on a card with about $4,000 of her debt that she did not want the stepfather to find out that she had. So here are a couple of cautions – you don’t want to do business with family members by and large. That’s always been kind of a background principle. But when they’re doing kind of shady things and/or hiding it from their spouse, you don’t wanna be a part of that. So I kind of had to throw myself under the bus and be like, I’ll be the bad guy. That’s a bad idea. Unless you have a job that’s sufficient to pay that entire payment and that entire $4,000 off the minute that it goes in your name, don’t do it. So he had to have a hard conversation with his mom about that.
But most of my students aren’t necessarily aware that they can actually contact the credit card companies and ask that their card limit be capped. They think, you know, it’s a flattering thing if their card limit is raised because they’ve been responsible in how they’ve handled the card. But really that’s just the card company kind of baiting and tempting you to spend more because they make crazy interest rates off of your use of that card if you carry a balance. So in terms of my students, I think sometimes they do a better job of not going gangbusters on the credit cards than some of the parents do. And I’ve had to bail a couple out in terms of I will be your bad guy. I will, you know, because once the parent knows that they’ve talked to me, the conversation is kind of dead in the water and so my student gets off the hook, but not without a couple of uncomfortable moments in the process. But yeah, you can ask for your cards to be limited so that you don’t put yourself in a position where you’re compromised.
Tina Fox:
“No thank you” can be very powerful words when it comes to debt management.
Dr. Cathy Snyder:
Yes.
Tina Fox:
Yes, yes. Okay. So being that you were a former loan officer, one of the questions we always get from students is that I want to be a homeowner at one point in my life. What are the considerations they should be thinking about as they lead up to that point?
Dr. Cathy Snyder:
I would say in this market, savings, savings and more savings, because I don’t care what bank it is, most banks will sell mortgage products on the secondary market very much akin to how our stock market transactions work. So they want that 20% down payment to be there. Well, if you’re in a market where the average home price is $800,000, you need to have $160,000 as a down payment and that requires a different level of savings than what we’re seeing on a national scale. We have 75% of the American population that doesn’t save anything at all during the year and a really significant chunk that would have a hard time putting their hands on $1000. That’s why I start with $1000. That’s your baby emergency fund, but it doesn’t accomplish anything towards a house down payment. So if you’re serious about being a homeowner, you gotta get serious about really clean lines between those wants and those needs.
In starting a house down payment fund, there will always be the option to do an FHA, and if you’re a veteran or military personnel to do a VA, loan and they will help you get into a home with about a 3-½% down payment, which is a lot more manageable; it starts to resemble more of a first and last month’s rent deposit.
But if you have less than that 20%, you are signing yourself up for private mortgage insurance and that could be hundreds of dollars per month. So you are either going to save it on your own and have instant equity in the property, or you’re going to try and jump the gun and buy a home earlier and you’re gonna pay for this insurance policy through a third party objective company that does nothing to build your equity. All it does is buy a security blanket for the bank that’s loaning you the money to say, okay, we feel better about your credit prospects now because you have this insurance policy in place. So if you walk away from the loan, they will cover the difference on the down payment that you didn’t have, but it’s an added expense – it makes your mortgage significantly more expensive. And it really is just a stop gap on the deposit you could have had if you just saved a little bit longer. But $160,000 as a down payment – that’s more than my first house cost. So this generation is looking at an entirely different housing market, a different level of discipline required and honestly a lot more knowledge in terms of fixed versus variable rate mortgage products. You’ve got to be smart about the product that they’re trying to sell you.
Through the housing boom, there were products that were interest only or no down payment. And those are red flags at any time, I don’t care what market it is. Those are red flags that the bank is going to be the winner and you as the customer will be the loser. So I would never go with a program that doesn’t require a down payment. So many people in 2009, 2010 ended up underwater on their mortgage because they had done these interest only loans. When the market flipped and people were losing 20, 25% plus of their home value, you know, they had used that to kind of prop up their perceptions of their net worth. But when the market took a dive and that equity plummeted, they didn’t have it in cash. So they ended up owing more on their house than it was worth and could be sold for. And we ended up with a bunch of short sales, which meant people were just trying to get out from underneath these really bad mortgage products and they had to sell their house short of what it was worth. And then they were homeless at that point and still owed the bank money if they tried to protect their credit. It’s a bad scenario. So again, budgeting helps you have a carve out for savings and that savings helps you establish yourself in terms of not just a baseline for credit worthiness, but even a more important baseline for home ownership.
