Day 7 of the 24 Hour Personal Finance Course: Save Me! Case Study
The 90 minute class at Eastside last week focused on the Save Me! case study.
- Synopsis: Two friends have very different savings habits. The saver (Samuel) is dissatisfied for a number of reasons and the non-saver (Juan Carlos) is surprised to discover that he now needs to save $4,000 for each year of college
- Students spent first 45 minutes reading the case, answering the questions in the case and manipulating the savings variables (hours worked, pay per hour and savings rate) in the Google sheet.
We then worked through the case with the following progression:
- One student opened the discussion by summarizing the situation, the main characters and the problem that needed to be solved.
- Samuel is an excellent saver but isn’t satisfied with his efforts. Students provided the following recommendations:
- Figure out the net cost for the schools that he is interested in. This will require asking his parents for their income. By doing this, he will have a better sense of how much he will need to save for college and can set a SMART goal.
- Work fewer hours to 1) improve his academic grades and 2) have a social life.
- Everyone was in agreement that he would give the money to his parents for the car repair since it was critical for their parents. Wish I had asked if Samuel should ask them to pay him back.
- Students did a good job of developing questions that Samuel should ask Juan Carlos to help in developing a savings goal.
- Questions 4-8 involved tweaking the model using different sets of assumptions. For the most part, students managed these scenarios well. I showed the model on the projector and then had the students provide answers to the questions. After they provided the answer, I input the assumptions to confirm their responses.
- Good opportunity to discuss the tradeoff between hours worked at a part-time job and academic performance. Research suggests 20 hours is about the max that students should consider, while others may put that figure at 10 hours, especially when starting college.
- They quickly discovered the relationship between hours worked and saving. The higher percentage he saved, the fewer hours Juan Carlos would need to work to hit his goal.
- When it came to the weaknesses of the model, the students missed the most glaring omission which is the impact of taxes.
- While students are unlikely to owe income taxes (unless they earn over $6,300 in 2015), Social Security and Medicare will be withheld from their pay.
- Discussed the tradeoffs between taking an unpaid internship which might further one’s career vs. a paid job that wasn’t necessarily exposing a student to a career interest of theirs.
- Discussed how a student might get paid more if they stayed at the same summer job for a number of years.
- Wish I had discussed how they should think about investing their savings. Should they invest in the stock market with the money they have saved for college? Good opportunity to discuss the 5 year rule (if you need money within five years, you don’t want to invest in the stock market).
- Finally, the students developed a strategy for Juan Carlos to hit his target
- The answers varied as some students thought Juan Carlos could save a high percentage of his income while others weren’t so confident that he could hold down a job, let alone save a high percentage of his pay.
- We also discussed other alternative strategies, including taking out student loans and not working. Students didn’t think that was such a good idea as many saw the intrinsic value of the work itself in developing Juan Carlos’ skills.
- I closed by asking students if they had savings goals. Only a few hands went up. I then dug a little deeper to understand why they didn’t have goals. The principal reason being that most students were so focused on their academics that they didn’t have time for work and therefore having a savings goals didn’t make sense for them. With aid award letters fast approaching, I encouraged them to use the same template to develop their savings goals. Each dollar saved is a dollar they don’t need to borrow!
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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