Childhood preparation for college (‘college prep’)

Today’s children [“generation Z”] have plenty of choices in careers and colleges.  There are pre-college and 2-year colleges as well the traditional 4-year colleges and graduate schools.  Trade schools are an option to liberal arts programs.  Online colleges offer courses taught in virtual classrooms.

Roughly half of college students complete their studies and graduate.  Those who dropped out early were either unprepared for the classroom, overwhelmed by stress, or couldn’t pay the bills.  Maybe the drop-out rate can be reduced by childhood preparation for college [‘college prep’] (ref 1, 2).  

COLLEGE PREP

Parents have considerable influence on fostering their children’s dreams and attitudes toward college.  High school and college students can receive help from their own ‘college team’ of parents, counselors, and trusted adults.  Here are the important milestones. 

before high school :

Save money for college.  College is expensive.  It’s cheaper to pay the cost by saving money beforehand than to pay interest on a student loan afterwards.  Parents: consider starting a “529 Savings” plan for your newborn child (ref 3, 4).  Later on, your growing child and other family members can help with additional contributions.

Dream about the future.  Pre-schoolers dream about being a grown-up.  It’s the perfect time for parents to discuss the jobs, trades, and professional careers of friends and family members.  School children can benefit from attending career presentations and visiting job sites.  Encourage your middle schoolers to read My Future My Way (ref 5).

Learn, Learn, Learn.  Every child should learn to manage money wisely.  Their training can begin by age 3 and continue throughout life (ref 6, 7, 8).  Every child should also learn to read well and perform homework assignments.  Tutor them, if necessary, and help them form good study habits (ref 9).

Enrichment.  Help your child participate in summer programs, after-school activities, community service, travel, clubs, teams, fellowships, and other enrichment programs (ref 10).      

Go to college?  College is optional, not mandatory.  Ask your child what they want to do after high school.  If they are strongly opposed to college, do they want to get a job or start a business?  There are job fairs and entrepreneurial training programs available to teens.  If they are either undecided or interested in college, help them explore college opportunities with the aid of campus visits.  Also encourage them to read My Future My Way if they haven’t already done so (ref 5).

during high school :

Shop for colleges.  Every college has a unique set of characteristics and opportunities.  College fairs allow students to discuss those features with a large selection of college representatives (ref 11).  Virtual and actual campus tours of interesting colleges help students prepare for college.

Assemble a College Team.  High school students should place more effort into college prep than parttime jobs.  They need a ‘team’ of parents, school faculty members, and other trusted adults to help with college prep.  Parents can facilitate the college selection, application, and enrollment processes.  For one reason, the required Free Application for Student Financial Aid (FASFA) requires timely parental input (ref 12).  Furthermore, parents can monitor their student’s adjustment to the transition year of college (ref 13).  School guidance counselors have valuable experience and information to share with the student.  Teachers and community leaders are wonderful sources of information and recommendation letters.  Grandparents can lend help, funds, and wisdom to the college prep process.

Use a checklist.  Here are some suggestions:

  • develop good study habits
  • decide what kind of college you want to attend and what you want to study
  • during the freshman year of high school, consult your school teacher and guidance counselor about; 
    • earning college credits in high school (ref 14)
    • taking college placement tests
    • applying for scholarships (ref 15)
    • choosing colleges
    • preparing for FAFSA (ref 12)
  • seek frequent advice and take early action!
  • select your preferred colleges
  • take care of financial matters
    • choose an affordable safety school 
    • compare college acceptance letters
    • re-visit acceptable schools and negotiate their offers of financial aid
    • minimize college expenses (ref 16).

during college :

Survive the transition year.  The first year of college [“transition year”] will likely be academically and emotionally stressful; that’s when dropping out of college is most likely to occur (ref 13).  Emotional issues may prevent graduation unless college students learn to manage the stress or parents intervene for signs of unusual behavior (ref 17).   

CONCLUSIONS

Parents have considerable influence on fostering children’s dreams and attitudes toward college.  Those with K-12 children might benefit from consulting a comprehensive checklist published by the U.S. Department of Education (ref 18). 

Middle school students can find helpful information in the pamphlet My Future, My Way by downloading it from the U.S. Department of Education (ref 5).  High school students must take charge of their college prep to have the best chance of success.  There is much to gain by an aggressive pursuit of scholarships, advanced placement courses, campus visits, and timely submission of the applications recommended by guidance counselors.  Students and parents may also benefit from consulting the “right fit” worksheet published by the Jed Foundation (ref 13).  

