Parental Martyrdom and the Myth of the Free Ride by Sarah Newcomb


– We have Sarah Newcomb, Director of Behavioral
Science at Morningstar. Sarah’s going to be discussing why so many parents today prioritize their child’s education over their own retirements. Before I pass the mic to Sarah, though, just a reminder, Sarah’s
gonna take your questions at the end of her presentation, so get to typing away in that chat box over on the right hand side of the screen. We will get to you at the end. Welcome Sarah, take it away. – All right, thank you so much. So I’m excited to present on this. I think this is a really important topic. As a parent myself, I’m
familiar with this challenge of thinking about, how are
you going to pay for school for your children, and specifically the
pressures of prioritization when it comes to taking care
of your own retirement needs versus taking care of your
children’s education needs, and what do you do when you
can’t just easily pay for both? You know, there are a few people that are fortunate enough that they don’t have to make
any trade offs in this area, but most of us really do
have to think about that, and so it can be a really difficult area to do the mental calculus, because the numbers are really
only part of the picture, and that’s a big thing. It’s not a small thing to say that the numbers are
only part of the picture, because many, many, many
numerical situations, many financial situations, we think that we should
definitely take our cues from the numbers, but there are so many
other things involved, like the fact that every parent wants to give their child
every advantage possible. No parent wants to put their
child at a disadvantage. So we have cultural and internal pressures to pay for education, sometimes even at our own detriment, which is why I wanted to call
this talk Parental Martyrdom and the Myth of the Free Ride, because I think many of us
are conditioned, as parents, to put our children’s
needs ahead of our own, which is really, honestly, a bad financial decision
a lot of the time, and it can end up hurting your kids, too. So we have this myth that our kids will be better off if they get a free ride to college, and I’m gonna do some myth-busting today. So hopefully as a result of this talk, those of you out there that are parents, that are trying to think through this really difficult
prioritization challenge are gonna feel more empowered, and you’re gonna feel like
you have some real tools in your toolbox to use. So here’s what I’m gonna talk about. We will talk about, first of all, why planning for retirement
can’t wait until later, why is it really a higher
priority, to be honest. We’ll do some myth-busting,
because myths get in the way, myths that student loans
will ruin their life. We’re gonna tackle that one. That working during school
will make their grades suffer. There’s some interesting data on that that I’ll show you, we’ll talk about. That Ivy schools are always better, are always worth the price tag, and that college is necessary for success. These are some of the
most important assumptions that people make, and they lead to financial decisions, and I’m not saying that
these are always wrong, but they’re not always right either, so we’re gonna take a
careful look at these myths. Then I’m gonna present to you an approach that we take at Morningstar, which is the idea of a three-legged stool. So you, if you were
attending the earlier session on retirement, my
colleague, Christine Benz was speaking about that. Christine and another colleague and I all worked on a paper that you can download about this topic, but in that paper, we talked
about this three-legged stool. The three legs to the stool, all three of them are really important in order to make a plan for how you can fund education. So that is, it does include savings, it also includes cashflow
when they’re in school, both yours and your child’s, and then financial aid: grants, scholarships and, huh, loans. So we will talk about those. So let’s dive in. Most importantly is you:
why retirement can’t wait. This is like when you’re on an airplane and you, we’re always told that if the oxygen masks should fall from the ceiling, that you should put on
your own oxygen max first before helping someone next to you, why? Because if you pass out,
you can’t be of any help to the person next to you. So in order to be of help to others, you need to take care of your
basic needs, like breathing, and in this case, in order
to really be a support and a help to your children, you need to take care of your
own financial life first. That really is, it needs to
be a priority for parents, and it’s one that, I don’t think we hear this message enough. We hear a lot as parents that we should put our children first, but one of the best things we can do for our parents is model, or for our children is
to model good behavior, and that includes good financial behavior, and sometimes, taking
care of your own finances rather than their finances is the right thing to model for them. So this is a chart of how much $10,000 is, would be worth under different
real return scenarios for different timelines. So let me walk you through this chart. Those of you that love
charts have already read it. Those of you that don’t might appreciate a walkthrough, so I’m gonna walk through. So what we’ve got here
is the number of years, if you took the 10, if
you took $10,000 today and you were saying, should I put this towards my retirement or should I put this toward
my child’s education, if this is what you’re
trying to think about, we first want to look at, how much would that $10,000
be worth to you in retirement? Well, it depends on how long
