Why NOT To Save For College

Yes, you read it correctly. There are some very good reasons not to save for your children’s college. Some, very, very, very good reasons not to save. People sometimes mix consumerism with the internal desire to give their children a better life with their own sublimations and misjudgements and end up thinking that they are responsible for doing everything themselves. In turn, they end up bankrupting themselves and doing their children a disservice.

Parents DO have responsibilities in their relationship with their children. I think that parents must:

1. Take care of themselves, physically, spiritually, and emotionally.
2. Build and maintain relationships with friends and family that are both functional and loving.
3. Strive to improve themselves and their fortune.
4. Model the behavior that they expect their children to follow.
5. Discipline their children to ensure that they do.

Everything else is details!

If you notice, there isn’t anything there that says you have to be able to send your children to the best private college and let them live the high life. You might need to look at the best college values and your children might need to work. Deal with it!

Nothing Wrong With Student Loans (Part 2)

Here are some updates to my previous article …

1. Robert Reich wrote about the real problem with student loans, that the average consumer is being ripped off by finance companies and underserved by the government.
2. The Washington Post exposes how student loan companies abuse your privacy in order to try and make a buck.

Now, do you still think that these people are the ones we want our children to do business with starting at 18?

A Contrarian View of Saving

The New York Times has an interesting article highlighting some different ways of looking at savings. While analysts bemoan our negative savings rate, some academics and researchers are looking at it differently.

The argument between the sides is similar to the classic debate between the hardworking ants and lazy grasshoppers of Aesop’s fable. The financial planning industry says saving, even too much, provides a safety net and peace of mind, and possibly a gift to heirs at the end.

The economists answer that people would get more out of their money by using it when they are younger. “There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.”

One of my complaints about a lot of financial calculators is that they don’t seem to take life into account. There are times in our lives when we spend more or we save more, it is hard to keep it consistent year after year. Additionally, there are times when we have short-term investment opportunites that can be even more beneficial than socking it away in a Roth IRA.

So, who is right? My guess is that the truth lies somehwere down the middle. Finanical companies have a vested interest in having you save more, as that is how they make their living. Also, by giving conservative advice they never have to worry about a class action lawsuit. At the same time, I am not sure there is any real problem with having a few extra bucks when you might not be working for 40 years or so. I think the key is balance.

Nothing Wrong With Student Loans?

The prevailing logic in our culture is that student loans are a good thing, or at least a necessary evil that is required in order to get an education. In reality they sap both our individual and collective futures. We take the people with the most energy, the most enthusiasm, and the most potential and saddle them with long-term financial commitments at exactly the wrong time.

Student loans are a student loans are a multi-billion dollar industry , in some ways a shady one. With hundreds of millions of dollars going through major universities there is a significant conflict of interest, establishing a relationship that will enrich an institution at the expense of its students. The New York Times published an article detailing the tangled relationship between Citibank and several universities. While no wrongdoing was admitted on anyones part, both parties agreed to pay restitution and to abide to a new code of conduct for student loan processing. That sure sounds like wrongdoing to me!

Finding Inspiration

You can’t wait for inspiration. You have to go after it with a club.

– Jack London

A Great Trend — Colleges Refusing Student Loans

I feel one of the real short-sighted decisions that we have made as a society is the decision to saddle students with debt (often a great deal of it) in order to complete their graduation. Now, I know that if you approach education with your eyes open it is entirely possible to make it happen without debt. However, it still is the case that when a student is evaluated for financial aid, it is assumed that they can and will go into debt in order to get an education.

It gave me great hope to read that Davidson College (alma matter of one of my nieces) has decided to go a different direction. MSNBC is reporting that Davidson has decided to replace student loans with grants and work-study programs. This is especially heartening, as this is a small, private, liberal arts school, where prices are often highest. The ability to graduate without debt makes this a great college value in my book!

Investing Strategy — From the Mouths of Babes

Is investing easy enough for children to do? Evidently so! Paul B. Farrell, author of ‘The Lazy Person’s Guide to Investing‘ wrote about how an 8-year-old crafted a portfolio that not only outperformed the S&P 500, but also his own professionally managed pick.

How did he do it? Well, primarily by investing in low-cost, well diversified mutual funds that cover the entire market. Sound familiar to all the FPU people out there?

Week 8 Homework

This lesson is titled ‘Retirement and College Planning’, and discussed how to understand and properly fund the one or two single biggest expenses of your lifetime. This lesson can be a little daunting, as it requires some calculations and looking at what is required to make your goals happen can be a little depressing (at first). Keep with it, I promise it will be worth it!

The homework for this week is:

1. Read Chapter 12 in Financial Peace Revisited, specifically the section titled ‘Of Mice and Mutual Funds’.
2. Fill out the Monthly College Planning worksheet on page 161 of the workbook (if applicable).

Lastly, we have some additional reading on this subject, if you are interested.

Million Dollar Habits

Michelle Singletary (from the Washingon Post) has some very wise advice having to do with the the true cost of smoking. She looks at the habit from a couple of different perspectives:

• The potential cost of getting sick.
• The daily or weekly cost of tobacco.
• The cost of spending a few dollars a week instead of saving for retirement.

Michelle is counselling Carl, a 38 year old man with a $100/month habit. She figures (with conservative estimates) that channeling this money into a 401K would translate to $100,000 at age 65. When confronted with the numbers, her client has decided to quit smoking and instead focus on saving for his families future. Good for him! I am sure that armed with knowledge and willpower he can improve his life.

Million Dollar Habits

Carl isn’t really different from the rest of us, we all have our million dollar habits. It could be Starbucks, McDonalds, Marlboros, or even iTunes, but a few dollars spent here and there can be the difference between steak and Alpo at retirement.

Michelle gives us a great example of the power of compound interest, and how spending with a purpose can change our lives. Remember, if someone saves $100/month between ages 25 and 65 it will be worth $1,000,000. That is $3/day!

Now, can you change your life like Carl?

College Students and Debt

There is a story on CNN about the debt problems of college students today. While I don’t think the advice is strong enough from the experts, there is some good information, especially for parents of teens.

My favorite part was an example of outstanding parenting …

Ashley Shaw, a freshman broadcast journalism major at Howard University, says she shops with cash, not credit, so she’s aware of how much she can spend. But even without the credit card, she occasionally runs into trouble. She recently overdrew her checking account during a shopping trip.

Right now, Shaw isn’t in any credit or student loan debt. However, she expects to take out student loans in the near future to cover her college expenses.

“As a younger teen, I actually received a credit card and didn’t know my spending limit and that kind of thing, so I maxed out the credit card and was penalized for it, and that’s why I don’t have one now,” Shaw said, explaining her previous troubles with credit.

This is the kind of parenting I want to to for my own children. Ashley sounds like a young woman with an excellent head on her shoulders, who continues to learn the right way to handle money through personal experience. She was lucky to be a teen who had parents who were both engaged and forgiving, and it looks like she is definitely heading in the right direction.

Personally, I hope that she can stay out of the student-loan trap, but it sounds like she has a good enough head on her shoulders to be resonsible and take care of business.