This is the weekend edition of Culture Study — the newsletter from Anne Helen Petersen, which you can read about here. If you like it and want more like it in your inbox, consider subscribing.
Oof I can totally relate to letter writer #2. I'm doing everything "right" financially but I'm kind of waiting/dreading the day when I find out all the conventional wisdom no longer applies and all my efforts to achieve financial security have been for naught. The great recession affected us elder millennials in a deep and lasting way.
Why are we still talking about "high-yield savings accounts" like they exist? Banks used to offer 5%+ in these accounts (pre-2008, at least...) which made them a great place for money you couldn't risk in the stock market. But the 'best' accounts right now are offering .5% right now. It might the best option, but that doesn't make it "high-yield".
I'm late to reading this piece and the comments bc of back to school stress, but I had the same thought.
related: folks talk like IBR plans always lower your payment--I won't be eligible for PSLF because in my 3rd year on one, they wanted me to pay way more than we could afford. the standard repayment was less and so there I am, regardless of the fact that we're barely afloat and I've been working for eligible institutions the whole time
Ok- so appreciate the information and much of it useful but we still need even more basic- like how do you invest in a mutual fund? is that something I ask about at a bank or do I need an 'investor" or an app? I don't want to sound stupid when I go to the bank:)
Other "finances for the rest of us" sources could be those making legit financial literacy content on YouTube. The ones that come to mind for me are Chelsea from The Financial Diet and Philip and Julia on the PBS channel Two Cents. Both have personally helped me understand things while addressing subjects that would actually be relevant to a student loan burdened millennial like me.
One thing that I'd add - thought it's probably too late for letter #1. If you're offered a choice between a defined benefit plan and a defined contribution plan - go for the defined benefit plan. These are generally only available at government/ higher education jobs and at my former employer (a community college) you had to decide on the first day of work which one to enroll in.
The defined benefit plan is a traditional pension - you know how much your retirement benefit will be. Generally, the average of your last few years of salary x the number of years you've worked x a multiplier.
Example: average of last five years of salary = $100K x 25 years x 2.3% = $57,500.
If you work 30 years - $100K x 30 years x 2.3% = $69,000
It's called a defined benefit plan because you know what your benefit (retirement pay) will be.
As state and local governments have been seeing the cost of pensions increase for quite a few years, they have begun offering the defined contribution plan - you know how much you'll be *contributing* but your retirement pay will be based on the market and which investments (usually mutual funds) you select. Both of these plans usually have the employer matching your contribution (your 7% is matched in either case).
Employers prefer the defined contribution model because it's easier for them to plan ahead - they know how much they'll have to put in and the employee takes the risk that his investments may not do so well. With the defined benefit plan, the employer's pension plan administrators (for example, CalPERS: California Public Employees' Retirement System) has to invest the funds in the plan prudently enough to fund pensions - if their investments do poorly, they may have to raise taxes, or ask current employees to contribute more or choose some other unpopular option.
It boils down to who's taking the risk - the employer or the employee. Good to know for those considering a career in education (both higher ed and K-12) or government service.
I admit I found this one very US-centric, in terms of advice giving. While that helps the questioners (if they are, indeed, American), it may be prove useful to the broader readership?
Hi, just a note to the folks looking at the financial advice section. I want to reiterate that you can't "lose everything in the stock market." It's actually a really safe (but long term!) investment. I was surprised to see index funds not mentioned here as I think younger folks are feeling more comfortable with that route and not having a "guy." We don't have trust shady dudes on wall street, rather algorithms run by reputable companies who even let you invest in "socially responsible ways."
Oof I can totally relate to letter writer #2. I'm doing everything "right" financially but I'm kind of waiting/dreading the day when I find out all the conventional wisdom no longer applies and all my efforts to achieve financial security have been for naught. The great recession affected us elder millennials in a deep and lasting way.
