It’s rarer than ever to hear someone say “I worked my way through college.” With  tuition rates rising at nearly double the rate of general inflation, a student working under the Federal Work Study Program cannot realistically make a substantial dent in the tuition bill, let alone have money left over to pay the sum of room and board, books, a laptop, and minimal spending cash.

The federal minimum wage is $7.25/hour effective July 24,2009. Let’s assume the student gets paid the relatively generous amount of $11/hour for a library job, and works 20 hours a week term-time (a difficult amount to guarantee, given the student’s need to, well, study during the term). That’s $187 a week given a tax rate of 15% (yes, work study is subject to federal and state income taxes). There are roughly 40 school weeks in a year. The student can make up to $7480 a year, and that’s by working 20 hours a week in addition to being a full-time student. The student can cover 28% of  tuition, room and board at an average private four year university (averaging $26,273 in 2009) or 15.3% of the tuition, room and board at Harvard ($48868 in 2009).

In 1980, the average annual cost of tuition, room and board at an average private 4-year institution was $3499 and $11000 at Harvard. The federal minimum wage was $3.10.hour, and lets again assume the student gets paid a proportionally generous amount of $4.55/hour for the library job. That’s $77.35 a week given a tax rate of 15%, and after 40 school weeks of 20 hours a week of library work, the student could have made a total of $3094. The student could have covered 88% of the annual  private 4-year college bill or 28% of the Harvard bill.

The proportion of college tuition, room and board that a student can pay by working is not what it used to be and it will only get worse at the current rate of tuition inflation. For this reason, I have personally never bothered taking on a work-study job to help with tuition bills. It’s mathematically impossible to make an real impact by doing so.

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I’ve been learning so much about different financial products and investment strategies from blogs, articles, student groups, older investors, and, most recently, some willing mentors in the BetterInvesting community.  While it’s been great, I have realized that I probably shouldn’t go forward in investing more than a tiny training portfolio of my own money at this time, no matter how many brilliant ideas I have and how many new things I want to get familiar with. At risk of cognitive dissonance in comparison to the stories of my experiences, I will explain to you my particular reason: financial aid.

As a student going into my junior year of college at Harvard and a tad reliant on financial aid for continuing my education (70% of Harvard students receive some form of financial aid), it is both a fear and a reality that personal investment will compromise a percentage of my scholarship. How much is unclear; the way the government calculates the Expected Family Contribution (EFC) each year is undisclosed, though many websites host online calculators that should get you a (wide) ballpark number. The FAFSA website does address student investments in very general terms: “If the student is a dependent [as most students are], the accounts are reported as parental investments in question 90, including all accounts owned by the student and all accounts owned by the parents for any member of the household,” which tells us that student investments are equally weighted to parental investments but nothing really about specific numbers and percentages. Past the FAFSA, the formula that Harvard uses to calculate the values of its own need-based scholarships is a separate mystery.

I believe that the mystery of how financial aid credits are awarded is good: if more details were disclosed, enterprising individuals would try to find the loopholes in the formulas, gaming the system at the expense of families who may not have the time, familiarity, or language-skill to read all of the footnotes and small print.

And, of course, I also think that financial aid is great. Working on campus during reunion week at Harvard and noticing the uncomfortable lack of diversity of the alumni classes, I am proud that more and more colleges are making their programs more widely available. Even though it would benefit me personally to change the policy, I do not think that student investments should be weighted less than parental investments, again because of the loopholes that such will create.

But what I would like to do is highlight that this will delay my personal investments to many years ahead, especially as graduate schools provide financial aid awards and low-interest loans to students with financial needs.  Because the specific weightings of particular investments is undisclosed, I have to be patient in applying my newly-acquired investing knowledge into the markets. For me, it’s well worth the wait, and for other students, it’s a consideration to be aware of so they don’t unwittingly jeopardize their financial aid situation.