Tina Fox:
Yeah, you know, what would be a cool project for your class, as you’re talking about credit and savings is the big thing. You know, coming from JMU, I always thought it was such a cool university for many reasons, but one of the things is that to be a JMU ambassador is just as cool as to be a JMU athlete. And so I’m thinking if, if your class could come up with a cool way of making savings just as attractive as what the American public thinks spending is, that would be amazing, because then people would be a little bit more focused on the better aspect of that coin.
Dr. Cathy Snyder:
I would love to find a local bank or group that would sponsor some kind of a budget bootcamp savings match. Obviously short term, but just to get people incentivized to track what their spending is and motivate them to be more aware of savings goals. I mean, I even the cost of an average wedding, what people are spending on weddings now, could be their house down payment
Tina Fox:
Since you put it out there and this Zoom cast is going out there, I’m going to challenge the JMU alumni community in the banking industry to consider this an opportunity for them to partner. And you can either contact Dr. Cathy Snyder at James Madison University, or you can contact me, Tina Fox, at Fox Paradigm. So I love that new center, I love the seats, I love everything they’ve done. If they could do something like this with the students that would, that would yield, I think, you know, long-term gain.
Dr. Cathy Snyder:
That actually might help them on a couple of fronts if banks would join this effort, because it’s a socially responsible thing to do to help set people up for success that are going to be their future customers. It’s also a really responsible way to engage in community reinvestment. There’s a community reinvestment act that says you need to look at your lending behaviors in spec in particular and make sure that there’s no discrimination and that you’re supporting small businesses and whatnot. So these are your small business owners, your future small business owners. So why not invest in them?
Tina Fox:
Bankers? If you’re listening and you’ve got a CRI that you need to complete, Cathy’s got one for you. Alright, so we were talking about savings. Let’s wrap it up with basic investing. What would you like to say about that?
Dr. Cathy Snyder:
Get started on the 401K as soon as humanly possible. So I get a lot of students coming into class and they’re like, when are we gonna learn about Robinhood? I’m like, we’re not <laugh> because that’s so far down the list. So here’s my short list of how you should prioritize getting ready for investing or at least participating in investing. Get your $1000 emergency fund, and get three to six months of your gross income set aside in a more substantial savings buffer type of account. Start participating in your 401k. You may not be eligible for matching funds in your first year, but whatever you put away towards retirement still counts. So if you’re not eligible for a 401K or a 403(B), or a thrift savings plan, or whatever the option might be through your employer, get into an IRA, you can always do a Roth ira.
Highly recommend those for young people that are not homeowners quite yet. You’re not looking for a bunch of tax breaks, you’re just looking to put money away. Roth IRAs allow you to do that from net income. That requires a little bit more discipline because the only tax perk is that the money grows tax free and when you pull it out in retirement, you’ve already paid taxes on the front end. So while you’re in lower tax brackets on the front end of your career, do the Roth IRA. If you still have money that you can shield, do a traditional IRA once you get those types of accounts. So your emergency fund savings, your regular buffer savings, your 401K participation, some IRAs in the mix, start drawing fences around your assets and get your life insurance in place. Nothing drives me crazier than to see a GoFundMe for someone’s funeral expenses when that person is in their forties, fifties, or early sixties.
I’m like, this was on the table at all times. You cannot predict when you’re going to die, but you can plan for it and you can plan to protect the people that you’re leaving behind. So the average funeralis between $10, $15,000 on average – at least get a policy for that. But if you are a homeowner, look at the balance. Look at what you still owe on cars, what you might actually have out there on credit cards and get a policy in place that’s sufficient to cover so your children and or your spouse don’t lose you and their home and their potential education in the same fiscal year. It’s just absolutely insane if you don’t have all of those bases covered. Now you are ready to play with individual stocks, but not until you have money to lose. And so until you’ve drawn fences around all the big chunkier assets, you don’t have the fun money to play with the individual stocks in my opinion.
