Posts filed under 'Education Planning'
March 24th, 2008
Brent A. Lindell, CTFA
In my last entry, I spent time on a few savvy tricks that parents can use to educate their younger kids to be smarter about money. The idea is not so much to turn them into money-saving automatons, but to start a learning curve. This time we are going to move up the ladder to older kids (middle and high school age).
In a 2006, the JumpStart Coalition for Personal Financial Literacy surveyed 5,000 high school seniors; the survey tested their ability to manage financial resources such as credit cards, insurance, retirement funds, and savings accounts. The average score was 52.4% - not so great on any bell-curve. This as we’re ready to push our kids out the door to college and, according to Nellie Mae (the nation’s largest maker of student loans); the average undergrad has $2,200 in credit card debt.
There is no doubt we are in an “interesting” time with the sub-prime issue continuing to plague our economy. I just heard a statistic that in the
U.S., we now have less than 50% equity in our homes for the first time since the 1940’s. It seems to me that we see the government trying to aggressively fix the consequences of the sub-prime problem, but maybe we should spend some time on the idea of prevention; to me the issue is what we can do to teach our young people about how to use money wisely and grow into adults that understand the principles of basic personal finance.
When I was in high school (I graduated in 1986 to put perspective on this), the only exposure I got to personal finance was picking and tracking some individual stocks in my Economics class - that was it. In my thought process, it is the responsibility of schools to prepare students for the real world. I am not proposing that we replace core academic classes – but imagine if students left high school with a strong grasp on: how to balance a checkbook, student loans, credit cards (and the debt issue associated with them), and taxes. You could take this concept past what you need to know in college and also give them an education on investing, good debt vs. bad debt, financing a car, insurance needs, how to get a mortgage, credit scores, tracking expenses, and how to set up a budget.
We know that as we send our kids off to college, they are bombarded with temptation which can lead to financial hardship that can chase them their entire life. I also know that there are middle schools and high schools that do embrace personal financial literacy. I just believe, as I look around at the economy, that we could do more on the front end to help prevent bad decisions and integrate this idea of financial literacy into our education system.
As a sidebar, there is an excellent website, www.moneyinstructor.com that hits this concept square on the head with a tutorial approach.
March 21st, 2008
Brent A. Lindell, CTFA
I have three sons, ages 8, 6, and 4. Long ago, my wife and I agreed on trying to impart to them sound building blocks for their future. Like most parents, we want polite, well-mannered kids that have good study habits, play sports, go to college, etc. Another important aspect (since it just happens to be my vocation) is the understanding of personal finance and making sound decisions about money. I truly think that a curriculum of personal finance is lacking from our kid’s middle and high school educations, and needs to be addressed. However, parents can start that education at an even younger age than middle school. One of my favorite writers , Jonathan Clements of the Wall Street Journal, recently wrote about trying four financial tricks to make kids money savvy and I think the ideas are worth repeating.
1) Try to get them out of the habit of the immediate gratification of a dollar today. Let’s say you give your kids $5 a week in pocket money. When the next time comes around to fork over their allowance, offer them a choice: They can have the usual $5 right away – or they can have $7 (40% more), if they’re willing to wait a week. You can probably guess that the immediate gratification is taking the $5 up front – this gives parents a great venue to explain the value of waiting for the $7.
2) Slow down spending by giving them larger denominations. You will likely find that kids are more inclined to spend five $1 bills than they are to spend a single $5 bill. By the way, adults do this too. Research has found that people are less inclined to spend if they had say, a $50 bill rather than ten $5 bills, and it has been proven time and again that we are more careful with our spending, if we are paying with cold cash as opposed to a credit card.
3) Make a wish list to deter impulse purchases. When your child wants something, add it to his wish list. Let a few days or even a couple of weeks go by and go over the list with your kids. You probably wouldn’t be surprised to learn that they sometimes can’t even remember what it was they wanted.