you have until retirement. If you’re only five years
away from retirement yourself, then even if you got a very
high return after inflation, that’s what real return means is after you subtract inflation, so if you got 8% return for
five years after inflation, you would have almost
15,000 from your 10,000. Not bad, not great. But if you had, for example, 20 years, if you were in your 40s, and you’re expecting
to retire in your 60s, then that 20 years retirement would grow your $10,000 to almost $50,000 if you had 8% return. So we’re talking about the length of time that you have toward retirement really represents the amount of time that you have to take the
cash that you have now, and turn it into a nest
egg for income stream when you stop working. So here we have these two problems that we’re trying to resolve. One is that you are trying to resolve how are you going to create
income streams for yourself when you no longer go to work? On the second hand, you’re
trying to help your child figure out how they are going to create a steady income stream for themselves when they no longer live with you. So we end up with this trade-off, where a lot of times, the, and this is where I think the myth of the free ride comes in. Some parents will choose
to take out loans on, against their house, for example, in order to send their
children through college, not only sacrificing retirement savings, but also putting
themselves further in debt. These are really, really
unfortunate things to do, because you can end up
really strapping yourself, and down the line, you’re sacrificing all of this nest egg. So what this chart is meant to teach you is basically that if you, if you, the longer you
have before you retire, the more you could grow your money, and you’re sacrificing a lot by not giving it to your retirement fund. What are you sacrificing if you
don’t give it to your child? Well, your child is, that also depends on how long you could save it up for, but I feel like what the
big things comes down to with why retirement can’t wait is there’s an adage
that people will say of, that you can’t take out a
loan to fund your retirement, but you can take out a
loan to pay for college. I think that the wisdom in that comes down to the fact that retirement is a time when you are no longer working, which means there is no
income stream coming to you from your labor. So you have to have other income streams if you want to be able
to live in retirement. If you can live on Social
Security alone, bless you, but many, many people cannot live on what Social Security alone provides for them in retirement, and in year one of retirement, a fixed income may go a certain amount. Let’s say, for example,
year one of retirement, you have a comfortable
income from your assets of $50,000 a year, and you can live comfortably on that. Prices double every 25 years based on three year, 3%
inflation every year, which means that, by the time, if you’re 65 when you retire, 25 years later, when
you’re 80, when you’re 90, 25 years later, everything
will cost double, which means that that
$50,000 a year lifestyle will cost $100,000 a year
to live when you’re 90. Now when you’re 90, are
you gonna be able to go out and pick up a job to make up a difference in the cost of living? No, no you’re not. So that is the tragedy that we see, is that people don’t
think far enough ahead when they’re thinking about
their own financial planning. They think, either they
think up to retirement and they forget about how
prices are still going up, cost of living is still going up while you’re in retirement, and so retirement planning requires that you not only plan
for day one of retirement, but you plan for year 25 of retirement. So I think that the first
mistake we make as parents is not thinking far enough ahead for our own financial plan to be readily prepared for the actual financial situation that we are likely to be in in retirement. This is why retirement, thinking about retirement can’t wait, because most people that I’ve, I’ve done research on age
and income and savings, and what I’ve found is that, yes, people with a higher income do save more than people with lower incomes, but what makes people really save more is how far into the future
they think and plan. Because people in the
very same income brackets who think short term,
have very little saved than people in the same income bracket who think longterm. They are thinking ahead,
they are planning ahead. So you need to be thinking longterm. Think longterm with your money, think longterm in retirement, and hopefully, what that will mean is that you start planning years ahead, which will allow you to save for both your retirement and for your child’s education. But put on your own oxygen max first, because what happens if you
don’t save for retirement? If you don’t prioritize
your own retirement, then you will be a burden on your children when you’re older. This is what I think the
real challenge comes down to. You can either be, put
the burden on them now, when they are young, when they are fresh, before they have the obligations of parenthood and homes
and all the things, you can allow them to
take on part of the burden of funding their own education when they’re young and
readily able to do it, or, if you sacrifice your
security in retirement so that they can have a
free ride to college now, there is no such thing as a free lunch, so it will have to get paid later, and it will generally get paid in them taking care of
you when you are older. That’s fine, if that’s the
arrangement you wanna make, that’s fine, but there is no free lunch. So if you martyr yourself
