Many graduate students mistakenly view their time in graduate school as a deferment of adult responsibilities. One of the most damaging manifestations of this attitude is the destruction that it can visit upon an individual's personal finances. Graduate students, particularly because they don’t typically have much income to manage, should take considered steps toward securing their financial futures, rather than putting off the very adult but also very necessary concerns of retirement and long-term financial planning. Similarly, for some reason many graduate students seem to carry about an air that somehow they are "above" the concerns of money, and relish in the romantic notion of a poverty that they endure while pursuing the life of the mind.
I suspect that this attitude is a rationalization, a way of affirming their own decisions while friends in corporate pursuits begin to accumulate wealth. Or perhaps the attitude is even a holdover from academe past, when only the wealthy, who could literally afford to disregard financial concerns, entered into the professoriate. Over the course of a career, academics will generally make less money than their peers in the corporate world. All the more reason then, to begin managing one’s finances early and conscientiously.
Beginning graduate students in every discipline should, ideally before they even begin a program of study, consult with a professional financial adviser. All graduate students need to have a frank assessment of their current financial situations, as well as their future financial prospects. In some humanities fields, the chances of completing a degree and landing a tenure-track job will be less than 20 percent. And even then, the chances of beginning a career at a salary of $50,000 or more a year are even lower. Clearly, for students in medical school, the prospects are a little different. Everything about graduate school, though, is a gamble. But unlike walking into a casino, when you go to graduate school you are betting on yourself, rather than the random draw of the blackjack dealer. However, you and your financial adviser need to take the terms of the bet into account when formulating a long-term plan. The gamble becomes much more dangerous when one doesn’t know the odds, or has to bet with borrowed money (that is, student loans).
The idea of making an appointment with a financial adviser, starting a retirement account, or making a monthly contribution to a Roth IRA might seem intimidating or unnecessary to a graduate student, particularly a young graduate student fresh from the undergrad years. However, research has repeatedly shown that those who begin planning for retirement the earliest — whether conservative or aggressive investors — are the most financially secure later in life. Despite the recent economic downturn, investing in your future is still a good bet. And if you are concerned about the ethics of traditional stock funds, organizations such as Green America can help you find socially and environmentally responsible places to invest. There are a baffling number of options available when it comes to locating a financial adviser, but I’ve always and successfully relied upon the advice of the financial advisers at the various (three, to be exact) credit unions that I’ve belonged to over the years.
I am a strong advocate of credit unions, and have used credit unions for most of my short-term and long-term financial needs during my adult life. Unlike banks, which have mandates to generate profits for their shareholders, credit unions are owned by their members, and have no profit motive. As a result, credit unions tend to have lower fees, require lower account balances, and offer far more free services than traditional banks do. For example, banks often will charge as much as $35 if you accidentally overdraw on your checking account and an additional withdrawal has to be made from your savings account to cover the check, even though you have adequate funds in your savings account to cover the difference. At my credit union, the fee charged in exactly the same situation is 50 cents. A difference of a $30 penalty on an innocent (but hopefully rare) accounting error can be huge for graduate students living on scrawny teaching or research stipends. Similarly, credit union financial advisers often advise members for no charge.
If you haven’t already, I highly recommend joining a credit union. If you are attending and working at a public university, there will almost certainly be a university or state credit union that you will be eligible to join. Just ask a colleague. And if you’re at a private institution, there will still likely be a local credit union that you can join on the basis of your status as an educator or by living in the geographic area that the credit union serves. Again, just ask a colleague. Once you’ve joined a credit union, make sure to take full advantage of all of the free services that they offer — in this case, the credit union’s financial adviser.
Regardless of where you ultimately go for financial advising, a good financial adviser will help you come up with a long-term investment and/or retirement strategy, advise you on how best to pay off debts, and help you weigh whether, for example, it is better to take out a student loan and divert some of the funds into savings for retirement, or not to take out the loan at all. In some cases, depending upon the type of the loan, an adviser can show you how it might be more profitable for you to incur student loan debt than not to. Likewise, good advisers will steer their clients clear of bad investments and unnecessary loans that will create undue burdens after graduation. Many variables will affect the conversation and the nature of the plan that the two of you mutually come up with, such as whether or not you have a gainfully employed partner and/or children. The point, of course, is to make an appointment and go have the conversation.
We are not a nation of savers, and in my experience financial advisers are enthusiastic about working with young people in particular, and happy to have the opportunity to advise someone before a personal financial crisis strikes. The key to having a successful meeting with your new financial adviser is to know your current and near-term financial picture, as well as your goals. Come prepared to list all of your current debts, the creditors the debts are owed to, and the rates of interest on the debts. (Of course, if you’re coming to graduate school without any debt, even better.)
Also, bring any information you have about the stipend you are or will be receiving, available student loans, expected shortfalls in your tuition waivers (which can be minor or major, depending upon your program and institution), and regular monthly expenses like rent and utilities. When you meet with a financial adviser it might also be a good time to consider the possibility that it will take you longer to finish your degree program than your funding package will support. In the unfortunate event that it takes you eight years to finish your Ph.D. program, but you only have six years of funding, how will you make up the difference? Not enough first-year graduate students realistically consider that possibility.
But more than anything else, when you meet with a financial adviser, ask questions. Ask every question you can think of. No question is too dumb, because the conversation is about your money and your future, and by the time you leave the financial adviser’s office, nothing about your conversation or the plan should remain hazy. The more you assert yourself by asking questions, the better your experience and the financial plan will be.
When making a long-term investment, you don’t need to make a quick decision. After meeting with your financial adviser, you may choose to sign up for (that is, put money into) a plan immediately. If you’re more gun-shy, talk the plan over with a trusted family member or friend, hopefully one with a little financial savvy of their own. But at some point, you will need to take action.
Even if you are living on a miserably low stipend as a graduate student, you need to plan, save, and invest for your long-term financial future. Depending on your institution and state, some version of the university’s retirement plan might be made available to you. However, since graduate students are part-time employees who will have to leave their institution upon graduation and who are likely ineligible for matching contributions from the university, these plans often don’t make sense for them. The plan might not be portable enough when you leave your graduate school. Such a plan might still make sense though, depending upon your situation, and it is worth discussing with your financial adviser. There are plenty of other avenues to investing that you can pursue on your own, such as a Roth IRA, which is funded with after-tax income. Even small monthly contributions in a graduate student’s 20s or 30s can make a very large difference in total savings later in life.
Graduate students tend to think of themselves as smart people, and generally with good reason, but it isn’t particularly smart to go it alone when it comes to long-term financial planning. Don’t rely on the self-help retirement books, or the advice of friends and family — go see a professional. Check back in with the adviser at least once annually. Don’t put off thinking about your financial future. That future catches up to you pretty quickly, I hear. And if you’ve already defended your dissertation and are settling into your first appointment, but you still haven’t set up a long-term financial plan, get cracking. For you, the future has already arrived. No more deferring adulthood.