So don’t worry about Robinhood, worry about your 401k because the matching funds, you’re never in a market investment going to get a 100% rate of return on your money. Typical stock market rates of return, 10 – 12% over a 30, 40 year time period if you’re lucky. You really need to hit somewhere between 7 and 9%. Find people that do this on a regular basis and they can help you find the investments that match your retirement goals in terms of monetary value as well as your timeline for retirement. There are plenty of people that wanna retire in their fifties. You’re not gonna be eligible for social security at that point. Social security is not gonna be sufficient even if you were eligible. So you’re gonna have to have a bank of funds and a variety of funds and there are paid professionals to help you navigate that.
You do not have to make that your second job. You just gotta get in the participation element. There’s a compound interest video that Dave Ramsey has. It’s four or five minutes long. It is worth the watch every single time it talks about a 19-year-old that starts investing and saving towards retirement. And it talks about a brother that starts at age 26. You’d be shocked at how much difference that seven years makes. The person that starts at 26 puts in two, three times as much money and still comes out with less than someone who started early. So it’s not about starting like gangbusters and putting hundreds and hundreds of dollars in every single month. It’s getting the behavior started so that it’s an integral part of your budget and you can amp it up every single time you should get a pay increase.
So my rule of thumb is every time you get a pay increase, half of it goes to your future lifestyle, and half of it goes to your current lifestyle. You won’t stick to a budget if there’s no fun and you can’t enjoy pay increases as you get them. So you might as well just enjoy a little bit, but be mindful that you’re building a lifestyle that you’re gonna wanna replicate in retirement. So don’t walk away from the free money. If you have an employer that matches a hundred percent of 5 or 6% of your income, take it because otherwise, they’re just gonna, they’re gonna look at you like you’re crazy and they’ll laugh all the way to the bank, but it’s not the bank account that’s gonna have your name on it. So make sure you’re walking away with at least whatever a hundred percent match is. And then if they have layers to their 401K plan and you have the ability to kick money in for that as well, absolutely go for it. But take that 100% match because even if it’s a five or a six-year vesting schedule, you’ll never walk away with less than what you put in. The vesting schedule only changes what you walk away with that someone else has matched. So the 401K is the single most underutilized retirement tool.
Tina Fox:
That compounding interest effect here in this house. The magic money.
Dr. Cathy Snyder:
Yes. Yes. I did not seriously start saving for retirement until I was 28 and got into banking because none of this conversation happened. In college, I learned it on the job helping other people manage their money.
Tina Fox:
Well, there is a saying that I have adopted. We are best aligned to serve our younger selves. And knowing that it wasn’t until you were 28 and getting into your job, that you’re hearing about all of this, and now you can tell your passion, your delivery, the fact that you take the time and you focus on this. We’ve only been talking about this for just over 30 minutes and it’s been an amazing conversation. I’m sure people are going to want to know more information on this. So you have done us the great favor of giving us a handout, which we are going to be putting on the TERN Mentoring resources tab. So anybody that comes into ternmentoring.com as a mentor or mentee will have access to these resources to use for mentorship discussions or just for their own personal use. Cathy, I thank you so much for being a professor and a senior lecturer at James Madison University. But your dissertation, I’m still reading it.
Dr. Cathy Snyder:
It’s long. I’m sorry, <laugh>.
Tina Fox:
It’s an amazing dissertation. I’m learning lots from that. And your passion is unrivaled. So, thank you for that. For those of you who are listening, you can reach Dr. Cathy Snyder at James Madison University. We’ll put it in the link for your email address, Cathy, if that’s okay with you.
Dr. Cathy Snyder:
Totally fine. I’m here all summer.
Tina Fox:
And then if anybody is interested in signing up as a mentor, or wants to join TERN Mentoring as a mentee, you can go to www.ternmentoring.com, or app.ternmentoring.com, and sign up. Mentors sign up for free. Mentees, if you’re part of a class, you may have access to us that way. And if you’re not, there’s an opportunity for you to sign up for a small amount of money that I think would be well worth your time because you’re gonna have access to individuals like Dr. Cathy Snyder, who is giving you all this fabulous information today. So Cathy, again, thank you so much for joining us on this call.
Dr. Cathy Snyder:
As a first-generation student who had to navigate the entire college process and the finances that went with it, it is my mission to make this part of it easier for other people to get through and not to deal with this stuff past 10 years. You know, not do the 20-year student loan repayment. That’s absurd to me. I don’t think anybody should feel like they have to do that.
Tina Fox:
Thank you for letting us join in your mission and I think you’re doing great things. For everybody else, have a great day. And again, thank you so much, Cathy.
