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Bragging/New Frugal Generation
Old 08-03-2009, 01:02 PM   #1
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Bragging/New Frugal Generation

First, the "bragging" part of my post: My dd-24 just completed her Master's of Library and Information Science! Top of her class, too! I'm so proud of her. Dh and I paid for her undergraduate program, but she took out a student loan to fund her master's program. She also worked two part-time jobs while going to school full-time (she was in an accelerated program, completing her master's in three semesters instead of four).

Dd has already been offered a job as a reference librarian in a branch of the Carnegie Library. She will start paying back her student loan in a matter of weeks. Did I mention how proud I am of her?

Anyway, onto the second part of my post: I have noticed that both my adult children (daughters, 24 and 20) have become much more cognizant of the economy and financial practices than I remember being at their ages. Both daughters have credit cards but pay them off each month; neither are able to save any money at the present, but at least they're not in debt (except for eldest dd's student loan).

Eldest daughter refused to buy a car and relies on public transportation; second daughter is following in her pattern. Eldest daughter is giving up her own apartment to move into a shared apartment, so that she can save money. Second daughter is preparing to return to college as a junior, and already has prepared and discussed with me her budget plan for the year. Dh and I pay for tuition and board, but she has to pay for everything else, i.e., clothes, books, entertainment, stuff for her student apartment.

Eldest dd has even asked dh and me about whether she should try to put something into a 401K or just focus on her student loan. We advised her to focus on the student loan.

Maybe it's just our kids, but dh and I feel that maybe the generation just now coming into the workforce will be more fiscally sane than previous generations. Maybe this new generation will realize the long-term value of debt reduction/elimination and LBYM. At least it's taken root in our daughters. Oh, and our ds17 is showing symptoms, too!

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Old 08-03-2009, 01:38 PM   #2
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Originally Posted by ladypatriot View Post
First, the "bragging" part of my post: My dd-24 just completed her Master's of Library and Information Science! Top of her class, too! I'm so proud of her. Dh and I paid for her undergraduate program, but she took out a student loan to fund her master's program. She also worked two part-time jobs while going to school full-time (she was in an accelerated program, completing her master's in three semesters instead of four).

Dd has already been offered a job as a reference librarian in a branch of the Carnegie Library. She will start paying back her student loan in a matter of weeks. Did I mention how proud I am of her?

Anyway, onto the second part of my post: I have noticed that both my adult children (daughters, 24 and 20) have become much more cognizant of the economy and financial practices than I remember being at their ages. Both daughters have credit cards but pay them off each month; neither are able to save any money at the present, but at least they're not in debt (except for eldest dd's student loan).

Eldest daughter refused to buy a car and relies on public transportation; second daughter is following in her pattern. Eldest daughter is giving up her own apartment to move into a shared apartment, so that she can save money. Second daughter is preparing to return to college as a junior, and already has prepared and discussed with me her budget plan for the year. Dh and I pay for tuition and board, but she has to pay for everything else, i.e., clothes, books, entertainment, stuff for her student apartment.

Eldest dd has even asked dh and me about whether she should try to put something into a 401K or just focus on her student loan. We advised her to focus on the student loan.

Maybe it's just our kids, but dh and I feel that maybe the generation just now coming into the workforce will be more fiscally sane than previous generations. Maybe this new generation will realize the long-term value of debt reduction/elimination and LBYM. At least it's taken root in our daughters. Oh, and our ds17 is showing symptoms, too!

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Old 08-03-2009, 02:18 PM   #3
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Congrats Mom this is awesome!

With my daughter who has a modest bit of student loans (at 3.5%) I did suggest the 401K to the max of the match. That is free money and once it passes by you never get a 2nd chance at it. She makes enough to do both and has just bought herself a new vehicle. She is committed to never financing another one. Here in Phoenix it was too hot and too expensive to re-do her AC on her old car ($2000 on a Jetta with 150,000 miles).
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Old 08-03-2009, 02:24 PM   #4
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Congratulations, LP, it must feel great to launch them out of the nest!

As Connie has pointed out, a 401(k) with a match is usually a much better deal than paying off a student loan.