and your retirement for their education, then they will probably be
needing to take care of you, and you need to look
at the reality of that. Sometimes, having that
conversation with your child may be enough to help
them start thinking about how they might wanna take on a job when they’re in college, or otherwise. We’ll talk about some of the solution a little bit further down, but what really, what I just
really want you to understand about why your retirement can’t wait is because at some point, you are not going to be able to or want to go and earn a paycheck. So if you stop labor income coming in, if you stop laboring, you need to have enough income to cover your cost of living that will keep rising as you age. So you can’t sacrifice amassing the assets to produce that income when you are no longer
working, you just can’t. If you don’t have assets, you will not have income, and you won’t be able to retire. So that’s the myth of the
free ride: there is none. Either the free ride goes to them, or, well somebody’s paying
for it, let’s put it that way. Okay, so I wanna get into myth-busting, because I think a lot of people, if you’re even wrestling
over this decision, you recognize that you need to care for your own financial life. But you also really wanna help your kids, and like I said, no parent
wants to put their child at a disadvantage, and if we have the opportunity to let them have a great education at a great school without having to think about working during their school week, we think that that’s gonna
be the best for them, but some of these things are
actually not as well-founded when you look at the research. First of all, I wanna tackle this myth: a good parent pays for college. So I was at an event with some friends, and one friend was
going through a divorce, and she has three boys, all teenage, and we were talking about retirement and how much we needed to prepare, because, you know, I talk
about retirement at parties. But this is what we were talking about. She said, “Oh my goodness, “now that I’m getting divorced, “I’m, I have to put these
boys through college, “I’m never gonna be able to retire.” I remember asking her, “Wow, do you think that a
good parent pays for college?” She said, “Yes, my dad paid for me, “don’t you feel completely
strapped by your student loans?” I said, “Well, yes, I
feel burdened by them, “but I’m one of the lucky ones. “I can handle my student loans. “I’m really just grateful “that I was able to go to school.” But a good parent pays for college is a very, very toxic message, and it’s a very common one. It’s very common in our culture, and it causes a lot of problems, because if you really believe this, that a good parent pays for college, then it doesn’t matter
what the numbers say, because, and it doesn’t matter how many people tell you that you should, you
know, save for retirement, because if you believe that a
good parent pays for college, then doing anything other
than paying for college makes you a not-good parent, and most of us are not willing to do that. We’re not willing to become what we think is a bad parent just because the numbers
say that we should. So this message, we really need to be careful about. I wanna rethink this message, and I’ll give you an option in a minute. I also wanna talk about student loans, because we hear a lot about student loans, and there is a huge student
loan crisis right now. It’s huge, it’s real, it’s real, but not all student loans are bad, and I really want to get us out of the black and white
thinking that’s so easy when it comes to loans. I wanna talk about when
student loans are good, and how to tell the difference between the type of student loans that are a burden, and student loans that are manageable. Working during school will
make their grades suffer. This just seems to make sense, right? I mean, we think that if they can put all their focus on their
studies, they’ll do better, but there’s some research
that tells us otherwise, and Ivy League schools are always better. If my child gets into an Ivy, there’s no way I can ask them to go to the state school instead. Let’s, we’ll talk about that. Then lastly, the idea that college itself is necessary for success. We’ll talk about that. So let’s tackle a good
parent pays for college. What are we really saying when we say a good
parent pays for college? What I think we’re really saying is a good parent launches their child into the world prepared. A good parents allows their, gives their children every
support that they can. But a good parent doesn’t
necessarily sacrifice themselves for their child. So again, a good parent doesn’t necessarily make
bad financial decisions in order to let their child go to school. What I would say is a healthier belief that still gets at the core of what this is saying is that, oh wait, we already went through that, is that a good parent prepares their child for the realities of the
world that they’re entering. I’ll say it again: a good parent prepares their child for the realities of the world they are entering. That’s what we’re really
trying to do as parents. We’re trying to launch
our children into a world in which they will need
to fend for themselves. That’s big and scary, and it’s big and scary for us as parents, letting our vulnerable
children off into the world, and of course, we want them to be strong, we want them to be stable, we want them to have a great education and be able to go off and do whatever they want in their life, and we want them to be able to do it well. But if we don’t prepare them for reality, we’re not preparing them
to go off and do well, and not preparing them for reality can often mean not having the
