Where NOT to Ask for Financial Advice
Posted on July 27, 2006 by Him and tagged debt, finances, investments
Recently on Slashdot, a reader asked this question:
"I am a rising junior in college and decided to take out loans to cover all my costs so I could graduate with money in the bank. My tuition bill is minimal as I have a nearly full ride, but living is always expensive. With that said, I feel like my thousands sitting in the bank could be doing work for me instead of collecting dust till the day I graduate. I have been researching how I could best invest my money so I have immediate access to it if needed, but still do better than a mere savings account. There seems to be a lot of mixed advice and some obvious scams out there. So I ask Slashdot, what is the best plan for a college student to do with his money?"
Of all places to ask a question like this, why on a tech oriented website? I don't ask computer advice from a financial planner.
Some of the comments surprised me with suggestions of frugality, as I assumed the audience was a tech-savvy gadget-hungry kind of people. There's a lot of good advice, but then there's also a lot of bad advice.
What would your advice to this kid be?
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Sharon | Jul 27, 2006
That is the silliest idea I have ever heard. He could never generate enough income even if he could invest it, which apparently may be illegal, to overcome the amount of interest he will pay on the loan. He should try and give it back if he can. If he can't, some online savings accounts have interest rates around 5%. He should check bankrate.com.
I find that I get some of the most interesting ideas about finances from non-finance forums. Of course I get tons of feedback that make me go, wtf, but there are few gems that come across.
But wow, that's a ton of feedback! I don't know what advice I would give to him that hasn't probably been mentioned somewhere in that thread lol.
Anon | Jul 27, 2006
First off, he says later that they are subsidized loans, which means HE is not paying interest, the government is. So I contend that it is not stupid to borrow money for the sake of having money in the bank. In fact that seems like a great idea here, this guy can borrow money interest free and keep it in a savings account in case he has an emergency and needs it. If when he graduates he hasn't had to use the money, then he can pay back the money no problem, and he gets to keep the interest as well.
Second if you say it is illegal to invest this money, then fine he is using the loan money to pay for school things, and the money he would have otherwise used for school he invests (i.e. the scholarships he says he has.
So lets say you have $10000 in the bank, an upcoming $5000 tuition payment and living expenses are goign to cost you $5000, and someone offers you an interst-free $5000 loan for 4 years. Your two choices are to 1) not take the loan then, and use the money out of your bank account to pay the tuition and living expenses 2) take the loan, use it to pay the tuition, use half the money in the bank to pay for living, then put the other $5000 into a savings account earning 5% over the year. Note that you are not investing the federal money here, so nothing illegal
At the end of the year plan 2 has you with ~$250 in the bank, and the peace of mind in knowing that if you have an emergency you have a no-interst cushion to help you get through it
Putting the money in a savings account as a security blanket for emergencies during school is a reasonable idea.
However, that's what this guy is already doing. And he wants to stop! The preson who posed the question specifically said he wanted an investment vehicle that wasn't a savings account.
So the answer to his question is still "wtf?"
The student is making a grave mistake to take out loans for the purpose of living off and investing the money. He should just get a p/t job and save his money. Run away from student loans if at all possible.
P_Cole | Oct 26, 2006
just to have money in the bank!!
Sounds like an opportunity for a little insight from someone who's been in debt(big-time!)twice.
The average college student graduates with 23K of CC debt.
My advice to this student is to take a long look inside himself and be real about his needs and wants. It seems to me that easy to access cash is always a bad idea. Wait until you get a job after graduation. The whole premise needs to be thought about again.
P_Cole
cory | Jul 27, 2006
I read through a handful of the comments on that post. The hidden fact is that the loans he took out are federal loans, and it is therefore illegal to invest.
That notion aside, it's still collossally stupid to borrow money for the sake of having money in the bank. Even stupider to borrow money to invest in anything risky.
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