REFERENCES

1. Improving college graduation rates: a closer look at California State University. Jacob Jackson and Kevin Cook, Public Policy Institute of California, 2018. http://www.ppic.org/publication/improving-college-graduation-rates-a-closer-look-at-california-state-university/ . 

2. 10 ideas for improving community college completion rates.  Grace Chen, 2/14/2018, Community College Review.  https://www.communitycollegereview.com/blog/10-ideas-for-improving-community-college-completion-rates .

3.  Saving Early = Saving Smart!  Federal Student Aid, February 2018.  https://studentaid.ed.gov/sa/sites/default/files/saving-early.pdf  

4.  FAMILY GUIDE TO COLLEGE SAVINGS. Joseph F. Hurley and Brian Boswell.  www.savingforcollege.com .  2016.

5. MY FUTURE, MY WAY.  FIRST STEPS TOWARD COLLEGE; A Workbook for Middle and Junior High School Students. Federal Student Aid, U.S. Department of Education.  StudentAid.gov. July, 2017. 

6. How to teach kids money smarts from as young as three.  SBS com/au, 7/15/16.  https://www.sbs.com.au/topics/life/culture/article/2016/07/13/how-teach-kids-money-smarts-young-three 

7. The Money Tree Myth: A Parents’ Guide to Helping Kids Unravel The Mysteries of Money.  Gail Vaz-Oxlade, Stoddart Publishing, Toronto, 1996.

8.  Teaching Kids about money.  ASIC’s MoneySmart Financial Guidance You Can Trust. 5/29/18.  https://www.moneysmart.gov.au/life-events-and-you/families/teaching-kids-about-money 

9.  Helping Your Child. U.S. Department of Education, 9/17/2008.  www.ed.gov/parents/academic/help/hyc.html

10.   The value of out-of-school time programs.  Jennifer Mcombs, Anamarie Whitaker, and Paul Yoo.  2017, Rand Corporation.  http://www.wallacefoundation.org/knowledge-center/Documents/The-Value-of-Out-of-School-Time-Programs.pdf 

11.  NACAC national college fairs.  https://www.nacacfairs.org 

12.  Overview of the Financial Aid Process. www.YouTube.com/FederalStudentAid  

13.  EMOTIONAL HEALTH & YOUR COLLEGE STUDENT.  A GUIDE FOR PARENTS.  Alan A. Axelson and Donna Satow, Jed Foundation, www.TransitionYear.org .

14.  AP Students. https://apstudent.collegeboard.org/home 

15.  Finding and applying for scholarships.  StudentAid.gov/scholarships 

16.  Managing college costs. https://www.mycollegeoptions.org/Core/SiteContent/Students/Advice/College-Resource-Center/For-Parents/Paying-For-College/Managing-College-Costs.aspx 

17. 3 Attending College in Transition Year, Student Edition. 2012, The Jed Foundation.  http://www.transitionyear.org/student/intro.php

18. COLLEGE PREPARATION CHECKLIST.  Federal Student Aid, U.S. Department of Education.  July, 2016.  https://studentaid.ed.gov/sa/sites/default/files/college-prep-checklist.pdf

Copyright © 2018 Douglas R. Knight 

College is optional, not mandatory

College graduation is part of the American Dream, but not for everyone (ref 1)!  Marketing, peer pressure, and well-meaning adults may push young students into the wrong college for the wrong reason (ref 2). So let’s consider the pros and cons of attending college under the topics of cost, readiness, careers, health, and miscellaneous factors.

COST 

College is expensive; its rising costs surpass the inflation rate of consumer prices and the growth of household earnings (ref 1, 3).

  • PROS:  
    • Financially secure families can pay college expenses.
    • Student aid might pay college expenses for qualified students who need assistance (ref 4).
    • The return-on-investment (ROI) is a ratio of net return for every dollar paid for college.  A positive value means that the investment is profitable (ref 1, 5).  Example: for American community college students in year 2012, the ROI of 3.8 inferred that students could receive $3.80 for every $1.00 paid for college (ref 5).
  • CONS:  
    • Unfortunately, college may be too expensive for low-income families (ref 1)
    • It’s a waste of money for college students to drop out after one year (ref 1-3)
    • The total cost of college includes any missed income from not having a job (“opportunity cost”).  Delaying employment during college impedes retirement savings plans, buying a house, and other big-cost projects after graduation (ref 1, 5).
    • The payback period is the time needed to recoup college costs.  For American community college students in year 2012, the average payback period was 7.8 years (ref 5). 
    • Can’t afford it?  Beware that a ‘crippling’ debt of large student-loan balances could cause financial distress for many college graduates.  Unpaid balances prevent financial independence and student loans cannot be erased by bankruptcy (ref 1-3)

READINESS

Some high school students aren’t ready to attend college and might benefit from gaining more experience before applying to college (ref 2, 4).