tough conversations with them about our own financial trade-offs, and saying, “Hey, I want to contribute “to your college education, “but paying the whole thing “is not realistic for me. “In order for me to stay stable “and not be a burden on
you when you’re older. “So let’s talk about the
reality of paying for college, “and how you, child, are going to help, “in becoming more independent “as you enter this new stage in life “and independence and growth.” In that way, starting
to prepare your child for the life that they’re going to live, preparing them for financial independence by starting them off understanding the path
to financial independence includes investing in their education. But an investment has a cost. It’s a cost that you hope
will be returned many fold, but if you are paying the cost and they get the returns, that’s not so much an investment. They need to be an invested, they need to be invested
in their own future, in their own education, and starting them off understanding how they themselves need to get involved in thinking about how
college will be paid for is actually a great
financial education exercise that can prepare them for the reality of the life that they’re
going to be entering. They can start to think through the real cost of their life, starting with the cost of their education. So let’s talk about student loans. Student loans, the big dragon that’s over a generation of people. Now, I’m not gonna get into the student loan crisis, because what we call a
crisis, it really is, there are many, many, many, many people who are putting off other
life goals right now because they can’t afford to move forward in their financial life because they have so
much student loan debt. Now, those people are people who probably did not follow the 8% rule, and I’m not faulting them. I bet they didn’t know about the 8% rule. I certainly didn’t. Many, many people don’t. But what this, the 8% rule is a simple rule of thumb that basically says this, and it’s based on research. There was a group of researchers that followed high school, or they followed college graduates after they graduated, those that took out loans
at different amounts, and they surveyed them at
different points in their life to figure out how much of a burden the loans, their student loans were on them after graduation. They wanted to find that threshold by, beyond which student
loans became a burden, and they did, and they
found that it was about 8%. What that means is your
payments on your student loans should be 8% or less, so keep it to less than 8% of your post-graduation income. So this requires a couple
of really important things to think through. First of all, what do you
think you’re going to be doing when you get out of college? If you don’t know yet, then taking out six figures in loans for a job you’re not sure what it is, is probably not wise. If you don’t know what kind of salary you’re going to be earning on the other side of your college degree, then taking, going into debt
to get that college degree might not be a great idea. But, if you do know, if you’re determined, if you know what you want your job to be, you have some sense of where you wanna go, and you’re intent on getting there, then what you can do, we actually created a calculator, and there’s a link to
the paper that I wrote with my colleagues, Christine and David, and in that paper is a calculator, and this is what the
calculator looks like. The calculator will tell you, based on how much the
student expects to earn in their first year after graduation, so this is starting salary,
not 10 years down the road, starting salary in their new job, what is the expected salary for them, and then how long do you
expect the repayment period? Do you wanna pay them off
in five, 10, or 20 years? Those are the typical repayments
periods for college loans, and what interest rate
do you expect to get? We have some suggested interest rates based on averages in the calculator. Based on that, we will tell you what the maximum you
should take in loans is in order to keep those payments to less than 8% of your
post-graduation salary. So what does this do? This guarantees, well no, no, it doesn’t guarantee. This can help you to make sure that your debt-burden
doesn’t overwhelm you as you’re starting off in your new life. So it allows you to get to school, to get through school, but not to, in most cases, not rely entirely on loans, because as you’ll see, and we, this is just one of the
three legs of the stool. So student loans can really, really help. College has been, the inflation rate for general goods and services has been something like
2.5% for last few years because the economies
been kind of, you know, interest rates have been really low. But the inflation rate for college has been really high for 20 years. So the cost of college has
just been going up and up, and the number of families that are able to pay for college without taking out some
sort of financial aid is just not, most people just can’t do it. So loans are a real
option, they really are, but you’ve gotta be careful. I, one of my siblings went to school for a field of study, a field of work that’s traditionally very low paying, it’s a service field, they really wanted to work in social work. But taking out a lot of loans in order to fund a social work degree isn’t really wise because social
workers don’t earn as much. Taking out the same amount of money to earn a degree in finance or in law or in medicine would likely be far less of a burden. So it’s not, there isn’t a magic number of how much should you borrow, period, the magic number is how
much should you borrow based on how much you
