Trick or Treat?

The Scary Thing College Kids Are Doing with Money

You won't believe what they are spending their college loans on

When I was a young boy, I loved Halloween. Like most young boys, I couldn't wait to dress up like my favorite cartoon character or monster, hit the streets, knock on strangers' doors, and ask for free candy.

This week on Halloween, kids woke up with the excited expectation of that night's trick or treating. They went to school dressed up, had parties, and enjoyed life. That's the privilege of children in wealthy countries.

I'm not quite sure how the whole ritual of trick or treat started up, but as a kid, I was thankful for it. It's interesting when you think about it. For one day a year, it's not only OK but also expected for kids to ask anyone and everyone for free stuff. It's an interesting social contract. Sure there's always that grumpy neighbor or two who turn their lights off and don't answer the door, but for the most part, everyone plays along.

Aren't you a bit old for that?

Of course, there are always those older kids-sometimes even college-aged or older-who think it's cute to dress up and beg for candy next to 7-year olds. The reality is nobody thinks it's cute. They're too old. They've outgrown the social contract, and now they're just being a pain in the butt and taking candy from kids.

We may bristle at these jokers, but the reality is that most people still expect free stuff even as adults. Instead of candy, we knock on our government's door and expect free healthcare, to be provided for when we retire, to get a job, and more.

In fact, it's this expectation of handouts that has the world in so much trouble today. Candy and handouts, after all, cost money. The problem is that on Halloween, when your neighbor is out of candy, they say sorry you're out of luck. In the government, when they're out of money, they just make some more out of thin air through debt, a bit of an economic divination, and drop it right into your candy bucket.

Isn't it free money?

You may wonder why college-aged kids think they can go around asking for free candy on Halloween. What are they thinking? Well, it turns out they just believe they can get stuff for free.

According to the "USA Today", "About half of students blow some of their school loan money on non-educational expenses, including 3% who spent it on alcohol and drugs, according to a new Student Loan Hero survey."

You read that right. Nearly 50 percent of college kids take out student loan money in order to spend it on things like:

  • Vacations (3%)
  • Restaurants (13%)
  • Clothes (15%)
  • Car Expenses (19%)
  • Monthly expenses like mobile phones (41%)

As Andrew Josuweit, CEO of Student Loan Help, tells "USA Today", "I think they're justifying it because of future income. They're thinking, 'This is the cost of doing business, this is my overhead.'"

In other words, this is free money.

Other People's Money (OPM)

There is such a thing as free money. We've talked a lot about Other People's Money (OMP) in Rich Dad circles. The concept of OPM is simple, but the execution of the concept takes a high level of financial intelligence. With OPM, you use other people's money to invest in cash-flowing assets that cover both the expenses required to maintain the asset and the expense of the investor capital (OPM). In the process, you significantly increase your return on investment.

A common example is using a bank to fund a real estate investment. You put up 20 percent of the capital and the bank puts up the other 80 percent. In return you get 100 percent ownership for 20 percent of your own money and 80 percent of OPM. If you find the right investment, the income covers the OPM and provides you cash flow each month. As such, your return is much higher on only 20 percent of your money than if you had to put up all the money.

The problem college kids have is they think they are "investing" when they take out student loans. They are not. Often they are taking on liabilities that take money out of their pockets for years to come. And when you compound that with spending that loan money on liabilities like vacations and restaurants, the financial predicament they get themselves into is quite spooky-to stay in the spirit of the week.

Time to grow up

Of course, if most people are honest, they look for free handouts like this all the time. It's not just college kids. But we should know better.

The beauty of kids is their innocence. It never occurs to them that somebody would say, "No," on a day like Halloween. But as we grow older, we get a little wiser-and skeptical-as we're told, "No," more and more often. Eventually, on a day like Halloween, we're cut off. After all, we're too old to be trick or treating. Then we have to learn to get our own candy. It's time to grow up.

As always, I encourage you to increase your financial education before times get much tougher, as I believe they will. Those who know how to provide for themselves versus looking for handouts will thrive while others will struggle to survive in the coming years.

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