I had not noticed this before, but apparently August is college textbook season. I guess that makes sense. School will start up in a month and college students are widely known for not leaving things to the last minute. Both SmartMoney and The New York Times’ Bucks blog came out with items on how to save on textbooks in the last 48 hours.
My first reaction to the focus on textbook costs is that it is misplaced. College is an expensive endeavor, and the price of textbooks does not help any, but let’s get real. It’s like worrying about the low gas mileage on a Ferrari. Double what you spend on books or eliminate it entirely and you’ll still graduate with essentially the same heap of debt.
Alas, this is yet another triumph of psychology over math. Textbooks, unlike tuition, are usually not financed, so the expenditure is more noticeable. Money not spent of books can be spent on Pizza. Further, my unscientific guess is that texts are more likely to be paid for out of the pocket of students, rather than by mom and dad.
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It is time to make another visit to the bounty of information that our nations’ intrepid polling companies gather for our enjoyment. I usually start these visits with a short proviso about how survey data about what people say to strangers who call them on the phone can’t hold a candle to data about what people actually do. Often I point out that survey respondents tend to be neither candid nor thoughtful in their responses.
Today I am going to skip all that. I will just give examples.
The Rich are Optimistic?
On July 12 Gallup found that Upper-Income Americans See Living Standards Improving. Depending on your outlook, that might have given you a sense of second order optimism, after all, those rich folks must know more than the rest of us, or perhaps bitterness of the-rich-just-get-richer sort.
In either case the feeling was likely short-lived because four days later The New York Times carried the front page headline Wealthy Reduce Buying in a Blow to the Recovery. The Times story was largely a compilation of anecdotes and quotes from assorted “analysts” who like to see their names in print. But the gist was that rich folks are pessimistic enough about the future to cut back on spending.
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Free Money Finance has a post this morning which is a riff on a quote from Dave Ramsey to the effect that the average college student graduates with $15,000 in debt, which is also about how much the average student spends by living off campus and not eating in the cafeteria.
The $15K figure is, at the very least, out of date. The quote was from Ramsey’s book, published in 2003, and he cites as his source a conversation he had “a couple of years ago.”
But it has a bigger flaw than that. This is one of those numbers where average should not be confused with typical. Strange but true, many college students graduate with no debt. Others graduate with many multiples of the average.
So I have a lot of trouble with the premise that there exists a big population of college students who would have graduated without any debt, had they not modestly improved their lifestyle by living off-campus. But for the sake of argument, let’s accept the premise at face value. Assume that a college student has borrowed $15K solely to live a little more comfortably, that is, for pizza, beer, and the like. Is that a bad thing?
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March is just around the corner, which means we are entering the heart of tax season. Time to gather those 1099s, fire up the old TurboTax, and wonder how we can possibly pay Uncle Sam less money next time.
So ’tis the season to think about, and write about, schemes and tricks to minimize your tax bill. For example, the AP ran an item the other day discussing the rather unlikely maneuver of teenagers opening Roth IRAs.
It’s an idea with some intuitive appeal. As readers of this blog know, Roths are attractive if you believe that the tax rate paid today is likely to be lower than what will be paid when the money is withdrawn from the IRA. A teenager with a tiny income, and thus a low marginal tax rate, certainly qualifies.
And there is the tremendous emotional appeal of "the magic of compounding" that miracle of mathematics that will drastically increase the IRA balance during the very long journey to retirement. Even with only 5% annual return, after 50 years $1 would grow to $11.46. Imagine how grateful your child will be when they retire and realize the foresight you had in making them save way back in 2010.
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Earlier this month I asked Is a College Degree Worth Anything? It is a theme I’ve touched on a few times over the past year. (See other posts in the category "College" at right.) In my view college is financially a great deal for some people, and a good deal on average, but at the marginal extreme probably not worth it.
Two recent posts on WalletPop (here and here) raised an interesting follow-up question. Is a fake college degree worth anything?
I am talking about degrees from what are called diploma or degree mills. Deliciously, WalletPop makes a distinction between the terms based on how blatant the fraud is. Diploma mills sell official looking papers for a modest fee. Degree mills make a show of reviewing your "life experience" before selling you official looking papers for a slightly less modest fee, running from several hundred to several thousand dollars.
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