Wednesday, April 25, 2012

Debt and Health

I have used the term financial health in past blog posts.  I am not sure how I defined it then.

I think of it today in my reaction to student loan debt and the concern about an increase in interest rates. This is what I define financial health to be.

I am describing it based on my own circumstances.
Income: I would not say that I have an income but I do have a stipend.  It is enough to pay my rent and monthly bills. I do not go without anything that I need.  I am not able to add money to a savings account, so that would be a point against me.
Debt: I do not have any debt.  I do not have a loan.  I do not have a mortgage.  I do not carry a balance on my credit cards.
Assets: I do not own property (which at one time might have cost me a point, but that view is changing).
I own my car and it is relatively new so it is dependable.  I must pay insurance and upkeep.  I am able to do so.
I have money in a savings account.
Credit: I have good credit.
Future: I have a very small but still tangible retirement account.

I consider myself to be financially healthy and I do not have stress associated with money.

Young persons graduating from college with an average of 25K and an upward range into the 100ks are not financially healthy.  They are starting their careers, if they can start them at all, saddled with debt, lacking a means to address it and destined for poor credit histories.

However, reducing the interest rate, or keeping it from doubling does nothing to address the cause of the debt.  Some factors I see, and I am sure I have not captured them all, are:
  • high cost of tuition
  • high cost of materials needed to learn (books, PCs, software, etc)
  • direct to student loan offers or predatory lending
  • students being offered and accepting far more money than they need for their education (multiple loans)
  • students not learning how to live without every thing they want, and therefore being inclined to accept those extra loans
Our solutions then, should address the above issues. 
 I understand that universities are beginning to make some budget workshops mandatory, but this may need to take place in the high schools as well - specifically related to loans and debt.

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