4) Let your kids keep the change. If you give your kids $5, tell them they can buy something and that you want the change back – chances are they’re going to spend the entire $5 (or as close to it as they can get). Instead, try giving them the $5 and tell them they can keep the change. Often you’ll see them end up with the entire $5 unspent. Again, this gives a parent another venue to discuss money and how best to handle it.
February 20th, 2008
Jessica L. Knudsen, CFP®
Many of you know that 529 plans are a great way to save for your children’s college education. What you may not know is that there are free programs available that can help you boost your savings amounts. These programs are free to use and reward you for things you already do - they are like frequent flyer miles for college savings.
UPromise and BabyMint are two programs available that allow you to earn rebates on your purchases that can be applied to your child’s 529 plan. Under the UPromise program, you can register your current credit and debit cards with their website and earn rewards for shopping at participating retailers and purchasing eligible products. Products range from local restaurants, life insurance, vacation planning, and home purchases. You can even register your grocery store discount cards to track purchases on certain grocery and household items. BabyMint has a similar program but you must log in to their website in order to track your transactions with their eligible online participating retailers.
Both programs allow you to roll the money directly to a 529 plan, apply the balance to eligible student loans, or have a check mailed to you to deposit in your 529 plan (if your plan is not automatically linked with these programs). They also encourage you to have family and friends enroll as well to increase your rewards. In addition, UPromise and BabyMint both offer their own credit card that allows you to earn additional rebates.
Illinois’ Bright Start 529 plan has recently partnered with Futuretrust Mastercard. This program gives cardholders a 1% rebate on all purchases and has special offers with partner companies to provide up to 15% rebates on certain purchases. Futuretrust gives you a one-time $25 contribution to your Bright Start account and automatically transfers your rebate balance quarterly when the account reaches $25.
Another program available is SAGE Scholars Tuition Rewards. This program is linked with BabyMint and Wisconsin’s EdVest 529 plan, among others. The SAGE Scholars program credits members with guaranteed tuition reductions at over 200 nationwide private colleges and universities. They give dollar for dollar matches on rebates through BabyMint and you can earn 5% credit annually based on the value of your EdVest account.
For more information, visit the following websites:
www.upromise.com
www.babymint.com
www.futuretrust.com
www.tuitionrewards.com
February 18th, 2008
Jessica L. Knudsen, CFP®
For many people, the thought of paying rising college education costs for your child seems staggering. Fortunately, there are many college funding options available to help save for your child’s college education. One of the more popular options available is the 529 plan. All fifty states offer their own version of a 529 plan and in most states you do not have to be a resident in order to contribute to their plan (though there may be tax incentives to contribute to your own state’s plan).
A 529 plan is a state sponsored plan that allows you to save money for college on a tax-deferred basis. Withdrawals from the plan are federal and state tax free when used to pay for qualified education expenses (including tuition, room and board). Assets not used for a child’s college education costs can be transferred to another beneficiary. If it is not used to pay for college, the money can be withdrawn but will incur a 10% penalty and ordinary income taxes on any earnings.Many 529 plans make it easy for you to start investing.
Many plans offer a low initial contribution and allow you to set up automatic monthly contributions from your bank account. States typically offer a variety of portfolios: age-based portfolios that adjust the allocation of the investment from aggressive to more conservative as the child nears college age, as well as static investments where the allocation remains constant.
Here are some other important facts about 529 plans:
- The asset remains in the parents’ name so they will retain control over the account.·
- High contribution limits (over $300,000 per beneficiary in many states)·
- The 10% penalty and income taxes due are waived if the beneficiary receives a scholarship or becomes disabled.·
- The account is treated as an asset of the parent for financial aid purposes (this is lower than if it is considered an asset of the student).
- In some states contributions can be deducted for state income tax purposes (in Illinois you can deduct $10,000 if filing singly and $20,000 if married filing jointly).·
- $12,000 per year ($24,000 for married couples) can be contributed without paying gift taxes.·
- You are allowed to front-load five years of contributions for a total of $60,000 if single or $120,000 for married couples (good for Grandma and Grandpa).
Visit www.savingforcollege.com for more information on 529 plans as well as helpful college funding calculators.
Brent A. Lindell, CTFA 