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If you want to get started investing, you need to start reading now. So much of investment is jargon. Articles on investment management are complex at first glance, but after a while get repetitive in the vocabulary, trends, metrics, and watershed legislation they cite. Understand some and you’ll understand most.

After you develop some background by reading articles, it may be best to discuss it with others. Use peers and professionals for guidance on what to read, and note that the more you know, the more they will be willing to exchange advice with you. Join a group on your college campus and take advantage of networking events to gain access to finance professionals. Ask them what kind of investments they make and why.

The first choice you’ll need to make is how much to invest in stocks. What is your risk tolerance – the degree of uncertainty that you can handle in regard to a negative change in the value of your portfolio? Would you be able to roughly maintain your standard of living if your portfolio disappeared tomorrow? You can start small and add a fixed amount each month. Your youth enhances the value of compounding.

Another choice you will need to make is, of course, which stocks to buy. What you are trying to do in choosing stocks is beat the market. In analyzing a company, try to put something together that the market has not yet priced in. This does not mean you need to have access to confidential information, this means that you have to be smart – put ideas together in ways others would not. Additionally, look out for risks: read the footnotes on the Annual Reports, try to discover what the casual reader may have overlooked.

Sometimes it is just luck. Throughout you lifetime you will witness highs and lows, not only in your personal life, but also in your stock account. Be patient. The rule of 72 is on your side. Do not sell immediately when a stock starts falling because a steep slope upward may be just around the corner.

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I opened an account on E*Trade this year in January. I was 19 years old and a sophomore in college. I was deciding between E*Trade, TD Ameritrade, Zecco, and Charles Schwab & Co. as trading platforms. At first, I was most interested in Zecco because it seemed to have the best deal: only $4.50 per trade versus $8.95 per trade on Schwab and $9.99 per trade on E*Trade and TD Ameritrade. However, a friend recommended E*Trade as having the best investment advice on its website, advice far superior to Zecco’s. Tending to buy quality versus quantity in my daily life and wishing to blame someone other than myself if all failed, I opened an account with $900 on E*Trade. Word of mouth advertising at its best.

Opening an account on E*Trade was surprisingly simple. All I had to do was fill out basic information, provide my Social Security number, and click “Accept” multiple times. A prompt to transfer money from a bank account for free popped up. I did so accordingly and waited a few days for the transaction to be complete.

Now it was time to choose stocks.

The first semester of sophomore year I joined Smart Woman Securities, a not-for-profit organization focused on investment education for undergraduate women. I learned how to make a comprehensive stock pitch with all the relevant sections: Business Overview, Industry Overview, Valuation, Competitor Analysis, Balance Sheet, Income Statement, Statement of Cash Flows, etc. I learned which metrics apply to which industries, and which metrics are relevant to all industries. I learned that ROA is irrelevant in the banking industry and that the Combined Ratio is important for assessing the profitability of a company in the insurance industry.

I had done a pitch on Cree, Inc. for a competition on campus held by Fidelity Investments and was fairly confident in my investment thesis. Cree is a leader in the LED industry, setting the standard for light source efficiency with the xLamp series of LEDs. It had endured the recession, expanded into Taiwan, China, and Brazil at a time when most companies were hesitant to do so, and its largest competitor, a private company out of Japan called Nichia, was wrapped up in law suits. I chose to invest 1/3 of my money in CREE, and 1/3 in VECO (its other competitor).

The last third I invested in JPMorgan (JPM) which turned out to be a bad idea. The stock fell by $8 dollars a share within a week, and after it rose $2 dollars I just sold it. With many years to go, I wanted to invest in something safe, so I chose Intel (INTC), which has remained relatively stable since.

What I loved: becoming an amateur expert on LED stocks. Additionally, I loved watching the market and having a small stake in it. Making a high return on CREE and VECO was not bad either.

What I hated: paying $9.99 per trade. With a tiny portfolio, this was really a pain.

