Reducing Income Risk

I find that most of the decisions I make are only slightly motivated by reducing income risk. Most of the decisions I have made in college are because they are convenient and seem right in the here and now. For example, I chose to major in Economics my sophomore year after being in DGS my freshman year. My decision to major in Economics wasn't  motivated by the potential future employment it offered. My decision to major in Economics was because I really enjoyed economics. At the time of me choosing my major it seemed like a good idea to major in something I enjoyed. I would argue that there are other majors out there that I could have done, but didn't because I wouldn't enjoy them in the here and now. However, they would probably reduce my income risk after college, like accounting. However, I also decided to minor in business to gain more experience in a range of fields. I did this to reduce the risk of potentially not being able to find a job after college. The decision to minor in business was to manage income risk.

Over the summers I've mostly worked in retail and service jobs. The major reason for choosing to work these jobs is to have a source of income over the summer. It seems like a good idea in the moment to have a summer job to be able to afford certain summer activities I enjoy doing. However, these experiences do not offer any long term gain. Instead of working a minimum wage labor job I could try and get an internship. However, internships are sometimes harder to get and sometimes don't pay as much as a part time job. If I was to be more risk averse I would probably invest a lot of time finding an internship that could help me in my career. This would reduce my income risk making it easier to get a job right after college.

My decision to go to college was motivated to find a higher paying job than one I could of have gotten with a high school degree. However, my decision to attend college subsequently made me take on some student loan debt. I've accumulated this debt to go to school to reduce the risk of not being able to find a quality decent paying job after college. But, taking on student loan debt is risky because I have to pay it all off after college. For this reason, I've kept borrowing money in college to the bare minimum. To accomplish this I chose an in state college with relatively lower tuition.

My older sister has already graduated college and has been in the job market for four or so years. She made many of her decisions looking at the long term. One of the major decisions she made was to work hard and get as many scholarship she could to reduce the amount of money she had to borrow for college. This gave her a cushion after having graduated with very little debt to take her time finding a decent paying job. However, by the time she graduated she already had a job lined up. Something unexpected that happened is she quit her job because she didn't enjoy it. For a short time she was unemployed and moved back home with my mom. Although, since she was well prepared it wasn't that risky. She had money in her savings and had no student loan debt that needed to be paid off. From her situation I find one of the most important things you can do when trying to avoid risk uncertainty after college is paying off student loan debt as fast as you can. Student loan debt never goes away unless you pay it. Not having to worry about any student debt will take pressure off finding a high paying job right of out of college.

Comments

  1. Professor ArvanOctober 21, 2017 at 1:04 PM

    Liking the major is important, of course. However, I wonder what basis you used for deciding that you liked it. Did you take principles of macro and micro at the U of I during your first year? There is a question of whether those large lecture classes are indicative of the subject thereafter, such as our Econ 490 class. So you might reflect some on whether the information you had at the time was enough to make an informed decision.

    Ironically, when I went to econ grad school, I probably had less information about economics than you had after your first year at the U of I. So there was lot of uncertainty then. Sometimes you have to try things without knowing how they will turn out. In my grad class more than half the class dropped out within the first year. The program definitely had its brutal aspects. I wonder if the undergrad econ major here challenges most students much. If not, there is the question of whether it really prepares students for what comes next.

    You didn't speak to what you are planning for this coming summer. Are you now looking for an internship so you will be better positioned for the job market thereafter? Timing-wise, I will not that the unemployment rate now is pretty low. So the chances of finding an internship should be pretty good. I would think your idea of working a better paying summer job makes sense early on, but as you get nearer to graduation the internship starts to look like the better alternative.

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  2. Ben BernankeOctober 23, 2017 at 12:28 AM

    I took both intro to macro and micro freshman year and really enjoyed those classes. It was mostly theory and not much math, but I enjoyed the principles and being able to apply them to how things work in the world. For example, learning about inflation and the causes of inflation in macro helped improve my understanding of the financial crisis that happened a little while ago. The econ classes definitely get hard as you go to the 200 and 300 level courses. I figured from 102 and 103 I would enjoy it enough to continue on through the degree and I find that I still do. Although I think the 200 courses really start preparing you for the harder and more work that the higher level classes have. This coming summer I am planning on finding an internship. Although, I haven't found one yet I will continue to try and find one and will only work a service job if I can't find one.

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