First Job Euphoria: Needs v. Wants - Financial Literacy

Susan/Sam Jackson's first job after graduating from a two-year fashion merchandising program at a local community college is as an assistant manager at Anthropologie clothing and home lifestyle store. Her base pay is $26,000, plus benefits, including health insurance. She is excited about landing her first job and moving into her first apartment.

Susan rents an apartment that she thinks has potential but it needs to be redecorated. She’s sick of garage sale finds and decides to pay for most of the expenses with the Anthropologie card the company gives new employees after they pass probation. It has higher finance charges than a bank card, but Susan can save money by using her employee discount.

Susan has difficulty distinguishing between needs and wants. She thinks that if she really wants something, that makes it a need. She uses her card at Anthropologie to furnish her apartment, establish her professional wardrobe, and take advantage of her employee discount by shopping for deals at Anthropologie. She gets a bank card to cover her entertainment expenses – restaurants, concerts, and three-day trips to attend the weddings of close friends. The big-ticket item on her bank card is an amazing deal on a scuba diving adventure trip. 

Sometimes Susan has to get a cash advance on her credit card to cover the monthly payment on her new Vespa scooter. She also has to start paying back her student loan to the tune of $300 a month. She decides that the best thing to do is to get another credit card with a limit as high as possible so that she can use it as her emergency fund.

When Susan loses her job due to corporate downsizing, she quickly depletes the $500 in her savings account from graduation presents. Now she worries about how she will make her rent. After being unemployed for a six weeks, she gets a job at a J. Crew clothing store, but it is only a part-time position with no benefits or healthcare. At the same time that her income is cut by 10 percent, the interest rate on her bank credit card jumps to 18% because of her late payments while she was unemployed. As a result, every month Susan is coming up short.

When she can no longer make the minimum credit card payments and is struggling to cover her rent and Vespa payments, she admits she is in over her head. Her situation deteriorates further when the bank holding her first, regular credit card goes to court and garnishes her wages. Susan files for Chapter 13 bankruptcy (reorganization).

She knows that not everyone who files for bankruptcy protection gets it, so she is very worried. However, the judge approves the reorganization plan and, for the next 60 months (five years) part of her paycheck is garnished. If she fulfills the requirements of the reorganization plan, the remaining part of her debt will be discharged. In the meantime, she learns that bankruptcy is reported to credit bureaus and affects her credit score. Credit scores can be a determining factor when someone applies for a job, tries to rent an apartment, or gets into a serious relationship. Now this exciting time of new beginnings has become a sobering wake-up call.

Discussion Starter Questions

The scenario and questions are meant to stimulate critical thinking and discussions about life decisions that may put young people on the path to bankruptcy court.

1. List Susan’s/Sam’s needs versus wants in this scenario. How could these wants be managed to prevent a financial crisis?
2. Identify some decision points at which Susan/Sam made his/her financial situation worse.  How could he/she have handled each of these turning points differently?
3. What safeguards should Susan/Sam have put in place to protect his/her financial stability — and avoid the risk of facing bankruptcy?
4. What are some financial setbacks/surprises that Susan/Sam should anticipate and prepare for in his/her teens, 20s and 30s?
5. When Susan/Sam realizes he/she is in trouble, what are some steps to take to put on the brakes?
6. What are some factors a judge may consider when deciding whether Susan/Sam will keep his/her vehicle (motorcycle, truck, and car)?
7. Given this scenario, can student loans forgiven?
8. What kinds of debts cannot be discharged?
9. What are some of the short-term and long-term impacts on someone’s professional and personal life that stem from filing for bankruptcy protection?
10. What are some typical, student spending habits that can put someone’s future in jeopardy?

Examples of Responses to Discussion Starter Questions

The general approach taken in these responses can be used with each of the scenarios.  The boldface type identifies the point of each question.  

1. Needs v. Wants.  Using this scenario as a springboard for differentiating between basic needs and wants, students are asked to identify both. Among the needs that students are likely to find in any scenario are rent, transportation, basic living expenses and financial obligations, including student loans, car payments, and monthly bills.
   
   The protagonist’s wants are easy to identify. Some of the ways to manage finances and prevent a financial meltdown include creating and maintaining a budget, building in spending for entertainment and travel, etc.  The protagonist also could have scaled down her current spending and set short-term and long-term financial goals.
    
2. Decision Points. Some points at which protagonists can make their financial situation worse include the following:
   1. Deciding to buy everything, or to buy expensive items all at once, rather than developing a scaled-down, incremental plan;
   2. Putting optional expenses on a credit card;
   3. Charging more than what could easily pay off in one billing cycle;
   4. Accumulating too many credit cards;
   5. Maxing out the credit card limits; and
   6. Only making the minimum monthly payment on each card.
       
3. Safeguards. To protect finances, some safeguards that could be put into place include:
   1. Establishing a budget that includes spending money;
   2. Setting up automatic savings from paychecks;
   3. Building up a cash reserve to cover living expenses for six months to provide a safety net, and
   4. Building up an emergency fund.
       
4. Anticipation. Some financial challenges that should be anticipated and prepared for at this stage in the teen years, 20s and 30s include, saving to create an emergency found that will cover: 
   1. A long period of unemployment during job searches;
   2. Getting a job and establishing a work-appropriate wardrobe;
   3. Working part time or being under employed;
   4. Being financially self sufficient;
   5. Getting a car;
   6. Getting an apartment (deposit, plus first and last month’s rent).
       
5. Brakes. When the protagonist in the scenario realizes he/she is in financial trouble some steps can be taken to put on the brakes.  They include:
   1. Cutting up credit cards but not closing accounts;
   2. Scaling down the standard of living;
   3. Getting a roommate;
   4. Getting a second job, even if it is only occasional work.
       
6. Car Debt. If it is determined that the protagonist can continue making car payments after discharging the credit card debt, the car note, sometimes, can be reinstated so that the car can be kept.
    
7. Student Loans. The protagonist, probably, will not be able to get student loans discharged. Such debts are not discharged unless the debtor can prove that repaying the student loans would impose an undue hardship on the debtor.
    
8. Nondischargeable Debts. In addition to student loans, other debts that cannot be discharged include:  
   1. Income taxes for the three years preceding the bankruptcy filing
   2. Fraudulently incurred obligations (that is, providing a creditor, such as a credit card company, with false or incomplete financial statements)
   3. Certain domestic obligations, such as child support and alimony
   4. Debts arising from the debtor's willful and malicious injury of person or property
   5. Personal injury obligations incurred as a result of the debtor's driving while intoxicated.
       
9. Impact.
   1. Some of the short-term results of filing for bankruptcy might include:
      1. Protection of assets from collection
      2. The establishment of a repayment plan that is less burdensome.
      3. The possibility that -- after a set number of months of reliable payments are made — the remaining debts may be discharged.
   2. Some of the long-term consequences that are less favorable might include:
      1. Bankruptcy damages a credit rating for 10 years.\
      2. It also will jeopardize opportunities for renting an apartment, landing a job; getting a mortgage; or getting into a serious personal or business relationship.
         
10. Self-Awareness. Students discuss spending habits that could get them into financial trouble, e.g. using credit cards for consumables – food, cosmetics, etc.