Much like the boogeyman, it’s a term often mentioned, but never fully understood. Some reference the stock market as “The Economy." Others identify it as things like real gross domestic product or the inflation rate.
But to the average college student, none of that may truly matter. What does the U.S. GDP have to do with your daily expenses? Who cares about the monthly return on the S&P 500 when the majority of your spending money goes toward loaded tots at Linda’s? And what do you do with your buddy who's talking about option buying on Robinhood?
The first thing to do is to ignore most of the noise you hear about the economy. Much like with celebrity gossip, most of the information that we obsess about doesn’t mean much to the normal person, much less the average college student.
But, there are three economic indicators that should matter to college students.
The first indicator has to do with inflation. For college students, only two indices of inflation have a large impact upon our day-to-day lives: Gasoline and Food & Beverages. These indices look at the monthly change in the prices of goods. By looking at a good specific index, you can tell if certain items are more or less expensive, in comparison to all prices.
Now the question is — how to utilize this? If the gas index is lower than the overall inflation index, activities that have a major gasoline cost are the most effective use of your dollar, such as an extra road trip.
If the Food & Beverages index is higher than the overall inflation index, choosing cost-effective meals or reducing extra spending on food would be an economically sound decision to make.
The second indicator set is probably the most important for those looking for jobs, and that’s the labor force participation rate and unemployment rate among recent graduates (with an age range of 20 to 24). The LFPR is the percent of the population either working or actively looking for work. In contrast, the UR is indicative of the number of people who are unemployed but actively looking for work.
We all know that a high UR is an issue. However, if the LFPR trends downward, it means fewer people are participating in the workforce, which is just as bad.
The combination of these two movements can reveal discouraged workers: people who want to find employment but have been unemployed for so long that they aren’t actively looking for work. This occurs when the UR and the LFPR decrease together. When both trend downward, it’s a signal of a dismal employment situation (and might be a sign for soon-to-be graduates to reconsider employment decisions).
The third indicator is for everyone considering studying abroad. Many factors go into selecting when and where to study abroad. For those more financially minded, relative currency strengths are a helpful factor to consider. These currency strength metrics give you the ability to see if you have a greater or lesser purchasing power in the country you’re traveling in, compared to if you stayed in the U.S.
The greater power the U.S. dollar has, the greater your power to buy things. So, if the U.S. dollar relative strength index is high, it might be a good time to go study somewhere outside of the country.
To sum it all up, most economic indicators don’t mean much for the average college student. But, by looking at certain inflation indexes, employment statistics and currency strengths, students can make better-informed decisions about their current economic situation, freeing them to ignore the noise normally generated around the economy.
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