Why are we still talking about "high-yield savings accounts" like they exist? Banks used to offer 5%+ in these accounts (pre-2008, at least...) which made them a great place for money you couldn't risk in the stock market. But the 'best' accounts right now are offering .5% right now. It might the best option, but that doesn't make it "high-yield".
I'm late to reading this piece and the comments bc of back to school stress, but I had the same thought.
related: folks talk like IBR plans always lower your payment--I won't be eligible for PSLF because in my 3rd year on one, they wanted me to pay way more than we could afford. the standard repayment was less and so there I am, regardless of the fact that we're barely afloat and I've been working for eligible institutions the whole time
Ok- so appreciate the information and much of it useful but we still need even more basic- like how do you invest in a mutual fund? is that something I ask about at a bank or do I need an 'investor" or an app? I don't want to sound stupid when I go to the bank:)
Other "finances for the rest of us" sources could be those making legit financial literacy content on YouTube. The ones that come to mind for me are Chelsea from The Financial Diet and Philip and Julia on the PBS channel Two Cents. Both have personally helped me understand things while addressing subjects that would actually be relevant to a student loan burdened millennial like me.
Also for those in really dire situations: https://www.reddit.com/r/povertyfinance/ A lot of financial advice is aimed at people with six figure incomes. A few years ago, the New York Times published this piece in which "middle-class families" included only one with less than $100K annual income, and a couple in the $200K-$400K range https://www.nytimes.com/2019/07/05/opinion/middle-class-families.html
One thing that I'd add - thought it's probably too late for letter #1. If you're offered a choice between a defined benefit plan and a defined contribution plan - go for the defined benefit plan. These are generally only available at government/ higher education jobs and at my former employer (a community college) you had to decide on the first day of work which one to enroll in.
The defined benefit plan is a traditional pension - you know how much your retirement benefit will be. Generally, the average of your last few years of salary x the number of years you've worked x a multiplier.
Example: average of last five years of salary = $100K x 25 years x 2.3% = $57,500.
If you work 30 years - $100K x 30 years x 2.3% = $69,000
It's called a defined benefit plan because you know what your benefit (retirement pay) will be.
As state and local governments have been seeing the cost of pensions increase for quite a few years, they have begun offering the defined contribution plan - you know how much you'll be *contributing* but your retirement pay will be based on the market and which investments (usually mutual funds) you select. Both of these plans usually have the employer matching your contribution (your 7% is matched in either case).
Employers prefer the defined contribution model because it's easier for them to plan ahead - they know how much they'll have to put in and the employee takes the risk that his investments may not do so well. With the defined benefit plan, the employer's pension plan administrators (for example, CalPERS: California Public Employees' Retirement System) has to invest the funds in the plan prudently enough to fund pensions - if their investments do poorly, they may have to raise taxes, or ask current employees to contribute more or choose some other unpopular option.
It boils down to who's taking the risk - the employer or the employee. Good to know for those considering a career in education (both higher ed and K-12) or government service.
Whoops! First paragraph should have said that defined benefit plans are not just for higher ed, but k-12 employees as well.
I admit I found this one very US-centric, in terms of advice giving. While that helps the questioners (if they are, indeed, American), it may be prove useful to the broader readership?
One Canadian source I've found interesting and helpful: https://www.moneyaftergraduation.com/
This is going to be a phenomenal series. Thanks, AHP!
Hi, just a note to the folks looking at the financial advice section. I want to reiterate that you can't "lose everything in the stock market." It's actually a really safe (but long term!) investment. I was surprised to see index funds not mentioned here as I think younger folks are feeling more comfortable with that route and not having a "guy." We don't have trust shady dudes on wall street, rather algorithms run by reputable companies who even let you invest in "socially responsible ways."
https://www.betterment.com/socially-responsible-investing/
Thank you for this, Anne! Definitely need good, common-sense info on money advice (as our world burns).
Thank you for the link to the excellent McMansion Hell piece
Thank you, I feel so lucky to be privy to this conversation.