Housing is really expensive for graduate students

In this week's Chemical and Engineering News, an important conversation on chemistry graduate student finances (article by Wynne Parry): 

Housing, in particular, can strangle students’ finances. The high cost of living near the University of California, Santa Cruz, drove graduate students at this institution to strike in December 2019. They demanded a $1,412 per month raise, an increase they calculated would allow students to spend less than 30% of their pretax income on rent, the proportion recommended by financial experts.

On July 1 of this year, Connor Brandenburg, an organic chemistry student at UC San Diego, got a raise that brought his finances nearly in line with this rule. After his department increased students’ stipends from $31,000 to $34,000 per year, his rent—$897 a month for a studio in university-run housing—accounted for about 32% of his pretax income.

But, within a year and a half, this share may grow substantially. In April 2023, he will have exhausted the 2 years of on-campus housing the university allotted him as a graduate student. Off-campus rents for a comparable studio can run up to $1,700, Brandenburg says, so he’s planning to downgrade.

“I’m 24. I don’t necessarily want to share a room with someone anymore, [but] financially, that may be my only option,” he says.

There are aspects of short-term pain/long-term gain for graduate school, but it seems more than a bit cruel for this to extend to penury in the form of immediate housing costs. Establishing some kind of reasonable ratio for student stipends to rent should be a goal for departments - of course, that's easier said than done. 

Chemists need an emergency fund

From a recent excellent post by The Polymerist about everyone's favorite topic, layoffs in the chemical industry, this worthwhile advice: 

Having two years of expenses in cash is a good cushion when you are older and if you lose your job and your severance and unemployment benefits get you through one year, guess what? You still likely have two years of expenses covered provided that inflation is not rampant. There is also a strong likelihood that you get laid off during a recession so having a strong cash cushion is nice for not having to sell investments during a downcycle. If you are in your late fifties or early sixties a few years of cash could mean the difference between when you can draw on retirement accounts and actually being retired.

But what if you are in the middle of your career, like your mid forties? One to two years of expenses could help tide you over to look for your next gig because unlike other professions there just aren’t really a lot of job opportunities out there for chemists and by out there I mean in the world.

I think of myself as reasonably "with it" in terms of personal finances, but I've never actually thought about what "expenses" look like. I liked this Vanguard post in terms of "what counts" in terms of "emergency expenses": 

• Housing
• Food
• Health care (including insurance)
• Utilities
• Transportation
• Personal expenses
• Debt

That's a tall order for most mid-career folks like myself - guessing that you have a fairly fine grained sense as to how much this actually runs for yourself and/or your family. That's not an easy thing to think about or to start to save for, but it's definitely a wise thing to prepare for. Rainy days do come...

Weird personal finance question about retirement investing in the Trump era

This gets a little political, so I won't be offended if you don't read this. It's mostly about retirement.

Low and negative interest rates means nuns are jumping into the market, buying pharma stocks

Is Sister Lioba doing better with her portfolio than you?
Credit: Georgi Kantchev, Wall Street Journal

Unusual story about a stock-trading nun in Germany* by Georgi Kantchev in the Wall Street Journal:

On a recent morning, Sister Lioba Zahn read the Bible, attended prayer, did the laundry and then prayed again. In the afternoon, she called her bank and started trading. 

...For over a century, Mariendonk financed itself by selling milk and candles, and through income on its bank deposits. After the European Central Bank began cutting rates, eventually going all the way below zero to their current -0.4%, Sister Lioba realized her convent needed extra income to survive. 

“With rates so low, we must get a better return if we want to sustain the convent,” says Sister Lioba, who holds the position of “cellerarin,” a convent’s version of a chief financial officer. 

Back in 2013, the nunnery’s roof needed repairing and the only car that the 28 sisters owned was nearing the end of its life. Calling her bank, Sister Lioba was offered a seven-year savings bond that carried a 1% annual return. She said she couldn’t believe what she was hearing. “You don’t need to have studied mathematics to see that we were going down,” said Sister Lioba, who had studied psychology. 

After morning prayer, she gathered her fellow nuns into a wood-paneled room inside the convent and showed a PowerPoint on low interest rates. Presiding over the meeting, Sister Christiana Reemts, Mariendonk’s abbess, made an observation. “Twenty years ago we could get enough money from interest to renovate our whole building,” she remembered saying. “Now the interest rate can bring tears to one’s eyes.” In Mariendonk, a decision was made and global markets had a new investor.  