  • PROS: Preparation for college (“college prep”) is essential for success.  Families and school counselors can facilitate the process (ref 4). 
  • CONS: Students with low motivation, poor study habits, and low test scores are less likely to succeed in college. 

CHOICES

College is not the only pathway to lifetime success.

  • PROS: 
    • A bachelor’s degree is usually required for enrollment in graduate- or professional school.  
    • There are many opportunities for personal and career development offered by trade schools, 2-year colleges, and 4-year colleges (ref 1, 4) 
  • CONS:  
    • Waste of time?  Don’t apply to college if you have something better to do such as pursuing self education and building a business (ref 2, 3).

CAREERS

Most colleges support career development with a wide selection of courses and career internships, but young people can still develop a career without going to college (ref 1, 3, 4). 

  • PROS:  
    • Many jobs require college degrees.  A lower percentage of American jobs require high school diplomas today than in the 1970s.  Most of America’s job growth after year 2010 went to holders of a college degree, and this trend will likely continue (ref 1, 6). 
    • College degrees represent the potential for earning a higher salary.  Between years 1965 and 2013, young adults ages 25-32 who worked full time earned higher annual incomes with at least a bachelor’s degree than young adults with lesser amounts of education (ref 1, 4, 5-7). 
    • College graduates enjoy greater job security compared to workers without an associate’s degree or higher.  Graduates have lower unemployment rates (ref 1, 4) and higher employment rates (ref 7, 8)
    • There’s a shortage of skilled workers for trades taught in trade schools and community colleges (ref 1).
    • Millennial graduates (ages 25-32) with bachelor’s degrees are more satisfied with their choice of careers than other employed Millennials (ref 6).  
  • CONS:  
    • A college degree is not necessary for a successful career.  Some of America’s fastest growing jobs don’t require college degrees (ref 1)
    • Don’t apply to college if you seek the fast-track to earnings (e.g., military enlistment with on-the-job training; unskilled labor; ref 1).  
    • A large supply of college graduates dilutes the employment value of a bachelor’s degree (ref 8).  About 10% of recent-graduates are unemployed and about 40% have part-time jobs.  College graduates encounter greater competition to be hired and may have to settle for jobs that don’t require a college education (ref 1).
    • Many college graduates are unprepared for jobs that require reasoning skills  (ref 1, 3). 
    • A college degree does not guarantee workplace benefits (ref 1)

HEALTH

The college experience can favorably or unfavorably affect a student’s health.

  • PROS:  
    • College graduates tend to live healthier, longer lives (ref 1, 5) 
    • College graduates raise healthier children (ref 1) 
  • CONS:  
    • Overwhelming academic and social stress can cause health problems (ref 1, 9)

MISCELLANEOUS FACTORS

There are many opinions about the benefits of attending college.

  • PROS: 
    • Better living conditions: the poverty rate of Mellennials, Gen Xers, and Boomers was lower among college graduates with bachelor’s degrees compared to graduates with associate’s or high school degrees (ref 1, 4, 6). 
    • College graduates are more likely to have employer sponsored health insurance and retirement plans compared to workers who didn’t attend college (ref 1).
    • A liberal arts education promotes personal and professional growth (ref 1, 10)
    • Social mobility:  Young adults with a bachelor’s degree are more likely to achieve higher levels of income and less likely to rely on public assistance programs compared to high school graduates (ref 1, 7). 
    • Data suggest that college alumni donate more time, effort, and money to charity than people without a college education (ref 1, 7). 
    • Social savings:  Fewer graduates with bachelor’s degrees are incarcerated in prisons compared to high school dropouts (ref 1, 5).  
    • College students are exposed to diversified social and professional networks (ref 1, 4, 10).  
    • College students develop skills in collaboration, time management, and project discipline (ref 10).
    • Children of college graduates tend to enroll and finish college compared to children of families without college degrees (ref 1, 4). 
    •  
  • CONS:  
    • A college degree is no guarantee of adequate learning (ref 1).  
    • College teachers may abuse their authority by imposing personal values and beliefs on students (ref 1).
    • College classroom instruction tends to be irrelevant to everyday life, outdated and obsolete (ref 3).  While a majority of college graduates believe that college studies are useful in their job, a minority are dissatisfied (ref 6).
    • In reconsidering their undergraduate college experience, many students wished they gained more work experience, studied harder, sought work sooner, or chose different studies (ref 6).  

