Did you know only 24% of Gen Z respondents could correctly answer four out of five basic financial literacy questions, according to FINRA? In this episode, we’ll talk about financial literacy for Gen Z and the topics of student loans, investments, and first jobs.
Cristina asks Question 1: Can you dissect the whole student loan process? The good, the bad? Tell us all about it.
Randy: Absolutely. So the first thing I would recommend is that each student who's looking to go to college, whether it's a state college, a community college, or a four-year school, needs to complete the FAFSA, the Free Application for Student Aid. And that's going to give you something called your expected family contribution, and you'll find out whether or not you're eligible for a Pell Grant scholarship, which is free. You do not have to repay that, or whether or not you can get a subsidized loan, meaning that the federal government will pay your interest rate or an unsubsidized loan, meaning that you'll have to cover the interest rate yourself. If you're not eligible for any of those opportunities through the federal government, then you need to get yourself a personal loan, and that could be through your bank. For example, Addition Financial is a credit union, and so you can come in and meet with one of the bank representatives and find out based on your income, how much are you eligible to to take out a loan and what the terms would be, and then what your monthly payment would be when you have to begin paying it back. So normally, if you take a loan from the federal government, whether it be subsidized, unsubsidized, you do not have to pay that loan back until either you graduate and then you'll begin paying back six months later, or if you stop out and stop going to college, then you have to pay it six months after you stop.
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Cristina Follows Up: But I think there's such a stigma around student loans. Can you destigmatize it for us?
Randy: Sure. And let me give you an example. I brought a chart with me today. I had a couple of students who came to Seminole State for their freshman and sophomore years, and they lived at home. And so they didn't have any student loans. They just used Pell Grants and any of their own money. But when they became a junior and senior and they graduated from Seminole State, they went off to a four-year school. So I asked them, well, you know, by chance, would you be willing to share how much money did you take in loans to help pay for your tuition and fees and also your housing in your meals, and by chance, on two different days. Each of them said it was about $10,000.
So on my chart here, if you take a $10,000 student loan at a 7% interest rate over ten years, your monthly payment will only be $116. So yes, there is a stigma about not taking out too many too much loans, a dollar amount in terms. But I think $116 is a very reasonable amount of money to pay back on a monthly basis. That would be very affordable once you go to work full time. If you take $20,000, your monthly payment would be $232. So again, I think that's very reasonable. Luckily, the federal government sets loan limits. So if you're dependent on your parents, you can only take out $31,000 max in loans. And if you're independent of your parents or financial aid purposes, your max is $57,500. So you just have to be careful about not taking the full amount. If you take a small amount to help you get by every month. I think the monthly payments are very reasonable. You can work that into your monthly budget, and it's not going to be a strain on your ability to pay back all your other bills.
Addison asks Question 2: So what about for those Gen Z-ers who are trying to jump straight into the workforce? You know, they're looking for their first summer job. They're just ready to start making some money. What are some good financial advice for those Gen Zers who are trying to get their first job?
Randy: So I would encourage people that once they go to work based on your income, you pay yourself first every month. So ever since I was a very young person, I guess a teenager even in high school and before I went to college, I paid myself first. First it was $50 a month, then it was $100 a month, and then it was $200 a month. Ultimately, it worked out to be thousands of dollars a month. And so all that money goes into my I call it my rainy day fund. So if there's an important expense that comes up, like I have to change my tires unexpectedly or a car repair, or if there's a health emergency or I want to go on vacation, I have a little slush fund to use. But you know, you don't want to pay yourself more than you can actually afford. And so and the last time I was here, I talked about cash flow and your your monthly cash flow is the difference between the income you make and the expenses you have. And so out of that cash flow, let's say at the end of the month you have 4 or $500 left. So put $5,100 away because after the first year, if you put $100 in your savings account, that's $1,200 a year.
And then it becomes $2,400 a year after two years, 36 after four years, you have $4,800. After eight years, you have $10,000. So as you ramp that amount up, you can very quickly create a savings account. And one thing to remember, for every person who's young and who's in college, even adults, you normally want to keep six months worth of expenses on hand just in case. If the economy for some reason goes crazy, or your company decides to relocate out of the state that you live in, and then you have six months of bills on hand that you could afford to pay. So a college student, let's suppose you have $1,200 in annual in monthly expenses. Then you want to make sure that $1,200 times six, which I believe is $7,200. You keep that $7,000 on hand just in case. Yeah. And if you don't need it, then you leave it there. And the cool thing is, as you move more into your adult time. Let's suppose you want to buy a house. Usually lenders require that first time homebuyers put down 20%. So if you want to buy a $300,000 condo or townhouse or a small home. You're going to have to save $60,000 and present that when you go to closing. Or if you want to buy a $400,000 home, you've got to save $80,000. That's either one of those figures is a great deal of money. But to avoid, you know, mortgage penalty insurance, you've got to put as a first time homebuyer that 20% down. So in the grand scheme of things, you have to start saving with the economy the way it is now. The experts recommend that your household income needs to be $108,000 a year to afford a home.