Sister Lioba now runs a portfolio of roughly €2 million, or $2.1 million, from her convent office. “I started by googling what a swap is,” Sister Lioba says, referring to a derivative that allows an investor to exchange the income stream of one asset with that of another. 

Like many investors, Sister Lioba remembers the first stock she bought: Novo-Nordisk AS, a Danish drug company. She bought it in late 2013 and its value increased by around a third before she sold it earlier this year at a profit. “My only regret is why we didn’t buy some more at the time,” she says.... 

Her trading has brought her convent a 2.6% return, which isn't great, but not bad compared to negative rates. I'm guessing Sister Lioba doesn't charge much for her services... (Why not just put it into an index fund?)

*Can't get to the article? Google the headline: "Get Thee to a Brokerage! Low Rates Turn Nuns Into Traders" 

Help out an ex-DuPonter with their retirement funds

From the comments, Anon641p has an excellent question (lightly edited for grammar): 

....I came home to mail from DuPont ( I worked for them for 1981 to 1995) that said I can (but don't have to) cash out my defined benefit pension as a lump sum... And I have to decide between Sept 12 and Oct 16 of this year... Obviously this has to do with the merger. 

I would rather take it under the original plan as a little secure longevity insurance, but I wonder, given everything, if that is wise...  

Obviously they are trying to disburse the money in the plan as quickly as possible, which makes me wonder if it will be around in the long run (I have at least 5 years before I retire) 

I know there are other ex-DuPonters that read this blog, I wonder if they have gotten the notice yet and what they are thinking of doing about it...

I suspect that there really isn't much of a difference between the two choices, but I suspect that there are both tax implications and questions as to where the lump sum would be transferred to.

Readers, any help here?

UPDATE: A reader sends in a scan of the attached information sheet. 

A series of terrible financial decisions

There have been a number of "personal finance disaster" books written in the wake of the Great Recession. (One that I remember was Edmund Andrews' "Busted: Life Inside the Great Mortgage Meltdown.") 

The latest entry in this genre is an article in The Atlantic Monthly titled "The Secret Shame of Middle-Class Americans"; the author, Neal Gabler, talks about, among other things, the difficulty some folks have with covering surprise expenses: 

Since 2013, the Federal Reserve Board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49 percent of part-time workers would prefer to work more hours at their current wage; 29 percent of Americans expect to earn a higher income in the coming year; 43 percent of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew? 

Well, I knew. I knew because I am in that 47 percent.

The article is quite excruciating to read, especially for folks who cringe at bad financial decisions. Here was one of the author's that I was surprised to read:

We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding.  

Assuming this is true and there is no other context to this statement, this appears to me to be a profound error in judgment. Don't let this happen to you, dear reader. Emptying out your 401(k) for a party (no matter how important the party) is not a wise decision. 

A personal finance bleg: how often do you peek and rebalance?

Credit: Harold Pollack

I am a pretty big fan of this index card of financial advice from University of Chicago social scientist Harold Pollack.* It's not everything, but it's a lot of things I agree with in a short amount of space. 

A question for the personal finance nerds that isn't on the card: how often do you 1) look at your financial position (such as it may be) and 2) how often do you rebalance? I've, um, never rebalanced my very boring index-fund heavy portfolio. Is that important?

Update: Prof. Pollack e-mails in to note that he has a book coming out on this index card's advice.

China anecdote of the week

From Monday's Wall Street Journal article on the travails of China's stock market, a little anecdote: 

Meanwhile, many investors don’t regret their bets on stocks even in the face of the latest drops. 

Li Ping was among those who sold homes to free up cash to invest in stocks, hoping for better returns. 

In April, 51-year-old Ms. Li sold her three-bedroom apartment in Beijing’s eastern Chaoyang district for 7 million yuan ($1.13 million). Since then, she has parked 4 million yuan in the stock market via a fund manager. 

“The fund that I have invested in is very mature and professional,” she said, adding that she thinks the market will stabilize and rise again. 

Ms. Li has a lot at stake. She now lives in a rented apartment with her husband near his workplace. Her older daughter is married but her younger daughter is going to high school in the U.S. Ms. Li, who works in the insurance industry, said she needs her stock investment to yield more than 20% a year to cover her daughter’s school fees and other expenses. “The yield I’m getting is definitely more than the rent I pay,” she said.

Well, just as long as you're not asking for very much from your fund manager...

