Class Discussion and Written Assignment: Help for a Recent Graduate

Teaching Tip:  Chris Farrell is the economics editor for Marketplace Money, the personal finance show by American Public Media.  He also writes a column for American Public Media titled Marketplace Getting Personal.  In that column he fields questions from readers on a variety of personal finance issues and topics. In a recent article titled “Good education.  Good job.  Now what?” Chris addresses some questions from Romas, who just finished graduate school.  This article brings a number of topic covered in Chapters 2, 7, and 16 together along with Principle 5: Stuff Happens, or the Importance of Liquidity.  This assignment fits in both early and late in the course – with an early presentation allowing you to discuss some of the tradeoffs that will be looked at later.

One way to keep assignments fresh is to pull some personal finance questions from Chris Farrell’s column and let the students take a stab at answering them with a short written response.  Then in class show them Chris’s response and recommendation and have a discussion comparing their written answer with Chris’s.  Did they approach the question the same way?  How did the student’s response compare to Chris’s?

Class Assignment:  Romas, from Berkeley, CA has just finished graduate school, and he needs some personal financial advice.  Like most of us finish any schooling, be it graduate or undergraduate, he finds he is in serious debt to the tune of  $72,000.  The good news is that the interest rate on his borrowing is pretty low, between 2.1% and 2.6%.  Fortunately for Romas things aren’t too bleak, he worked before going back to school and as a result has about $28,000 in a 401(k) retirement plan, and about $10,000 in a defined benefit plan from his old job.  In addition, he just received about $8,000 in an inheritance.  Since he didn’t say anything about being married or having children, let’s assume he’s single and without children – and he does have a job, but there’s some risk there – it’s a start-up, with a bit of an unknown future.

Romas has several questions:  What should his financial priorities be?  Repayment of school loans? Saving for retirement? Putting money into an emergency fund?  How much?  What about IRAs and Roth IRAs?

Assignment question:

  1. Write a short response with your recommended action to Romas.  Be prepared to defend your recommendation in class.
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