Recently a student asked me for financial advice. Since I’m a philosophy professor this had two results. First, I had the thought that this was rather odd. I am, after all, a philosophy professor and one does not generally associate financial advice with philosophers. Second, I gave the requested advice. I am, after all, a philosophy professor and we have something to say about everything. What follows is the advice I came up with, sorted by category. Yeah, I’ve got a thing about order and categories. Most philosophers do.
On the plus side, credit cards help you build your credit history and they provide a more secure means of making purchases (for example, most credit cards have rather good fraud protection). On the downside, credit cards can be sirens of financial ruin. They are quick and easy to use and whether the amount is $5 or $5,000 the transaction looks the same-there is not that feeling one gets when handing over cash. So, it is all too easy to spend way too much. Then, there is the interest rates-most students will end up with cards that have horrible rates. My overall advice is to get a credit card-preferably one that provides rewards like cash back. Steer clear of cards that offer odd point systems that only allow you to get junk. Use the card but be sure to pay it off each month. This will enable you to build a good credit rating, have secure purchases and get rewards while avoiding the interest. If you know you cannot be disciplined in your spending, then it might be best to not even have a card.
While most college students don’t think about investing, this is actually a good time to start. Investing effectively involves using your resources wisely and effectively. While most college students do not have much money, they tend to be young and this provides a valuable resource: time. This time can be used many ways. One way is to use the time to take risks, such as investing in promising new companies that might be the next Google…or the next big disaster. If your investments go bad, then you have time to try again. Another way is to use the time to avoid risks. Since you have plenty of time you can afford to make solid, low risk investments. You won’t make an instant bundle, but you will be building wealth over time.
I’m not an investment expert. If I were, I’d be dictating this in my beach house to my secretary. Meanwhile, my super-model masseuses would be rubbing my back and…well, you get the picture. But, I do have some general useful advice.
First, “you will win with sin.” Companies that deal in human sin (greed, lust, etc.) tend to be big money makers. Sadly, truly ethical companies and companies that try to do morally good acts tend to profit little in terms of finances. This can be confirmed by looking at the top companies. These tend to be involved in tobacco, alcohol, exploiting natural resources, and so forth. Of course, you will want to avoid companies that are stupidly evil-like Enron used to be before it tanked. Of course, there is the moral price of investing in companies that profit from human sins to consider.
Second, “never gamble more than you can lose.” If you plan to invest now, use money that you do not need for critical things like food and rent. Even if an investment seems good, it can still go bad (like Enron).
Third, “investing is better than banking.” While you should try to have some cash reserves for those problems that appear, you’ll get far more return on investments than in putting money in a bank account. Bank interest is low yield and generally does not even match inflation. Thus, you are actually losing money when you have it in such an account-each year the money buys that much less stuff. There are high yield savings accounts that are worth looking into, though. They provide a decent interest rate while also leaving you with quick access to your money.
Fourth, “etrading is the way to go.” A good broker can be worth a lot, but they tend to also cost a great deal. If you are reasonably intelligent, it is worth your time to set up an account with a reputable and safe online service to do your trading and buying. On the downside, you’ll be on your own. This can be bad.
When I was a college student, most students did not have cars. Today, most students seem to be driving better vehicles than most professors. On one hand, a car can be very important for transport to campus, shopping and socializing. On the other hand, cars are expensive and parking is always a problem. I made it through my college career without owning a car, but I did have friends who had cars. Plus, I went to school in places that were very pedestrian and bike friendly.
My advice is that you are better off avoiding buying a vehicle if you can. Of course, if your parents just hand you the keys to a new car or SUV, then you are all set.
While work provides income, it is actually best to work as little as possible while in school. First, work tends to interfere with one’s education. When you are working, you are not studying or in class. Work tends to tire people out so they do worse in classes. Of course, many students have to work in order to even be in school. Second, in most cases the money you make working a job without your degree will be tiny when compared what you can make when you finish your degree. So, if you take extra time to graduate because you fail classes due to work or are unable to take the needed hours, then you are actually losing money. So, it is better to work less and graduate sooner-you’ll end up making more money.
Debt is bad. Avoid it if you can. It can be hard to do, so you’ll want to focus on minimizing the debt damage. This can be done by keeping your spending as low as possible-forgo luxuries as much as you can. It can also be done by getting the least bad kind of debt-low interest student loans. Be careful when shopping for loans-some are good and are actually intended to help students. Others are not so good. As always, assume people are out to screw you over when you are dealing with money. Be on guard, do research and read everything before signing.
Do not get married. Marriage is a 50-50 thing. By this, I do not mean that both partners need to contribute (that would be nice). By this I mean that statistically there is a 50% chance that you will be losing 50% of your stuff. This is because the divorce rate has been about 50% and the typical divorce laws result in the other person getting his/her half. If you foolishly insist on getting married, keep the wedding modest. Apparently it is an important day to women, but it is still just one day (or rather, a small part of a day). It doesn’t make good sense to incur huge expenses just for such an event. Also very important is to marry someone who has at least as much stuff and income as you. That way when the marriage fails you will come out even.
A person might reply by bringing up the matter of love. I think love is great and consider real love to be up there with truth and goodness (all three are of great value…and incredibly rare). But, marriage is not about love-it is about economics. If marriage was about love, when a divorce took place people would presumably just say “I don’t love you anymore” and that would be that. But that is not how divorces play out-divorces are a contest over the stuff. Yes, I am cynical about this. But, not to worry, if you get married you’ll be cynical, too. Or not-I really hope not. 🙂