(An interesting issue, China's stock market. Is China's stock market different?, i.e. it is reasonable to rely on 20% returns for more-or-less immediate financial needs? I don't think so, but so much about China is different than in the United States that it's probably worth asking the question. If someone relied on a mutual fund to grow 20% a year in the United States, I'd say they were nuts. (Of course, I'm a boring index fund investor, so I would say that, wouldn't I?))

Nice to see

This past August, I took a day to visit the national ACS meeting in San Francisco; I was badged as press, even! I sat in on a portion of the Sunday meeting of the Committee on Economic and Professional Affairs. I thought it was interesting to watch the committee members discuss and debate the ACS policy statement on retirement security. Here's a portion of the final statement:

...A concern is that small companies and businesses, such as chemical or high-tech start-ups, can be disproportionately disadvantaged in establishing such plans for their employees. Complex government regulations for these plans result in high administrative costs that need to be distributed over a small employee base, effectively increasing the costs for small business owners and employees versus larger companies. As a result, many small businesses choose not to offer 401(k)’s. For those that do, the administrative fees are high, and the investment options often limited, thus negatively impacting employee returns on investment. Considering that a significant fraction of the approximately 163,000 members of ACS are employed by small companies (less than 500 employees), this has a substantial impact on our membership. 

Another detrimental component in many 401(k)’s is lengthy vesting periods. According to the 2010 Bureau of Labor Statistics National Survey, 69 percent of 401(k) plans accrue on either ‘cliff’ or ‘graded’ vesting schedules. ‘Cliff’ schedules require employees to remain with an employer for a minimum number of years or they receive no match, and ‘graded’ schedules are plans that slowly increase the employee’s vested portion with years of service. Unlike corporate careers of the past, current careers in the physical sciences are now characterized by multiple shorter-term professional positions. Therefore a professional in the chemical enterprise can be negatively affected by slow vesting 401(k)’s resulting in lack of portability. 

Specifically, in the area of retirement plans and 401(k)’s, Congress needs to take action to

• Reduce the regulatory complexity of 401(k) plans available to small business owners in order to make them more economically efficient and effective.

• Enact policies that promote the development of faster vesting and more portable 401(k) programs....

I gotta say, as a statement of desired policy, I agree with most of it. I have worked for an employer who claimed that 401(k) complexity and cost was too high (and of course, they would have never have gone for a match.) But the pre-tax nature of 401(k)s is pretty great, in my opinion.

(I wonder if Vanguard has a small-company 401(k) option? I am going to guess the answer is 'no.')

Glad to see that CEPA (among other ACS committee) has put together a statement -- good stuff. 

Bonus Monday paranoia: what are the tail-risks of Vanguard?

I am a huge fan of Vanguard, the mutual fund company. I basically don't believe in fancy stock-picking* and I like their emphasis on passive investing.

But when I read things like today's headline on the front page of the Wall Street Journal ("Vanguard Sets Record Funds Inflow"), I get a little nervous. What if Vanguard has skeletons that we don't know about? What if VFINX is actually some guy in Atlantic City named Vinny?

I should calm down some.

*No offense intended to fancy stock-pickers out there. 

Personal finance moment

If you're into personal finance and thinking about retirement, here's a link to a pamphlet (PDF) that I find to be a pretty good summation of close to what I believe, personal finance-wise.

I'm gonna rebalance next year, yeah, that's the ticket! 

(I like this notecard as well.) 

The Layoff Project: detailed financial tips from LT on surviving 3 layoffs

Yesterday, we heard from LT, whose husband was laid off three times over 14 years working in the pharmaceutical industry. Here are some of the more detailed financial tips that she has for families affected by layoffs.

CJ: You mentioned that you're quite frugal -- can you talk a little bit about that? 

LT: I’ve always been a bargain shopper, but I go into super-saver mode when necessary! I mentioned eliminating all non-essential monthly expenses. When the 2009 layoff happened, we stopped a gym membership (check your contract—some have a clause for unemployment, ours did), cut the cable back to basic, stopped the newspaper (except Sundays), stopped the lawn care service and got rid of our land-line. I cut way back on buying any type of snack foods and my all-time favorite: diet coke. I made iced tea instead, or just had water. I stopped buying paper towels, and I still just use washable rags. I made most of our bread, rather than buying it, and I experimented with other homemade items, like bagels, yogurt and granola. All dinners, lunches, coffees or any fast food out stopped as well. I went almost a year without a haircut. All car and home maintenance was deferred. Our one big expenditure was a water heater, which we couldn’t put off replacing.

