STEVE INSKEEP, host:
On Fridays the business report focuses on your money, and today, helping college graduates - who have so little money and so many debts - find their way to a first home.
We called Jonathan Clements for advice. He is the personal finance columnist for the Wall Street Journal. Good morning again, Jonathan.
Mr. JONATHAN CLEMENTS (Wall Street Journal): Hey Steve, it's great to be with you.
INSKEEP: So what is the financial profile for a typical college graduate?
Mr. CLEMENTS: Well, it's not a pretty profile, Steve. The typical college graduate is graduating with a lot of debt. If you look at kids who go to four-year private colleges, about three-quarters of them are graduating with debt. And the typical sum is something like $19,400. On top of that, a lot of college kids are leaving with college debt, we have about a quarter of undergraduates with $3,000 or more of credit card debt.
So you put it all together and kids are entering the workforce, you know, not with nothing to their name, but actually underwater.
INSKEEP: So what do you do?
Mr. CLEMENTS: Well, what do you do? I mean, the standard advice is, you know, you get in the workforce, you're meant to fund that 401k and, you know, buy the house, and set up an emergency reserve, and start an IRA. And, yeah, I mean, all of these are worthy goals. But for most kids, they just aren't realistic.
So what I say to kids is, once you get out of college, you're in your 20s, what you really want to focus on is not getting further into debt. You don't want to be taking out the big auto loans. You don't want to be running up the credit cards. In your 20s, what it's all about is learning to live within your means and pay the bills on time.
INSKEEP: Wait a minute - so you're supposed to have a boring and responsible 20s?
Mr. CLEMENTS: Hey! Boring and responsible 20s used to be buying the house and starting to save for retirement. What I'm doing is lowering the bar here and saying, hey, just learn to live within your means. If you can do that, then there still leaves a little money for beer.
INSKEEP: You're saying maybe don't even try to buy that house when you're 24 years old.
Mr. CLEMENTS: If you look, most people aren't buying the house when they're 24 years old. I mean, the typical age for people who are buying their first home is 32. If you look at when people start investing, I mean, the typical mutual fund buyer is making their first purchase in their late 20s or early 30s.
If you're not starting to invest and starting to buy real estate until you're in your early 30s its not like you're late to the party.
INSKEEP: Some young people with debt have some flexibility. They could try to pay off the debt quickly, or pay it off a little more slowly. What would you do?
Mr. CLEMENTS: Well, it depends what sort of debt you're talking about. I mean, if you've got credit card debt, paying off that debt is probably the best investment you can make, because the interest rate might be 12 or 13 percent, it's also not tax deductible. On the other hand, if you've got student loans, not only is the interest rate probably considerably lower than that, but also it is tax deductible. So you shouldn't be in a big rush to pay off your student loans.
I mean, if you're making the minimum on your student loan payments and you still have extra cash, then I would take that money and turn around and put it in the 401k plan or put it into an account that you've earmarked as your future house down payment money.
INSKEEP: So you're advice is start slow, aim low in the first years. But if you're a young 20-something and you want to build toward buying a house, how do you go about that?
Mr. CLEMENTS: One of the simplest things to do, and one of the great ways to get started, is just to go to a mutual fund company and set up what's called an automatic investment plan, where you commit to investing, you know, $50 or $100 every month. A lot of fund companies will waive the minimum on their mutual funds if you commit to one of these automatic investment plans, so it's a great way to start building the money.
If you're going to have money for that house down payment, what you really want to do is have it in a regular taxable account. I mean, you don't want to be putting the money for your future house down payment into your 401k, because, you know, you won't be able to get the money out when you need to make that down payment.
INSKEEP: Jonathan Clements, personal finance columnist for the Wall Street Journal. Jonathan, thanks.
Mr. CLEMENTS: My pleasure.
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