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<span class="title">What Will Sandra do?</span>
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This is Sandra. She just graduated high school.
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<p>Sandra has been accepted into an engineering program at a good school. She knows she'll need to take on student debt to help pay tuition and is afraid of making such a big financial commitment.
She also works part-time as a barista and, as an alternative, is considering that as a full-time career. If she's good at it, one day she may become a store manager.
You are Sandra's close friend and she asks you for advice. Luckily, you recently stumbled upon this [[tool that can read people's financial futures...]]
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<p>You explain that around the year 2070 Sandra chooses to retire.
The green line drops.
• Her income will decrease because she's not working anymore.
The red line also drops.
• That's because people tend to spend less in retirement than they do while they're working.
After looking at your chart, Sandra is skeptical. "I already know how much I earn and spend. It's called budgeting."
[["Is there anything else your special tool can tell me?"]]
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<p>No, Sandra is not OK in her future as barista. At least not without making some changes to the plan she described to you.
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If Sandra decides to retire at 65, her assets are $200,874.00 (the tallest blue bar).
She'll start using her assets to supplement her income in retirement. She'll run out of assets when she's 74 (no more blue bars).
But, if financial experts are right, Sandra may live past the age of 74. In fact, they estimate that today’s teenagers will have an average expected lifespan well into the 90s! Sandra may need to fund another 20 years of her life. Oops.
To make this financial future work, Sandra may need to spend less, perhaps take another part-time job, or invest her savings more aggressively.
Seeing this outcome, Sandra feels she wants to look at [[her financial future as an engineer]], even though she'd need to take student loans.
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<p>Sandra's first choice was industrial engineering. You ask her a few questions and get these answers:
• It's a four-year undergrad degree
• Tuition is $20,000 per year
• Her living expenses when at university are $19,000 per year
• Her income during studies is $5,000 per year (summer and part-time jobs, scholarships, family gifts)
• As an engineer, her starting salary is $51,000, or $39,651 after tax
• When she graduates, she'll live downtown and spend an additional $9,000 per year compared to when she is a student
Again, you fiddle with the tool and [[here's what you see]].
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<p>Sandra stares at her engineer future. "What's that bump in the red line?", she asks.</p><div style="margin-left:-5%;"><img src="Sandra chart 5.jpg" style="width:80%; display:block; margin:0px auto;" /></div><p>You explain that this is where she goes to school and her expenses rise because of tuition. In fact, they rise above her income.
"So, [[what do I do?]]", she asks.
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<p>This is where student debt comes in.
There are moments in life when your expenses exceed your income and it makes sense to consider borrowing money to cover them. Like to pay for education, to buy a home or a car.
You are now going to show Sandra [[what happens when she takes on student debt]] to cover some of her expenses as she studies for the engineering degree.
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<p>Sandra notices that the chart looks different now. "What are these orange columns?", she asks.</p><div style="margin-left:-5%;"><img src="Sandra chart 6.jpg" style="width:80%; display:block; margin:0px auto;" /></div><p>You explain that the orange columns represent her student debt. You remind Sandra that assets are money and stuff you own, while debt (also called liabilities) is money you owe.
Sandra wants to know if she is OK in her engineer future. [[Is she?]]</p>
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<p>Sandra investigates the bump in her expenses when she goes to school. You explain that her expenses go up when she has to pay tuition. She has little income and the red line is quite a bit above the green line. That's the gap she needs to cover each year with student debt. The amount she owes increases every year she's in school - the orange columns become taller.
Then she graduates and gets a job. Her income goes up. Her expenses decline only slightly. Yes, she does not have to pay tuition, but her adult lifestyle is more expensive than her student lifestyle. Still, after graduation, she keeps her expenses below her after-tax income. That allows her to gradually pay off her debt (orange bars are getting smaller) and eventually save some money each year, invest it, and build her assets.
What do you think Sandra will do, now that she's seen her financial future?
After looking at your charts, Sandra feels more comfortable about student debt. She's not taking it lightly, but knows that under the right circumstances it makes financial sense.
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<p>You decide to look into Sandra's future as a barista.
You ask her a few questions and discover that:
• Sandra's barista job pays $13 per hour. This means $24,000 per year before tax, and $20,315 after she pays income tax.
• If she spends $19,000 per year, she's able to save $1,315 each year.
You type your findings into the tool, fiddle with the settings and... [[Sandra's barista future pops up onto the screen.]]
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<p>Sandra has no idea what to make of this. She gives you a puzzled look. You proceed to explain to her what the chart means.
The green line is her ''income'' - money Sandra gets each year.
The red line is her ''expenses'' - money she spends each year.
Both income and expenses grow with inflation, which is why both lines slope upward.
• Inflation measures how much prices of goods and services (including wages you earn) increase over time.
Sandra looks at the chart and asks you to explain [[what happens after 2070.]]
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<p>To assess whether Sandra's financial future as an engineer is OK, you take a closer look at the following chart:</p><div style="margin-left:-5%;"><img src="Sandra chart 7.jpg" style="width:80%; display:block; margin:0px auto;" /></div><p>Sandra checks if in the last year in the chart she has any assets left. She does!
Her student debt peaks when she is 22, at $169,407, including interest. It takes several years to pay it back. But she starts saving money at 35 and builds her assets. When she retires at 65, she has more than enough money to supplement her retirement lifestyle.
Sandra wants to have a closer look at what happens while she is in school and is taking student loans. You decide to show her [[both charts side by side.]]</p>
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<p>You show Sandra a second chart and explain to her how it works.</p>
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<p>"The blue columns are assets - money you've saved and invested, as well as valuable stuff you own.
[[Where can I get some assets? asks Sandra.]]
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<p>You decide to show Sandra both charts together.</p>
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<p>"When your income is bigger than your expenses", you explain, "you are able to save money. Your savings add to your assets."
"When your expenses are bigger than your income, you use up your assets. Until you have none."
"Now I get it", says Sandra. "So am I OK in my barista future?"
[[Yes|Outcome]]
[[No|Outcome]]
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