Compound-backed loans? NMR tube-backed loans?

From the Wall Street Journal, an interesting report of handbag-backed loans:

HONG KONG—When 30-year-old homemaker Maggie Wong is tight on cash, all she needs to do is reach for her designer purse—and then hand it over to a loan officer.  

Say hello to the handbag-backed loan. While typical lenders often ask for cars and homes as collateral, Hong Kong's Yes Lady Finance Co. deals in borrowers' beloved handbags. The four-year-old company accepts purses on the spot, bringing in assessors from affiliate Milan Station Holdings Ltd., a chain for luxury secondhand purses, to check the bags' condition and authenticity. 

Yes Lady provides a loan within half an hour at 80% of the bag's value—as long as it is from Gucci, Chanel, Hermès or Louis Vuitton. Occasionally, a Prada purse will do the trick. 

Secondhand classic purses and special-edition handbags often retain much of their retail prices.
A customer gets her bag back by repaying the loan at 4% monthly interest within four months. Yes Lady says almost all its clients quickly pay off their loans and reclaim their bags. 

The company recently lent about US$20,600 in exchange for a Hermès Birkin bag, but Yes Lady's purse-backed loans start at about US$200.

This is basically a pawn shop that specializes in purses -- they're offering a 48% APR for loans of a handbag.  (Twice as much, one notes, as a credit card in the US.) Knowing how some people treasure their handbags (just like others might treasure a pair of boots or an especially beloved multitool), it makes a lot of sense to me, especially since Milan Station and Yes Lady have probably worked out a deal to take possession of the purses if the loan is not repaid.

Is there something as valuable and fungible to a chemist as a purse is to a Yes Lady customer? I dunno. Can't imagine a marshal coming to chain up one's NMR or HPLC. "See here, mister, you're gonna hand over all the drafts of your thesis -- and then you're gonna pay me back..." 

The most interesting paragraph I read today

My sincere apologies with the relatively quiet posting recently. I do indeed have a Process Wednesday post in the works, but I found this to be such an interesting framing of the issue by Alyssa Rosenberg, commenting on Sheryl Sandberg's Lean In and her approach to looking at childcare costs that I had to post it:

Similarly, Sandberg suggests a different way to look at the cost of child care. Rather than considering nannying or preschool costs as a dilemma, something that wipes out a woman’s earnings, or that’s discretionary spending to allow a woman to continue doing something that she likes, Sandberg once again reframes the question, acknowledging that “Child care is a huge expense, and it’s frustrating to work hard just to break even. But professional women need to measure the cost of child care against their future salary rather than their current salary…Wisely, Anna and other women have started to think of paying for child care as a way of investing in their families’ future.” 

Sandberg makes a very interesting point and one that I hadn't considered. When I calculate child care for our family budget, I usually do the math against our income (numerator = child care, denominator = wages). I had not taken into account that, over time, the wages term goes up...

[One should point out that for those, like Ms. Sandberg, who have/desire offices in the C-suite, the beginning years of one's career probably play much more of a role in future income than those of us to aspire to more mundane titles like "group leader" or "senior principal fellow."] 

The best personal finance paragraph I read yesterday

...courtesy of Slate business/economics blogger Matt Yglesias*:

Now since we are in fact living in a 401(k) world, here's some advice. You've got to save a lot of money for retirement. More than you think. More than you want to. And you need to put that money in a broadly diversified, low-fee fund. And you have to keep it there. Don't panic when the market plunges and sell. In fact, unless you're planning on retiring in the next decade, don't even check how it's doing. Just buy and hold and shift into something less volatile when you're near retirement. Vanguard has these good Target 20XX funds that automatically shift you into less volatile products as you get closer to your target retirement date, allowing you to do even more ignoring of the state of your investments. Which is good. The only way for anyone to make any money managing your savings is to try and trick you into making trades you shouldn't make, or buying products you shouldn't buy.

I agree with this a lot. (So much so that I get pretty upset thinking about expense ratios that I impact me in my 401k and how much I do not like them.) 

*One should note that Yglesias is better-off than the average household, so perhaps a grain of salt is in order. 

What should a newly hired scientist do with their money?