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Old 08-03-2009, 03:28 PM   #5
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It sounds like you raised some pretty smart kids and for 3 out of 3 to be so sensible it is nothing short of remarkable. Congratulations and best wishes to the new graduate. I am happy to hear your daughter is walking out of school into a job. The Carnegie Libraries have quite a history and have been the beacon in many a community. I have an MLS and worked in the field for a number of years before taking off 12 years after my son was born. I presently work in social services.
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Old 08-03-2009, 07:30 PM   #6
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DS had been pretty frugal for the past three years, but recently began cooking for all his friends at college. I subsidize his living expenses, and keep a watch on his account, so I had to call him up the other day and remind him that $xx amount of dollars would be going in his account every month (we started him out with some extra play money to get thru the first semester, until he found a job - which he has now done). I told him that I would not let him go hungry, and that I will not question how he spends his own money, but that he would not have any subsidies other than rent and tuition from this coming January. He immediately threw the switch and went back into frugal mode. It has been interesting to watch. Hope he is able to keep it up.

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Old 08-03-2009, 07:53 PM   #7
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Old 08-04-2009, 06:01 AM   #8
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Thanks to all for the congratulations!

Nords and Connie, initially we (dh and I) also thought the 401K would be a better idea but then decided that once dd has the loan paid off, she'll have much more money to invest which will then be matched. So, in effect, she'll have more years of investing a higher amount and match.

That was our thought, but in the end it was her decision, as it should be. And it does feel great to have one fully launched!

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Old 08-04-2009, 09:10 AM   #9
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Thanks to all for the congratulations!

Nords and Connie, initially we (dh and I) also thought the 401K would be a better idea but then decided that once dd has the loan paid off, she'll have much more money to invest which will then be matched. So, in effect, she'll have more years of investing a higher amount and match.
I'm not following you. If she directs additional payment to the loan, rather than to the 401K, doesn't that mean she would have fewer years invested? And she would totally miss the match during those years that she directed money to the loan rather than the 401K. Plus, assuming some raises over time, she may have plenty of extra income to put towards the 401K up to the match *and* pay the loan. But you would have missed the match years, and you can never get those back. Opportunity knocks.

As others mentioned, I would check the matching levels (you really don't want to miss out and that in any year), and, what is the interest rate in the loan? I have a hard time seeing how anything could beat investing in the 401K up to the matching level. That is free money - tough to beat.

PS - Congrats also! Your family is off to a great start!

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Old 08-04-2009, 12:53 PM   #10
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... maybe the generation just now coming into the workforce will be more fiscally sane than previous generations. Maybe this new generation will realize the long-term value of debt reduction/elimination and LBYM...
From Aug 3 issue of Business Week:

In 2005, baby boomers had 47% of national disposable income. They contributed only 7% of national savings.

No wonder this nation is broke. People in this forum are a rare breed indeed.
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Old 08-04-2009, 01:53 PM   #11
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Congratulations! That is excellent.

I agree with your observation that the 20-something generation has some frugal members. I just turned 30, and among my friends I can count quite a few frugal guys and gals. Maybe we are seeing how our parents' generation is struggling to retire?
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Old 08-04-2009, 03:31 PM   #12
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I'm not following you. If she directs additional payment to the loan, rather than to the 401K, doesn't that mean she would have fewer years invested?
I probably didn't explain it well. My dd's student loan carries a 6.8% rate, and we roughly calculated how much she would save in interest under a couple of paydown scenarios (varying amounts, varying time periods that she could financially manage). The amount of money she can afford to put toward paying down the loan (other than the stipulated payment) is really not that much, after all her other expenses are paid.

She had to decide whether to use that amount of money to pay down principal on the loan as quickly as possible (saving on interest) or put that same amount of money into a 401K. We didn't have access to any of the plan's portfolio information, so we were making guesstimates on current rates of return.

And once her loan is paid off, she will eventually shift that money (her scheduled loan payment and extra payment against principal) into retirement investing. So, she'll have fewer years of investing but she'll be investing at a much higher dollar amount.

She's just turned 24 and has time on her side for retirement investing. Eventually she wants to be able to afford her own place again, too; hopefully that will be possible with future pay raises.

Other people might have made a different choice, but she really wants to get out from under that loan as soon as possible. And I fully support her in that.
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Old 08-04-2009, 08:17 PM   #13
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But what is the 401K match? Yes, 6.8% is not a great rate on the loan, I can understand wanting to pay it off. But if the 401K matches say 50 cents on the dollar up to a point, well that is an immediate 50% return.

