Part of a series on young people and financial literacy
For many 20-somethings, financial independence marks their arrival at adulthood. But it can be a hard place to get to if you're also shouldering a lot of debt.
That's a concern for Brandon Smith, who recently graduated with a degree in journalism — and $98,000 in student loans. NPR asked personal finance expert Beth Kobliner what advice she might give Smith and other young adults. And she started her answer with one practical point.
"There's something called income-based repayment plans," Kobliner tells Morning Edition host Steve Inskeep. "So, basically you pay back your loans as a percentage of income — and, after 20 years, if you're going into a relatively low-income job, your loans disappear completely."
Another idea is for students to consider debt when they're looking at colleges and fields of study, says Kobliner, the author of Get a Financial Life.
There have been several initiatives to teach financial literacy to young people. But it can be hard for students to find time for the programs — and to absorb what they teach.
"You can be in information overload and you say, 'There is so much out there — I have no idea where to turn, so I'm just going to ignore it all,' " Kobliner says.
And while new technology, like budget-tracking software, can help, it doesn't guarantee better results.
"I think we have to go back to basics," Kobliner says. "We have to look at the very old-fashioned notions of, 'Hmm ... we shouldn't spend more money than you have.' "
She says that another thing to keep in mind when researching options for saving and investing is where all of the data come from.
"Is it being sponsored by a bank?" Kobliner asks. "Is the website that's offering it to you — are they getting money back from what you're clicking on?"
And don't worry so much about learning how to compute interest, or amortization. "You just have to know that, 'Gee, I want to pay 5 percent rather than 10 percent,' " she says.
Another thing young workers should begin planning is their retirement. And Kobliner says they should start when they're 21.
"I think that sounds frightening to some," she admits.
But she adds that retirement accounts are essentially savings accounts that allow your money to grow without being taxed. And while there are restrictions, the money isn't out of reach.
"As soon as you have even a little bit of money, I'm a real advocate of putting money into something called a Roth IRA," Kobliner says. "And, if you need it, the money you put in, in an emergency, you can get it out."
The key to saving — for that emergency, or for retirement, she says — is "basically, starting as early as possible."
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STEVE INSKEEP, host:
We are getting some financial advice next. We're seeking it after spending this week hearing young people in our series Money Counts. One of them was Brandon Smith. He's a recently graduated journalism major with $98,000 in student loans. The people who heard his story include Beth Kobliner, who writes about personal finance.
Ms. BETH KOBLINER (Author, "Get a Financial Life"): For many students, there's a very practical that they should know. There's something called income-based repayment plans. So basically it allows you to pay back your student loans as a percentage of income. And after 20 years, if you're going into a relatively low-income job, your loans disappear completely. But in general, I think we're realizing that we have to start paying more attention to what college a student goes to, what they're interested in studying, and how much debt they're going to take on to get that degree.
INSKEEP: We've also talked this week about financial literacy programs. Suppose that I'm a young person and I actually got a job and I just don't have time to go to someone's program...
Ms. KOBLINER: Right.
INSKEEP: ... I didn't get anything in school. How should I go about learning about finances and making sure I'm getting decent advice rather than hokum.
Ms. KOBLINER: Right. Well, you can fall into a few different camps. You can be in information overload and you say there is so much out there, I have no idea where to turn, so I'm just going to ignore it all. Then you have people who are very techie and people who get really involved in websites and learning all about the different options that they have. But I think there's a little bit of a belief that the technology is going to make it all better.
And I heard one economist say we wouldn't have had this major financial crisis if people were keeping up with the products. And I think that's a myth and I think it's the worst advice and we should be doing the opposite. I think we have to go back to basics. We have to go look at the very old-fashioned notions of, hmm, you shouldn't spend more money than you have.
INSKEEP: Rather than I need to learn about derivatives in order to invest in them.
Ms. KOBLINER: Exactly. I think that's really the wrong track to go on. It's goes back to some very basic fundamentals of explaining to people, first of all, where are you getting this information from? Is it being sponsored by a bank? Is the website that's offering it to you, are they getting money back from what you're clicking on? You know, being aware of that. But probably even more important, getting back to the real basics.
Shop around for a good deal, shop around for a low interest rate. You don't have to be able to know how to compute how much interest you'll pay down the road. You just know that, gee, I want to pay five percent rather than 10 percent.
INSKEEP: We've been talking about young people this week, but of course there is the matter of retirement. When is a good age to start planning and socking money away for retirement?
Ms. KOBLINER: Twenty-one. And...
INSKEEP: I guess I'm a little late, but go ahead, go ahead.
Ms. KOBLINER: I think that sounds frightening to some, but there are - I have always explained how the retirement accounts like IRAs, individual retirement accounts, and 401(k) plans, those are called retirement accounts but they're also super-smart savings accounts 'cause they offer tax breaks that are terrific and allow your money to grow very, very quickly. 'Cause you're not paying tax on the interest year after year after year.
So as soon as you have even a little bit of money, I'm a real advocate in putting money into something called the Roth IRA. And if you need it, the money you put in, in an emergency, you can get it out. But basically starting as early as possible.
INSKEEP: Beth Kobliner is the author of "Get a Financial Life." Thanks very much.
Ms. KOBLINER: Thank you. Transcript provided by NPR, Copyright NPR.