liveWELL: Jon, at the University of Iowa, 32% of faculty and staff reported on their Personal Health Assessment that financial stress got in the way of them being able to do their best work. What are key points you’d like for young adults who are getting started in the workforce to hear regarding their long-term financial health?

Jon Garfinkel, PhD: It’s an old adage but starting the savings process as early as possible is something that we constantly emphasize. The UI helps with this by introducing new hires to the university’s retirement plans during orientation.

We also offer two views (as does the UI through the structure of their retirement plans) on the following recommendation: set a plan and then kind of ignore it. The first view is to set up your paycheck-withholding (for retirement) at 5%. Do that as part of your orientation paperwork process. Out-of-sight savings (where the money disappears from your paycheck before you see the direct-deposit monthly payment into your bank account) is a recommendation from behavioral research. You get used to seeing the direct deposit amount, and so you kind of forget that you could see more money arrive in the bank account if you weren’t saving so much via the pre-tax retirement contributions. You get used to “living with” the observed amount. The way the UI helps encourage this is with their matching of such (pre-tax) retirement contributions. So, the UI helps you save even more via matching, but it’s the UI’s money adding on to the employee’s contribution.

The second view on setting a plan and ignoring it is tied to one of the key investment vehicles that employees can choose as a location for their retirement savings, age-based mutual funds are an example of this. I like to say that these funds are built to “do the wise investing for you”. They adjust how much money is in riskier vs. less risky investments as you get older and approach retirement. These adjustments are based on a lot of research about reasonable risk taking through your lifetime. Moreover, the investments made (by such age-based mutual funds) are well-diversified. This is also an important thing to do according to much finance research.

All of these recommendations carry along an underlying benefit as well. It’s known as “dollar-cost-averaging” in the finance profession. If you put the same amount of money away each period (month for example), you buy fewer units of the assets when the assets are more expensive, and you buy more units of the assets when those assets are cheaper. Implicitly, you’re following the well-worn recommendation of “buy-low”.

So overall, start saving right away through the mechanisms that the UI offers. Then try to let it

run on autopilot.

liveWELL: Credit Card debt is not something people like to talk about, but we know it exists. It becomes so easy to rack up debt and then so difficult to pay it off. Aside from “don’t go into credit card debt that you can’t pay off,” is there anything you can offer on how to get out of this hole?

Jon Garfinkel, PhD: Two popular methods for paying down debt include the Stacking Method and the Snowball Method. Both methods require you to make a list of all your debts, including interest rate and minimum payment for each, and choose one particular debt to tackle at a time. They both encourage paying minimum payments on all your debts while you throw every extra penny that comes your way towards that chosen debt. Creating a budget of your income and expenses can help you evaluate your needs vs. wants and determine how much you can realistically put toward debt each month.

liveWELL: We hear that student loan debt and the cost of housing/living can be especially big stressors for people. Any advice on how to manage these stressors?

Jon Garfinkel, PhD: As usual, I recommend developing a plan to address it (or each), and then stick to the plan. Part of developing comfort is simply knowing that you’ve done the best you can. I talk more about this below in response to your last question.

Some of this planning happens naturally. A house purchase involves a mortgage, and one of the payment options on a mortgage is “fixed rate” which also leads to fixed monthly payments (in most vanilla mortgages). So, if you found the monthly payments affordable, it’s highly likely they will remain affordable since the required (amortization) payments don’t change. Of course, the key is to not over-reach on the mortgage amount or (highly) relatedly, the price of the house you buy. Make sure you count all of the house-related payments (mortgage + escrow for insurance and taxes + any PMI). The total monthly payment (to the bank) usually bundles all of this together. Then, try not to have this monthly payment be more than 25% of your monthly take-home pay.

When it comes to student loan debt, that must be paid too (like a mortgage, or there can be negative consequences). So, this is certainly part of the above consideration. You don’t want to have zero wiggle room in your monthly budget. If your student loan payments are a big chunk of your monthly take-home (the direct-deposited amount into your bank account), recognize this for the constraint that it is. Get it taken care of (fully paid off) and then you will have more flexibility.

liveWELL: Finally, on our campus, we have a very well-educated population, but personal finances and long-term investing and savings can be very complicated. It’s hard to admit we don’t always know all of the avenues and options for planning, saving, and also managing debt. Do you have any resources you recommend to read, listen to, follow, etc.…?

Jon Garfinkel, PhD: Don’t let questions or uncertainties become the biggest part of the fear. Ask knowledgeable people (for example investment advisors). Even if you’re a top-flight academic, that doesn’t mean you are supposed to know finance. Everyone is expert in their own way, but no one is expert at everything. I ask my wife about science and medicine, all the time. She turns to me with finance questions.

Free Financial Coaching with Horizons Financial Health and Wellness

The University of Iowa offers free, confidential appointments to discuss financial-management concerns like credit card debt or loan repayment. Employees are eligible for up to three one-on-one financial coaching sessions at no cost. Contact fhw@horizonsfamily.org or 319-653-3123 to learn more or schedule an appointment.

Financial Well-Being Offerings for UI Faculty and Staff

Financial well-being classes and events are held throughout the year on a variety of topics ranging from paying off student loans to maximizing your retirement assets. Visit hr.uiowa.edu/well-being/livewell/health-and-well-being-resource-guide/financial-well-being for the most up-to-date information on these events and how you can schedule a FREE, one-on-one appointment with an advisor from TIAA.

This article originally appeared in the liveWELL 2021 Spring Employee Well-Being Newsletter.