think you’re going to earn on the other side of that degree. Lower earning incomes, lower loans. Okay, so now let’s talk
about cashflow in college. Most people would like their kids to not have to work during college, right. We think that if they
don’t work during school, they’ll be able to devote all their time to their studies, they’ll get better grades, and that is true for a
small portion of students who really need extra time to be able to devote to their studies, but another study of
college students was done that showed that college
students that worked, so if you imagine all college students being broken up into a
few different groups, so one group was working off campus, one group is working on campus, and one group is not working at all, and then of the people working off campus and on campus, they were working
different numbers of hours. These researchers looked at the grades, the performance, but
also the engagement level that these students were experiencing with their school and with their cohort, their sense of engagement, their sense of quality of life, their satisfaction, and their success, both academic and after graduation. What they found was that
the group that did the best was not the group over here that didn’t have to work
during their studies. This group did not perform the best. The group that performed the best was the kids that were working part-time, up to 15 hours a week. That seemed to be the threshold, up to 15 hours a week, and on campus. So not people who are
working off at the mall, but people who are working up
to 15 hours a week on campus. They were the most successful group of all the kids in this study, and the researchers were, they, their theory is that
what this did for the kids was get them actually more
engaged in their community, in the university as a whole. They felt connected, they felt engaged, and a lot of work-study jobs, they are designed for students, and so they are able to bring their books, they are able to get at
least a little bit done. But they were still
emersed in the campus life. They’re working on campus,
they’re studying on campus, and those kids did the best. So telling your child, “You
need to do some work-study “while you’re going to school,” may actually be better
for them, better for them than telling your child that you will, that you’ll pay the bills and they don’t have to
worry about working. So let’s bust this myth that work-study is not for us, or for anyone who can’t, who can
afford not to work-study. Even if you can afford for your kids to not work during college, it might be best for them
to work during college. Okay, Ivy league, here’s a big one. Let’s say you have a child who got into an Ivy League school, but you can’t afford it. This may be one of the
most difficult things, and I know that a lot of Ivys have great endowment programs, and I don’t mean, I’m not saying that Ivys aren’t great, I am not. I would love to have gone to an Ivy, many people would have. But the issue with Ivys is that sometimes we
can let the reputation blind us from reality, and the idea that if my
child gets into an Ivy, they must go to that Ivy, because anything less would
be shortchanging them, that’s the myth that
I’m trying to bust here. So there was a very
interesting study done, and again, all these
studies that I’m referencing are referenced in the paper, which we will give you a link to, and all the citations from
these studies are in that paper so that you can see what
I’m referring to here. But this particular study
was an interesting one because a lot of times, when we look at the, when we look at the comparisons between kids who go to
Ivys and kids who don’t and life success afterwards, what’s really hard is to
compare apples to apples because there are so many
socioeconomic factors that contribute to getting
into an Ivy League school in the first place that might be confounding with
these other success factors. So it’s very difficult to say success came from the Ivy itself, or success came from this
school versus this school, even though on its face, it may look at if these top tier schools, and it’s not just Ivys, it’s the brand name schools, you know, the ones with the big names that everyone is clamoring to get into, brand name schools versus
state universities. We think that brand name schools are just better education,
better life, period. But when we look at it carefully, that comes into question. So this study, what they did was they took students that were accepted into Ivy League universities, but looked at a group that
went to the Ivy League and compared that to
another group of students that had been accepted
to the same schools, to the Ivy Leagues, but decided to go to the
state university instead, usually for financial reasons, because they had some who,
a parent or someone else, that they were helping support at home, they, because of location, because of not being able
to afford the Ivy League, so they went to the state school. So they compared kids
who got into Ivy League with kids who got into
Ivy League but didn’t go. What they found was that when they looked at these two groups, there was no significant difference in their success, their income, or their life success and
satisfaction after college. In other words, if they got into an Ivy League school to begin with, then they have what it takes to succeed. What is in that student can, it’s really interesting because as someone who has gone to both private and public universities, I feel like I can say
with some confidence, education is what you
bring to it as a student, and if a student has what
it takes to get into an Ivy, they have what it takes to