Unless the investment options are so terrible that they are almost guaranteed to lose money, or limited to single company stock, I sure would not want to pass up any significant matching dollars. But that does not seem to be the case as you seem interested in investing once the loan is paid. I'd go for the match until it maxes. But it depends on the match rate, but the ones I've seen were at least 50% on the first few percent, sometimes 100% (those days are probably gone forever). 50% is a BIG number, even 25% is a BIG number....

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Old 08-05-2009, 09:14 AM   #14
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Here is another reason to take advantage of the 401K match now. It may be gone after you pay down the loan:

They cut my 401(k) match!

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Old 08-05-2009, 10:28 AM   #15
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Credit to the OP for raising daughters that are turning out so well, and asking these questions.

ERD50 is right, she is giving up a lot by not taking advantage of a 401K match. You say that time is on her side, but you can easily find graphs that show how investing in the first x years is equal to waiting and investing for y years, where x is a vastly smaller number than y. So even putting a bit in a 401K now puts that time on her side towards retirement.

What the college loan payoff does is to enable her to more quickly get a home, and have a better rainy day account. The 401K is not too flexible, short of loans and hardship withdrawals.

So retirement-wise and long-term overall, getting the 401K match now is the better choice. That might not line up with other short and mid-term goals though.
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Old 08-05-2009, 12:57 PM   #16
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What the college loan payoff does is to enable her to more quickly get a home, and have a better rainy day account. The 401K is not too flexible, short of loans and hardship withdrawals.
That is a very good point. I was all set to discuss with my son the advantages of adding to his Roth IRA, esp in low income tax years. But then I re-thought that and decided an emergency fund might be a more important step for him to gain a bit more financial independence.

Won't know until after the fact if that is a good move or not, if no emergency comes up, IRA would be better. If emergency comes up, maybe it becomes a "non-emergency" due to the cash cushion.

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Old 08-05-2009, 01:09 PM   #17
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Congrats to your daughter--I love librarians!!

I have to agree that she should put as much into her 401(k) to at least get as much of the matching $$ that's available. That is free money from the Carnegie, and her own contribution goes in as pretax dollars, so she will see a little benefit come tax time too every year.

She may eventually move to a library system/university library/whatever that doesn't offer a 401(k) or a match, so she should definitely make hay with it now. And time is one of the most important factors in growth of her 401(k). So imho slow down with the student loan repayments and put as much as possible into the retirement account right now.

But congrats anyway on her accomplishments and to you for raising what certainly seem to be three level-headed young women!
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Old 08-05-2009, 06:14 PM   #18
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Congrats to your daughter--I love librarians!!
Thanks! She's really enjoying her job. But when she was sixteen years old, going through her really awful "goth" period (long black hair, black eyeliner, black clothes, sullen mood, wallowing in existentialism and angst), the thought of her being a librarian would have made me fall down laughing. Now, when I see the lovely, funny, stylish, successful young woman she has becomej, I feel so blessed.

I really do appreciate the advice that you and others have offered on the 401k, but being debt-free is important to her. And we (dh and I) understand, encourage and support that philosophy.

Thanks again to everyone for their good wishes!

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Old 08-05-2009, 07:51 PM   #19
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Old 08-05-2009, 08:29 PM   #20
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I really do appreciate the advice that you and others have offered on the 401k, but being debt-free is important to her. And we (dh and I) understand, encourage and support that philosophy.
OK, so I understand that you read and appreciated all the comments about the value of the matching in a 401K and you/she have made up your minds to pay off the debt instead. So I will respect that, and not pursue that any further.

However, in return for the well intentioned advice, could you humor me please? Could you share the details of the 401K match? I am fascinated by the power that this "siren call" of "being debt free" has on some people, and I am curious to know if it is more powerful than a full 100% match, a 50% match, a X% match up to $Y? I guess I just don't understand a "philosophy" that values what appears to be 'fewer dollars' over 'more dollars' (based on the info provided)?

If it is a low match, and poor investment choices, I can understand wanting to avoid the possible risk (even if I personally would accept the risk). But again, since you expressed an interest in putting more money in to the 401K after the loan is gone, risk does not seem to be the issue.

So that makes me curious, very curious.

TIA -ERD50
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