Cost Per Use

The price tag of an item will tell how expensive it is at the checkout, but not what the total cost will be over time. For example, a shirt that costs $5 could end up being more expensive than a $20 shirt and the reason: Cost per Use.

Our fictional character Mike recently bought a shirt on sale at a discount department store for $5. He wore the shirt to a party and a few more times over the following month. After the fifth time through the wash there was a significant hole that appeared by the collar. Mike can no longer wear this shirt, so for a $5 shirt, Mike spent $1 every time it was worn.

Mike now needs to replace his shirt, so he decides to buy one at a higher end department store. This time he spends about $20. Mike washes and wears the shirt about once a week over the course of a year before it starts to fade. Assuming Mike stops wearing the shirt, his cost per wear was $0.38-- a bit more than one third of the cost per wear of the $5 shirt!

The point? Next time you go shopping, try to determine how many times you'll wear the items you pick out. Pay attention to the quality of the items or thickness of the fabric, the reputation of the clothing line, and the strength of the seams. These are all good indicators as to how your item will hold up. Second, figure out how versatile the item is. The more versatile your clothes are, the more uses you'll get out of them. Come up with a modest estimate of the number of wears and divide the price by that number.

You should spend the most money on items that will last for more than one season, preferably more than one year. A warm winter coat or a pair of well fitting jeans or pants are worth the initial investment.

It's up to you to decide if the cost per wear makes the item worth purchasing, but this exercise will allow you to see the value of the things you buy, not just the price.

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A New Way to Repay

On July 1st, a new option for student loan repayment will be in effect. The option is called Income Based Repayment (IBR) and according to Finaid.org, it is "designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service." IBR differs from ordinary repayment because the size of monthly payments depend on the borrower's income, not the amount of the loan. Some new features of this repayment plan include the following:

• Monthly payment amounts are capped by 15% of the borrower's discretionary income. The payment amounts are adjusted annually based on changes in the borrower's income or family size.

• IBR calculates discretionary income by finding the difference between adjusted gross income and 150% of the poverty line in your state. You can find more information about the poverty line by visiting the Department of Health and Human Service's website here.

• There is no minimum payment.

• The maximum repayment period is 25 years. After 25 years, all outstanding debt is forgiven. This discharged debt is then considered taxable income, so borrowers who use the IBR plan will have to pay income taxes on the discharged amount 25 years from the date on which repayment began.

• Borrowers who make 120 payments under IBR while working at a public service related job for ten years will have their remaining balance on their loans forgiven. This ten year forgiveness is tax free.

• If your repayments under IBR are too small to cover the interest accruing on your subsidized Stafford loan(s), the federal government will pay the interest for three years under IBR.

• The option is available for previous and current loans.

• This option does not apply to students who are still in school and making payments. The option is only available after the six month grace period.

IBR is not guaranteed forever. Whether or not it remains an option depends on how it functions in practice. For more information about Income Based Repayment and for examples of how it works, check out Finaid.org's website here. You can also contact the Department of Education directly for more details.

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The Great Piggy Bank Adventure

Looking for somewhere to go this summer? A brand new attraction at the Epcot Center in Orlando called "The Great Piggy Bank Adventure" debuted May 19th. The attraction is a partnership between T. Rowe Price and Disney to teach the importance of money management and personal finance. You will find the attraction at Disney's Innoventions or you can view details online.

Take a video tour of the attraction here.

You can also check out Disney's official website for the attraction here.

You can even play some of the games online! Thumbs up to Disney for promoting financial literacy to kids of all ages!

- Savvy Student

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Graduate School, the Recession and the American Dream

Now that you have walked across the stage to "Pomp and Circumstance" the looming question is what's next? The banter surrounding the increased popularity of graduate school is unavoidable-- newspapers, blogs, and talk shows have emphasized that staying in school during a time of high unemployment may be the most prudent decision. According to an article published by PR Newswire "More than 20 percent of students are looking at entering a different profession than they were before the economic collapse, and an additional 20 percent are considering attending graduate school as a result of the economy." Graduate school attendance is not the only figure that has changed seemingly due to the recession. According to the release, 69% of students reported that they felt confident about managing finances, up from 67% last year, and 90% balance their finances on a regular basis.