get into whatever company they wanna be working for, whatever job they wanna be doing. So the skills, what the
student is bringing, the talent and the
skills and the work ethic and the drive and that sense of excellence that got them into the
Ivy in the first place, that’s what’s gonna make them succeed, not necessarily the name on the school. Now, I’m not saying that the name on the
diploma doesn’t matter, I am not saying that, but what I’m saying is, maybe give your kid more
credit than the school, because it’s what you
put into your education, it’s what you bring to it. So if they get into an Ivy, they don’t have to go to the Ivy, and this could be, this study
may actually really help a lot of students who have
to make a hard choice, and who start to worry that they’re gonna miss out on the life that they wanna be living because they can’t go to the school that they dreamed of. This study might help them emotionally, to be able to realize
that they can actually still see their dreams come true, even if they don’t go to the school that has a brand name. All right, lastly, let’s
talk about this idea that college is necessary
for success, okay. Now, marketable skills are necessary for success, absolutely. If you want to succeed financially, you need to be able to do something that other people are
willing to pay you to do. I mean that’s, that just, that’s nonnegotiable. You have to, if you have to go to work, you have to be able to
do something valuable. So we need marketable skills. A college education is a great way to attain marketable
skills for some things, but there are lots of jobs that don’t require a college education, they require specialized training, but not college. There are apprenticeships, there are, I mean, artists, for example, the apprenticeship route is a great way for an artist or a crafts, for a craftsman or an artist or a trades person to learn a really valuable
trade from a master. That’s the age-old way. Not sitting in a classroom, but by doing the thing and
learning from a master. There are great apprenticeship programs, trade training schools, things like that. There are jobs that pay much, significantly higher,
than the median income, all over the country,
that are blue collar: plumbing, heating, welding, machinery, semiconductors, technology,
auto manufacturing, the things that are
technical but they’re trades. They’re, these jobs are
sitting open right now, and people, employers are
having a really hard time finding workers that have
this specialized training because so many people are going to, going through the four year college route because they think that’s
what they have to do. But four year college and book learning is not for everyone, and a lot of people
that are more hands on, more outdoorsies, more, their intelligence is more tactical than abstract, might really be much
happier in a trade job, and these can be some great-paying jobs. So I think we need to break
our cultural messaging that college is the obvious next step for any child who grows up in a family, who is socioeconomically able to send their child to college. Why do we believe that? Why is that the only
option that we think of? Trades are needed. Trades pay well. Trade jobs are open and available, and a lot of people prefer
working with their hands to, or sitting behind a desk. So trades can be a great way for your kids to live the
life they wanna be living, be comfortable, and not have college debt. Okay, so we have, I’ve got about 10 more minutes to talk before we open this for questions, and so I want to talk about
the three-legged stool. So we’ve busted some myths, some of the things that get in the way, we know you have to pay
for your own retirement, you’ve got to fund your own retirement because you have to take care of yourself, you’ve got to put your
oxygen mask on first, and you need to set a
good example for your kids in financial priorities. We know that a lot of the things that can emotionally or intellectually keep us from prioritizing our own needs, and that can get us to
give more to our children that we can necessarily afford to for their college education are founded on some misinformation. So we busted some myths. But now, how do we go
about paying for college? Well, first of all is savings, and then we have cashflow, and then we have financial aid. So we’re gonna talk about
each of these in turn. So the first leg of the stool is savings, and when it comes to college savings, 529 plans are just the
best tool that we know of. There are some really great ones. One thing I think a lot of people don’t know about 529 plans is that they are created and sold as financial products by state, but you don’t have to buy or invest in the one for your state. It’s a little confusing in that way. If you live in Texas, you do not need to have a Texas 529 plan. You could have one from another state. 529 plans are specialized savings plans that grow, that are a lot of times, really, really useful. Grandparents can give to 529 plans, parents can give to 529 plans. They’re specialized
savings plans that are, this money is earmarked for
education purposes only. So you can’t spend money that you put in a 529 plan on health care. You can spend it on tuition. So 529 plans are great, they, they’re are many of them. There’s a lot, this linked, we, we’ll make these slides available, but this is a live link in the slide so that you’d be able to go and look at this article that’s about what we think at Morningstar are some of the best 529 plans. 529 plans are really underutilized. It turn out a recent study that my college, Steve Wendel did, found out that over, across the country.