Not a lot of people make over $100,000 a year. And so if you have you and your significant other, if you both make the average American makes $54,000 a year. So if you put a couple of those incomes together, now you're at that magical $100,000 limit. You need to start saving both of you, or you need to get some assistance from parents or grandparents or anybody who's willing to help you out so that you can buy your first home.
Cristina Asks Question 3: So that's a perfect segue to our older Gen Z area, which is the late 20s, early 30s, and now we're talking about investments. So, how would you suggest that the age range start thinking about investing?
Randy: So once you start saving a little bit of money every month, you might have a little nest egg. And so my recommendation is you contact a stock broker in your area and meet with 1 or 2 and find out who you're comfortable with. I did that when I lived in the state of New York. So my stockbroker is out of a firm in New York, and I rely on this person who's probably in his late 50s, early 60s. He's very knowledgeable about the field because it's very complicated. And so I would rely on on a person who's an expert, you know, a financial planner or a financial broker. Stockbroker. And my broker asked me, are you willing to take a low risk, a moderate risk, or a very high risk? So I went with the medium low risk, and it's been a great thing. I started investing originally $10,000, and then it grew and grew and grew. And by nine over 11 I was up to $30,000. But after a significant national crisis, it literally dropped down to 14,500. I lost 55% of of of what I had in the market. But you got to just leave it there. And it grew back, and now it's a fairly significant amount of money. You basically want to invest over the long term and leave it alone and let it ride. And then don't panic when there's an economic downturn.
Some months we make a lot of money in the stock market. Other months you don't. But what you have to decide. Remember I talked about that cash flow, the difference between your income and your expenses every month. So maybe some of that money, you decide I'm going to put 100 or $200 a month. And over time it grows. And then when those those stocks pay dividends, now you have extra money, which I generally use to reinvest in the stock market, buy more stocks. But there were some years early on in my career where I pulled that money out and I helped buy a car, or I bought a boat, or you buy other other purchases, furniture, whatever you need for your home. And so that's just another opportunity to finance what you want to do. But I would be very, very careful. I use a reputable brokerage and I call them a couple times a year to get guidance. And I tell them what I want, what I don't want. And so you got to stay in regular touch and you have to be, I think, conservative, especially when the market is growing and it's fantastic. It's easy. It's a bull market. Everybody's going to make money. But when things fall on rough times right now, we're currently in a tariff area where the tariff is kind of messing up with our United States economy and the world economy. You just have to be very, very careful. But by all means, it's a great way to make money is investing.
Addison Asks Question 4: So with that being said, with investing in the stock market, what are some other type of investments that you know are Gen Z-ers could start making now that will help them in the long run?
Randy: So some people may have seen that there's they call it high interest savings rates, and it could be somewhere between 4 and 5%. I even saw one bank that was advertising five and a half. And so you can put that money into an account for a year or maybe up to five years. You can try a mutual fund that will also give you interest rates. The problem with the savings account back in when I was young, I remember having a 78 percent savings account interest rate, and I think now mine might be .001%. Yeah, I'm hardly making anything, but there are some that are high yield. And so you can make a little extra money every month if that's important to you. You can try a mutual fund. I would be careful about the bitcoins of the cryptos. With the economy the way it is right now, it could be a little risky, so I would try to stay conservative.
Cristina Asks Question 5: All right, Randy, think about young Randy back in your college days or students right now that are going to Seminole State. What is some advice you wish you would have gotten when you were your student's ages?
Randy: I only have one regret. So I had just started working and I was on the job a month. And this young whippersnapper who was 21 years old, he said he just graduated from college. He came into my office and he said, I want to help you set up an annuity so that when you retire, you have a large fund to live off of the help you exist after you retire. And then he asked me, how much would you like to save for by the time you retire? And I'm like, dude, I have no idea. I just started working. I said, so what do you recommend? I ask a lot of questions. Very curious. So he said, I think you should have saved $1.8 million so that when you retire for the next 18 to 20 years. Maybe you have $100,000 extra a year. So if you retire when you're 65 and you're going to live to 85, that will significantly help you in addition to your pension and your Social Security. And I said, fine, how do I do that? I know that annuities are a great thing. They compound compound over a number of years. And he says, well, you're going to have to save. I don't remember the exact number, but it was between 600 and $650 a month for 15 years. And then you let it sit, and it's going to eventually grow to be about $101.8 million.