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Someone once told me that, when asked, you should give two reasons for why you want to do something: one which is the superficial reason and the other being the personal reason. Two distinct reasons. One high-minded, the other slightly base. Take the opportunity to show the interviewer you are human, and fundamentally no better than them; ditch the holier-than-thou save-the-world answer immediately upon bringing it up.

So what’s my answer? Why and how did I get interested in finance and investments and money management? Hailing from Brooklyn, NY, I’m a no-nonsense kind of girl. So I’ll dispense with the superficial reason and give you my personal reason.

I’m interested in investment and financial services because no one in my family has a clue what that means. My brothers are doctors, my sister and both sister-in-laws blond nurses, my mom works in medical billing, and my dad works in medical engineering. We know healthcare, we all generate a decent, steady income, and it all just sits in the bank. We get the news last.

In high school I did what I was good at: biology and chemistry. I won awards, aced the tests, and so on. But when I was filling out my financial aid forms for college, reality struck.

The final pages of the FAFSA – the Free Application for Federal Student Aid that is required of every college and graduate school student applying for financial aid – asked whether your parents owned any homes distinct from the one you live in, and what is the market value and purchase price of the homes. It turns out that my parents invested in was a house in Palm Beach, Florida, which they purchased at the near-height of the housing bubble in back in 2005. As with most so-called investment properties in Florida, the value of this house has since plummeted to negative equity. Someone at the Polish community center told them to do it. The mortgage they are paying off is now higher than the market value of the home. I saw the discrepancy in the numbers and begged mom to tell me what happened and she did. I freaked out.

I knew that more failures of this sort would happen if our family continued to close ourselves off from market news. I picked up an Economist subscription the summer before my first year at Harvard and could not decipher it. The more I read and outlined, the more distraught I became. I had no background.

Freshman year I took a class called Social Analysis 10, which is Harvard’s introductory economics class that over 600 freshmen, sophomores, and even some juniors at Harvard take. It was fun, I did well, but it was too theoretical. I still could not understand any financial newspapers or magazines. I let it go for a while and joined the crew team. Second semester, I quit the crew team and did nothing at all.

Having no extracurricular activities and dedicating myself to my school, I began having trouble making more friends. It was far past the first few months of school, and by now most of the students in my class organized their cliques around their activities. I felt out of place. When a custodial worker asked me casually what my interests were, and I had absolutely no answer, I knew my lack of a goal anymore was becoming a serious problem.

In the summer between freshman and sophomore year, I attended Harvard Summer School in Tokyo, for lack of another idea of what to do. I had a great time — I learned about the history of the samurai and about why eastern and western medicine have grown distinct. I had an amazing host family which I am still in contact with. One of the boys in the program held an executive position in Veritas Financial Group, a club on campus dedicated to teaching students at the liberal arts college the skills necessary to excel in finance. He kept telling a friend of his in the summer school program to join Veritas in the fall. I was jealous that he wasn’t recruiting me, a girl, but instead yet another guy.

So in the first semester of sophomore year I took only three classes. Instead of a fourth class, I joined seven business/finance clubs on campus. Seven: Veritas Financial Group, Harvard Financial Analysts Club, Harvard Women in Business, Smart Women Securities, Harvard Investment Association, Harvard AMBLE, and the Harvard College Investment Magazine. I went through their training curricula, showed up at almost every meeting, met a lot of amazing people, and got super involved. I opened an account on E*Trade with a little less than $900 and learned how to choose stocks. Retaining my science geek pride, my first investments were in companies producing light emitting diodes (CREE and VECO), in which I made 28%.

In summary, my path to getting smart about my personal finances and investing came from personal experience that affected me deeply, not high-minded nonsense about the wisdom of crowds or the efficiency of markets. I resolved that I would no longer turn a blind eye to personal finance and embarked on a journey to better understand investing so that I could be in complete control of my — and my family’s — financial future.

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