– Hey Sarah? – Yes, yes. Oh, I’m sorry, I thought
we had until 2:30. All right, then I’m gonna, I’m gonna just blow through this. Sorry about that, sorry everyone. 529 plans, loans and scholarships. Fill out the FAFSA even if you think you don’t need to, because you might be surprised at what you can get, and cash flow during school: don’t forget, your kid
can help pay for college while they’re in college. Okay, let’s open up for questions. – Yes, thank you, sorry to
interrupt you like that, but we’ve got some really great questions,
– Great. – because this is such an
– I’m so sorry, – interesting topic
– I thought it. – with so many dynamics at play right now. Let’s pull up what we do
have right now from GF. For the savings leg outside of 529s, what are good vehicles to utilize that allow flexibility of use, like UTMAs? – Yeah, so, I know I’m not an expert in college savings vehicles,
let me just say that, but I will say that the biggest thing when you’re thinking
about putting money in any kind of an investment is time horizon. So if you, it really depends on when, how long you have for a
time horizon for savings. So if you, if for example,
you just got pregnant and you decided that you want to start your college savings plans, then you’re gonna have different, you’re gonna want to invest in something very different than if your kid is 15 and you’re thinking about
three years from now. So in the same way that,
with retirement funds we have target date funds, that’s the kind of way
you wanna be thinking, is if you need the money
in five years or less, then you’re gonna need to sacrifice gains and go for a conservative investment. If you have 10, five to 10 years, you can be in more moderate investments, because you’d have a chance to make up for losses, like
we’re seeing right now. If you have a 10 year
or more time horizon, then you can put it in even
more aggressive strategies. But for, just like you
would with retirement, where you start with off with a high risk, with your highest risk exposure and you dial that back as
you get closer to the date that you need the money, you do the same thing with this. It’s just that you have
a shorter time horizon, so you’re probably starting, the longest time horizon
you’re probably starting with is like a 20 year time horizon, and then, you know, most people are probably starting
more at like 15, 10 years, and so you wouldn’t want to
maybe, to be an all stocks, but you could, you could
definitely take, put, have some of your portfolio
aggressively invested. But you just want to taper it as you get closer to the
time that you need the money. – Sure, so GF actually has
another question for you. Have you seen an increase
in financial education or desire to build out
financial literacy programs for young adults as student loan debt has become so big? – Oh yes, yes, especially in the desire. They are being created. I mean, I’m tight in with the
financial education community, I love them so much. The financial educators, and
our educators in general are, I mean, they’re doing
everything they know how to do to try to teach kids about money. The problem that we have is that, as with anything, we don’t really care about it unless it actually applies to us, and so what happens is
that kids get taught about complex financial
stuff in high school, they don’t think it applies to them, they, and they forget it. The, so the financial, it’s
not that financial education doesn’t work, it’s not that. There’s some people that will say, “Oh, financial education doesn’t work. “We’ve been trying it
and it doesn’t work.” No, it’s true that people who have higher financial literacy do make better financial choices. What’s not working is the way that we’re trying to teach it, and I think that part of it is that we’re not, this, for example, the 8% rule, that’s something every high
school student should know. Every high school student that thinks that they
might wanna go to college, should be, I think that rule of thumb needs to first come to their mind, but we don’t, we’re not teaching in a rule of thumb kind of way, although research on financial education does say that rules of thumb and just-in-time education, those are the things that work. It takes a long time, and the educators, the demands on their curriculum are already so high. They would love to include
more in their curriculum, but where are they gonna put it? So I think we have a long
way to go in prioritizing it. Some states have made it mandatory to, that kids have at least a semester of financial education of some sort in order to graduate high school. That’s a good step, but it’s often what’s passing for financial education isn’t teaching them the
things that they really need. We used to have things like home ec., and home economics was economics, and it was teaching resource management. So I think that there is, there is starting to be a movement, but it needs our support. We need to really work, we need to work harder to get this stuff into our schools, and to give our teachers the tools that they need to be
able to teach it right, because they’re not learning
how to manage money, so how are they gonna teach
kids how to do it well? We need to teach everybody. – Really good points there, Sarah. But for our viewers just,
we’re basically out of time, but just remind us the rule of eight so that everyone’s clear on that.
– 8%, yeah, keep your student loans, to keep the payment on your student loans to 8% of your income. So if you earn $100,000 a year, you do not wanna be paying more than $8,000 a year on those loans, and we have a calculator
that will calculate for you, based on what you think the
income after graduation will be, what is the max loan that’s gonna keep that payment under 8%. – Perfect, oh my gosh, you gave us so much great information today. Thanks so much Sarah.

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