I would have had that, that extra funding. My biggest regret in my recommendation for young people, if your company offers a 401K where they agree to pay you either dollar for dollar or $0.50 on the dollar, or there's a there's a good interest rate that helps you gain some additional interest on that account. You have to begin planning for your retirement as you begin working, so that you can decide. How many years do I want to work and when do you want to finish? And you have to save along the way. For example, when I retire, I might have $2,600 a month of Social Security, but I also have a pension from the organization I work for. So you put those together and that's going to be very comfortable. The house is paid off, the cars are paid off, the boats are paid off. And so I can live on, on on the portion I get every month. But I'm going to have to pay my health care until I turn 65 and I go to Medicare. So there's a lot of things you have to think about. So the bottom line is save early. People have a tendency to to want to buy what they want, not what they need. And so you've got to plan to put money into your savings account, plan for your retirement. And then if you get a raise or you get a huge promotion, my recommendation suppose you were making $70,000 a year before your big promotion or your big raise, and suppose it goes up to 90. Pretend you still make 60 $70,000 a year and just bank all the rest of that money. I think you're going to. Your older self will appreciate that when you get your retirement years, because you have a nice nest eggs to have to allow you to travel, have fun, live, spend time with your family, your grandkids, or whatever it is you want to do. But you got to start early.
Cristina Asks Question 6: All right. Addison, I have to ask you. You're still a young man. Early in his career. Did you get that advice? Have you started saving for retirement?
Addison: So you know. Honestly, I have not started saving. And, you know, and I think it's. And I share this sentiment with a lot of Gen Zers. You know, they that YOLO term. You know you're only living once. You know, you want to just have fun. You're not really thinking about the future self. But now like, you know, putting in that perspective, you know, you have to plant those seeds. So when you are older, you can, you know, reap the benefits of what you've sown. So I. So no, admittedly I have not. But this is eye-opening. You need to start saving.
Addison Asks Question 7: So how much money should you reserve for your savings each month?
Randy: So earlier, I talked about your cash flow. Again. That's the difference between your income and your expenses. So depending on how much extra you have every month, save $50 or $100 or $200 or $300 or $500. And if you're making a significant amount of money, you could save thousands of dollars during Covid. I wasn't going anywhere and doing anything, and I remember there were months I put together. I put 3 or $4000 in the savings because I wasn't using it to do anything. I couldn't eat out, I couldn't go anywhere. And so depending on your income, you're going to have to be the judge of that. You know what your income is and your expenses, but you have to be dedicated every single month to move 100, $200 into your savings account, and then you can't touch it.
Cristina: Set it and forget it!
Cristina Asks Question 8: Okay, we didn't get to talk about this yet, but credit cards. What is a great tip for young people starting building their credit?
Randy: So you have to know how many bills you have every month. For example, I have ten bills that I pay every month, so I know what that total amount is. And then I took a look at, well, what's the difference between my income and my normal expenses. And then I know that's how much I could charge to my credit cards. And so I try mentally never to go over that total amount, because my goal is to pay my credit cards off at the end of every single month, so I do not get charged interest. Plus, you can get cash back on a credit card. You could have airline miles, cruise ship miles, hotel stays, whatever bonus reward plan you want to have. But my advice is, is to charge up to what you have remaining and don't go over that and pay it off every month.
Addison Asks Question 9: And so speaking of credit cards and credit inquiries, you know, what's the deal with that? Like is it true or false that checking your credit can hurt your credit?
Randy: So checking your credit will not hurt your credit. But what will is if you have too many new accounts and too many new inquiries, that's going to drop your Fico score. And so your Fico score is very important because you want to have at least a 740 credit score to get really favorable interest rates on car loans, on home loans, if you need to take a personal educational loan and the 800 is even better. So the funny thing about credit is you have to take on debt and pay it off every month on time to get your credit rating to go higher. And so I would just be very, very careful not to open up too many accounts, because it pings your credit rating and too many of those. In a year, it's going to drop your credit rating, and you're going to end up having higher interest rates charged to you on your credit cards and on your loans.
Cristina Asks Question 10: All right. Pop quiz. Last question, especially since we learned that the a few very first things that your generation, the younger folks is student loans and credit cards. And those are all tied to APR. What is APR stand for?
Randy: So that's called your annual percentage rate. And that's kind of set by the fed. And one of the things when you you take out a loan, you want to make sure you choose a loan with a fixed rate. So you know exactly what your interest rate is. I think most home loans now are maybe between six and a half and 7.5%. Car loans can be 4.5% and higher. But you want to know exactly what your monthly payment is. And you do not want that monthly payment to change as factors in the economy change.
Cristina Asks Question 11: So how can our listeners learn more about Seminole State, or get in touch with you or learn more about the college?
Randy: So you can contact our admissions office. And we have wonderful admissions representatives that will talk you through all of the 200 plus educational and academic programs that we have. If you want to be something we most likely have that major or that career program so we can get you ready to go on to your next college or transfer college. You can come and do your freshman sophomore year at Seminole State, and then transfer on to another higher education institution to finish your junior, senior year, senior year and earn your bachelor's degree. We happen to have 11 bachelor's degree programs, so you can participate in one of those programs. Or we have a number of students who come and get career training, and after six months, a year or two years they can graduate and go right into the workforce and have a pretty significant salary.
Cristina: Which I will from my own experience, I loved my time at Seminole State. It was a great experience and I love it. And I harp on how amazing it is to everyone that I can. So thank you so much for coming and go Raiders.