REFERENCES

1.  Is a College Education Worth It?  ProCon org. https://college-education.procon.org 

2.  3 Reasons Not to Go to College. Tim Patterson, 10/26/2017, Sterling College. https://sterlingcollege.edu/blog/3-reasons-not-go-college/ 

3.  7 Reasons Why You Shouldn’t Go to College and 4 Things to Do Instead. Michael Price, 9/6/2017, HuffPost.  https://www.huffingtonpost.com/michaelprice/7-reasons-why-you-shouldn_1_b_5501111.html

4.  8 Reasons Why College is Important.  6/24/2014, CollegeAtlas org.  https://www.collegeatlas.org/why-go-to-college.html

5.  Where Value Meets Values: The Economic Impact of Community Colleges.  Analysis of the Economic Impact and Return on Investment of Education. February 2014.  Economic Modeling Specialistis Intl.  https://www.empowererie.org/uploads/resources/796450_usa_agg_mainreport_final_021114.pdf 

6.  The rising cost of not going to college.  Pew Research Center, Social and Demographic trends. 2/11/14.  http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/ 

7. Return on Investment in College Education. Association of Governing Boards of Universities and Colleges. 2017.  https://www.agb.org/sites/default/files/report_2017_guardians_roi.pdf 

8.  College Education. Background of the Issue, 8/11/2016, ProCon org.  https://college-education.procon.org/view.resource.php?resourceID=006578 

9.  Emotional Health & Your College Student. A Guide for Parents.  The Jed Foundation  http://www.transitionyear.org/_downloads/parent_pdf_guide.pdf 

10.  Why go to college?  https://www.psychologytoday.com/us/blog/darwins-subterranean-world/201801/why-go-college 

Copyright © 2018 Douglas R. Knight 

What is College and Why Invest in It?

WHAT?

“College” is a training program designed for high school graduates to receive more education (“higher education”) with a certificate (“degree”) for successful completion of studies.  The available degrees are a trade school degree, 2-year associates degree, 4-year bachelors degree, masters degree, doctoral degree, and professional degree.  Students may apply for federal student aid to earn any of these degrees (ref 1).  

WHY?

Children need a good education in order to manage their adult lives.  Graduation from high school signifies an educational achievement that offers opportunities for immediate employment or enrollment in college.  Furthermore, graduation from college generally results in a higher income, healthier lifestyle, and greater contribution to society compared to the completion of high school (ref 1, 2).  

A WORLD OF OPPORTUNITY

Students who graduate from college (rather than dropping out early) earn the most value for their type of higher education (ref 2).  College offers the opportunity to expand knowledge, improve thinking, launch a career, and build new relationships [my opinion: college also increases the student’s capacity for making financial decisions]. Although other organizations offer a similar opportunity through on-the-job training (e.g., armed forces, businesses), colleges offer opportunities that can’t be obtained elsewhere.  For example, many professions require a college degree.  

RETURN AND RISK

College is not free and can be quite expensive; it’s a risky investment in your child’s future (ref 3).  Is it worth the investment?  Yes, if your student graduates with reasonable financial and emotional health.  College graduation improves students’ chances for financial success as measured by the return-on-investment (ROI).   Here are several measures of the ROI in college (ref 2):

  • graduation from college increases the employment rate
  • college graduates have more job security
  • college graduates earn more money than those with less education

The payback period for a college degree is the number of years needed to recoup the cost of college.  The length of the payback period depends on the annual salary of the college graduate and total cost of college (ref 3).  The choice of school and total time of enrollment are prime determinants of total cost.

Nearly all parents want their child to attend college, yet only one third of college students earn a bachelors degree or higher (ref 2).  The high dropout rate may be due to academic or emotional stress, especially during the transition from high school to college.  The student and family may not be prepared for the academic and social life of college (ref 4).    

NEXT?

The process of college preparation (“College Prep”) can help motivate children to attend college and graduate with a degree (ref 5).  College Prep should start at home as early as possible and continue through high school. 

