To
start off I will say I am fortunate to be part of a family who has the money to
give me whatever I want in terms of school choices, without the risk of
financial aid packages. This whole financial aid is very risky because think
about if one were to become a doctor and need financial aid for those 12 years.
Man you would be looking at some pretty large numbers in parentheses aka losses/debt.
I personally have my parents to thank for the money set aside for me in an
after-college fund, which helps me to stay solvent on the balance sheet.
However, my personal wealth is a little bit different because the money that
I’ve made in the summers goes to my yearly consumption because I have the
blanket of zero debt.
In
terms of future wealth I put together a Roth-IRA to ensure that once again I am
only making money, so one could say I’m debt averse because I choose future
value of more present consumption. However, my decisions are much different
than someone who has to pay of financial debt along the line and be
conscientious of how much they spend/save. For future income I feel my parents
more than just myself will make sure I have all necessary accommodations like
apartments after college/ saving up for a house in the future. This might look
bad to my peers, who believe that I’m too dependent on my family wealth,
however why not enjoy the time I have right now to spent money on the things I
want while having to worry about future implications.
In
addition, I believe that how one grows up and how the parent’s monitor their
wealth is reflected on how the children learn to become financially solvent.
For instance my family has paid off all financial obligations such as cars,
homes, etc; enabling them to stay financially solvent. Obviously this means
that they are very debt averse because they don’t rack up the expenses, due to
knowledge about future consumption and to ensure a very high standard of
living.
The
whole major decision was based more on the future income more than “enjoyment”
because I grew up in an area where money is king and that spending out of your
means is just something that isn’t done because one might want to keep all obligations
or liabilities to a minimum and ensure that they can start from a strong
background and continue to accumulate wealth, without having to really worry
about having to pay off large financial aid debt. This can be seen through my
sister, who is a recent graduate of Northwestern University and currently a
student at Kellogg (NU’s business school). However, once again she has her
whole student tuition paid in full and no debts are accumulating; enabling her
to be financially solvent with no credit card debt, etc.
This
whole risk management I feel starts with the parents guidance and it has to be
said that different people in different financial situations would treat this
differently. However, I am luckily part of the population with absolutely no debt; enabling me to take advantage of all present opportunities available to me.
It is nice to have parents who can afford to do that and, certainly, a large component of a bequest is the covering college costs. It certainly does provide an advantage compared to others who come from families of more modest means.
ReplyDeleteIf and when you buy a house or a condominium, you will likely have to modify your aversion to debt. Owning a property of that sort outright means you are not diversifying your portfolio sufficiently. As long as you are renting, however, then being debt free is sensible if you can afford to live that way. There is an economic model of consumption over the life-cycle. Typically consumption is smoother than income but maybe in your case it won't be.