College Investing Information

[Investing First Steps]

There are quite a lot of sharp people on this forum, was curious if anyone disagreed with this post on investing money while in college?

The intent is to be a sort of primer as opposed to presenting too many "opinions."

[kork13]

I'll jump in... Personally, I disagree. There is merit to the position, particularly regarding student loans.... If you're walking out of college with boatloads of student debt, yea, you probably shouldn't be investing a few thousand dollars every year, but instead reducing your loan dependency. However, I would still recommend any college student to start investing while still in college. Not with alot, but maybe $50/mo. Just to get your feet wet.

My reasoning is that college is an investment in the future--it's there for you to learn the knowledge, skills and understanding you will need in a professional career. I submit that learning to research and invest wisely is just as important as learning advanced calculus and covalent bonds. The latter prepare you for your career. The former prepare you for life in general. Better to learn and get started early than to go blindly into it full force.

I started investing when I was a college junior (20yo). I didn't have any student loans, so I was able to put ~$150-200/mo into investments. Some choices weren't good, some were. But I learned those lessons when I was still only dealing with low sums of money. I think I (and the person who guided me toward starting to invest) did me a favor by starting while in college. Having learned those lessons ahead of time, now 6 months out of college (with 6x the income I had then), I have over $15k invested. I'm glad I made the choices I did, and I'm in a much better place now because of it.

[Investing First Steps]

I think your points are completely valid, however I often see people want to start "investing" when they haven't even paid off high interest rate debts etc. I feel like they see the act of buying a stock as having more "sex appeal" than just paying down their credit card. I also fear for a lot of kids who are borrowing on their student loans and then using the money to play the stock market. Certainly the educational value of small investments is a worthwhile topic however. Thanks so much for your input.

[jIM_Ohio]

What matters is the amount being invested now vs in future with higher earnings.

If a college student earns 10k and invests it all in a Roth account- that would be different than 10k in a 401k. If the wage when working suggests 15k would be invested in a 401k or Roth account that is one thing, if 30k get invested, then another.

But if the student is investing 1k-3k when in college relative to a 15k-30k investment a few years later, that is another issue.

Add into this a layer of tax issues- if a college student earns 10k and wants to claim some eductation credits and their dependency exemption, but chooses to invest the 10k instead of paying for their expenses with it, they lose the 50% support requirement for the dependency exemption and possibly lose the tax credits that exemption might have helped them with otherwise.

I think it's tough to generalize. I think the best investment a college student can make is to spend less than they earn week to week and month to month. Maybe setting aside 20% of every paycheck is better than investing it all or spending it all. Just to start the savings habit.

5 years on the compounding curve is not much- missing 5 years should not change the long term financial outlook much.

[Investing First Steps]

That's largely the subject I want to convey, that basically letting your studies suffer or taking out additional loans just to "invest" is a dangerous approach, for limited gains. Working on revision to take your input into account. Thanks.

[MonkeyMama]

Great article.

My personal experience was I earned about $10k/year (if that) in college and I was able to get through without a single debt. It would have been a complete waste of time to focus on growing my net worth and investing. I just didn't have the means. I saved very heavily out of college, and made up for it in a snap. (I've read, oh, should have put in $2k/year - IRA max at the time - or $10k throughout college. But instead I was so used to living on a shoestring that I saved $20k my first year out of college. & that was 1000 times easier than trying to come up with $2k/year during my college years).

It just bugs me when college kids who are barely scraping by are obsessed with maxing out ROTHs and stuff like that. IF you can swing it, it's GREAT. But if not, don't kill yourself over it. Get that degree, that well paying job, and then save and invest at that point. If your grades suffer or you have to take on debt to make that investment, it could be an expensive sacrifice.

It just depends.

My spouse had college paid for, lived at home, and worked about as much as I did and saved just about all of it. His grades didn't suffer and that was a smart move. He easily could have sat on his butt and not saved a dime. So you know, in case he was smart to save and invest. In my case, glad I didn't!