Economics/finance blogger Megan McArdle runs an occasional personal finance question-and-answer feature -- her most recent one has a fun question:

Dear Blogger:
I'm wrapping up a doctoral degree in the physical sciences and heading to an industrial job in a few months. My grad school years have been spent in one of the highest cost-of-living parts of the States, so my individual savings aren't in great (mid four-digits), but I'm mid-twenties and thankfully debt-free (no student loans, never carry a credit card balance, car bought with cash, etc.) My new job will be both in a much lower cost of living state and a significant step up in salary at a little under $100,00/year base + signing bonus + potential annual bonus, dependent on company performance and my personal success or failure. The company offers a 401k with a mixed match (I put in 6%, they fractionally escalate until they've matched 4%) and discounted stock for employees. Health and dental carry a modest deductible but the coverage is good. 

I've gotten by for a little under a decade as an undergrad on scholarships and lab assistant support and then as a grad student on fellowships and TA appointments; now that I'm slogging through my dissertation I'm starting to dream about how to structure my finances once I actually have finances to think about. I've been in school longer than most so I know I'm behind in starting major retirement savings, but the emergency fund will have to be bumped up first. Industrial research jobs are growing less stable than they once were, so I'm wary of locking myself too much into the company's system beyond what I need to get the match. I'm also likely renting for the first few years as I'm not sure if I'll be settling at that particular site long enough to merit binding myself with a mortgage to the local real estate environment. If you were in my shoes and starting your first outside-of-school job, how would you allocate things for the first few years? 

-Almost a PhD

Boy, doesn't that sound like a chemist? McArdle has some good answers, including thinking about a budget, staying out of the local real estate market for a year or so (until AaP figures out their new city) and working on three things:

• An emergency fund with 6 months worth of expenses. 
• Saving 15% for retirement
• Saving for other things, including a down payment on a house

All in all, fairly prudent advice, I'd think. Read the whole thing. 

Does your date have good credit or bad credit?

The New York Times had an interesting article on people inquiring about credit scores on dates:

As she nibbled on strawberry shortcake, Jessica LaShawn, a flight attendant from Chicago, tried not to get ahead of herself and imagine this first date turning into another and another, and maybe, at some point, a glimmering diamond ring and happily ever after. 

Her musings were suddenly interrupted when her date asked a decidedly unromantic question: “What’s your credit score?”

Amusingly, a chemist shows up later in the article (I've deleted his name):

[Name removed], a 33-year-old chemist in San Francisco, said he worried that the vast disparity between his girlfriend’s credit score and his own low one could create tension in their relationship. When the couple leased a car in October, Mr. [Removed] had to leave his name off the contract because his poor credit scuttled his chances for the bargain interest rate that his girlfriend qualified for. 

Mr. [Removed] said he resented that his credit score, which he said was marred by a single contested cable bill, has limited his access to credit. “I always pay my bills so it’s pretty ridiculous that a billing error can ruin your score,” he said. His girlfriend declined to be interviewed.

I've always been under the impression that chemists probably tend to stay out of financial trouble and, in general, have good credit. My little anecdote about this was to see the very modest cars that my professors (no slouches in the earnings department, I suspect) drove. When I was at a large pharma company, I also noted the relatively modest vehicles in the parking lots. That said, graduate school can be a good time for people (including myself!) to get themselves into some small or large amount of debt, which can have repercussions down the road.

Naturally, though, asking a credit score on the first date is sort of stupid. While "what is your financial situation?" is incredibly important for any long-term relationship, at that moment, it's just sort of rude.

Alternative savings vehicles?

Credit: Forbes

For some reason, I was reminded of a favorite passage from Anthony Bourdain's Kitchen Confidential: 

Many of the Spanish-speaking members of the crew took part in an unusual "banking" scheme where each week all the members of a large group would sign over all their paychecks to one guy. The recipient was selected on a rotating basis, and the way it worked, I gathered, was that for about two months or so everybody squeaked by, doing their best to make do without a check, spending little... until the day it was their turn, at whcih point they came into thousands of dollars and could spend like drunken sailors.  

This practice made no sense to me. It also required an extraordinary amount of trust in one's fellow cooks. I did not share my comrades' confidence that Luis, for instance, wouldn't skip town on a drunk after getting his big payday and leave the others in the lurch. I held on to my meager paycheck. I had no time to spend it anyway. 

I know that's it's difficult for grad students and postdocs to save money, but this sort of pooling would seem like a great way for an emergency fund of some kind. Granted, you run into the same problem -- how much do you trust your labmates with your money? Who is the treasurer? Which 5-gallon can of solvent do you drop on their feet when they skim off the top -- the acetone or the dichloromethane?

Readers, what's the best way for graduate students and postdocs to have some meager savings?