Check out the rest of the release here.

Graduate school or an alternate career track may be the answer for some, however, there are other views circuiting through the blogosphere that suggest a much different idea. The decision to attend graduate school is viewed by some as a careless decision, if done to avoid getting a job. Penelope Trunk of The Brazen Careerist is one of the more extreme opponents to enrolling in graduate school to avoid the recession. She believes "graduate school requires you to know what will make you happy before you try it" and thus graduate school requires a hefty financial investment and time commitment when people in general are "notoriously bad at knowing what makes us happy." It is true that graduate school does not offer the flexibility and exploration of undergraduate studies, but isn't that the point? Penelope is correct to suggest that if we enroll in graduate school without a clear idea of what interests us and we only do so to avoid a scary job market, we're doing something wrong. Yet it is quite unfair to suggest that we don't have a solid idea of what we enjoy after spending four years figuring it out. Not all recently enrolled graduate students are influenced by the recession, and it may just be that the media is blowing up the impact of the recession on our decisions regarding education. Penelope's criticisms seem to come from a longstanding disdain for graduate studies in general and less about her particular feelings about how it functions in the current economy (take a look at some more of her criticisms here and here).

Despite her extreme views, Penelope does bring up a concept very worth considering: how are we altering our goals and desires in this economy? How is the American dream changing? Are we moving toward a generation of students into their 40s bearing multiple advanced degrees and away from the baby boomer businesspeople?

Whether you're a graduate student or an undergraduate considering another degree, we want to hear about how the recession has affected your decision making, if at all. Do you think Penelope is on to something? Are you one of the 20% choosing graduate school over a finding a job? Leave us a comment or send us an email to sfs@brandeis.edu. We'll post your comments in a few weeks.

- Savvy Student

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ABC's Un-Broke

If you missed it Friday night, ABC's special "Un-Broke: What You Need to Know About Money" was quite interesting. This was ABC's reaction to our current economic climate by way of simplifying how we view personal finance. The program's host and Good Morning America's financial contributor, Mellody Hobson was on hand to introduce humorous star studded skits, as well as present surveys taken of people with regards to their own finances. For instance, it is recommended that each person have at least one month's salary saved up, in addition to an emergency fund. Many of the people surveyed have small or nonexistent savings built up and those that live pay check to pay check feel it is impossible to set aside money each pay period. As a result, Hobson suggests putting aside just $1 per pay period and letting that build up until the $1 can become $2 and so on. A savings plan is necessary especially in today's economy, to protect against the sudden loss of employment or the unexpected events that occur and cost money. With the average Social Security check at $1,100 per month it is also important to save for retirement. It is often a difficult choice whether to save for retirement or college and according to Hobson, it is in the parents' best interest to put their retirement first. Once they have significant savings built they can begin to contribute to their children's education. This will prevent parents from relying on their child or children should unfortunate circumstances arise.



The show, which aired from 9pm-10pm also featured celebrities Will Smith, Rosario Dawson and the Jonas Brothers in skits aimed to educate children and adults on credit cards, stock market indexes and mortgages. Seth Green appeared in a segment designed to show people how they can have both long term financial goals while living successfully within their means. Green's character toured a home MTV Cribs style and suggested that an affordable home or apartment should cost no more than 1/3 of your monthly income. He also pointed out that owning a car with good gas mileage or appliances that are energy star efficient will help save money down the road.



If you would like to view any of these segments, most are available on YouTube.com. There were skits with Antonio Banderas and Marisa Tomei and even the *E-Trade babies.



Hope you found the information helpful, we sure did!



Until next time,



Savvy Student

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