REFERENCES

  1. Federal Student Aid.  U.S. Department of Education. https://studentaid.ed.gov/sa/ 
  2. Return on Investment in College Education. Association of Governing Boards of Universities and Colleges. 2017.  https://www.agb.org/sites/default/files/report_2017_guardians_roi.pdf 
  3. Jonathan F. Foster. The risks of investing in a college education. Fortune, March 25, 2015.  http://fortune.com/2015/03/25/the-risks-of-investing-in-a-college-education/ 
  4. Emotional Health & Your College Student. A Guide for Parents.  The Jed Foundation  http://www.transitionyear.org/_downloads/parent_pdf_guide.pdf 
  5. College preparation checklist. Federal Student Aid, U.S. Department of Education.  https://studentaid.ed.gov/sa/sites/default/files/college-prep-checklist.pdf 

 Copyright © 2018 Douglas R. Knight 

Overview

Education and Investing are the best ways for young people to develop their future. Their success is measured in terms of personal security for a lifetime rather than in millions of dollars. Investing starts with learning how to save for future wants and needs despite many distractions. Family teamwork is an invaluable aid. This Overview is aimed at helping families build a tradition of raising young investors.

Teamwork

Journalists and educators agree that children learn about spending, saving, and sharing money very early in life. Whether their money habits become useful or futile depends on the examples and coaching of trusted adults. Financial education starts at home where family traditions of money management set the standard. If there is no family tradition, then start one. Young investors need a team of parents and trusted adults to provide,

  • guidance
  • inspiration
  • experience
  • funding

Money Management

Money management is essential to investing and protecting financial assets such as stocks, bonds, and savings. Building good habits can be a family tradition or a new family experience. Either way, children start forming money habits early, before entering school. Many families teach the wise management of money by encouraging their pre-schoolers to store money in jars (chart 1). Any container would work -envelops, cartons, bowls, socks, etc.- but transparent jars are the favorites.

RaisingYoungInvestors.003
chart 1, money jars
  • Spending Jar teaches decision-making and accountability. Children love money and never have enough to pay for everything they want. They should learn to spend wisely, track their expenses and accept the consequences of their choices. Learning to spend wisely can help them avoid future financial insecurity due to fluctuating income and overwhelming debt.
  • Saving Jar teaches investing. Saving leads to investing and the funding of financial goals. Start by helping children save for short term goals, then encourage them to gradually save larger amounts over longer time periods. Introduce them to the stock market by explaining that their favorite businesses sell shares of ownership. Consider helping them buy stock in their favorite company.
  • Sharing Jar helps build relationships. Expose children to the needs of their community. Community engagement will cultivate relationships and humane values.
Resources:

Dreams

Dreams are gateways to an exciting and prosperous life. Teamwork can help turn those dreams into financial plans for earning and protecting money. The earlier your child’s team begins the process, the better the chance of success.

Dreams can become realistic financial goals. Younger children dream of becoming grown-ups. For example, they wonder what adults do for a living and how parents earn incomes. Older children are inspired by classmates, role models, field trips, activities, etc.

childhood dreams
chart 2, dreams

Chart 2 shows examples of goal-starters:

  • teenagers want expensive things like cars and computers; they should save for it!
  • young adults think about weddings and buying a home; they should invest in it!
  • children dream of becoming millionaires; they could invest in a retirement account!

– My granddaughter read a story in The American Girl magazine about saving to become a millionaire. She was ‘hooked’. I discussed the article with her and asked her mother (my daughter) if I could provide some seed money to open an investment account. A year or so later, my granddaughter started earning money as a tutor and used her earnings to open a Roth IRA. She enjoys reading her financial statements and watching her investments grow in value. –

Starting a Roth IRA:  www.irakids.com

Earned Income

Chart 3 outlines the sources of income for children.

childhood income
chart 3, income
  • Unpaid chores are work assignments needed to run an efficient household.
  • Allowance is a regular gift of money that ‘allows’ young children to practice spending, saving, sharing, and budgeting money.
  • Jobs are types of labor performed by older children to earn money without a work permit. Not only do jobs enhance wealth but they also improve social skills and help children make decisions about future vocations.
  • Those who chose to turn a job into their own business are called Entrepreneurs. A successful business matches the skills of the child with the type of job; it also requires planning, organization, perserverence, and reinvestment.
  • Employment for wages in a regulated business requires children to have a work permit issued by the State.
Job suggestions:
50 small business ideas: https://smallbiztrends.com/2016/11/business-ideas-for-kids.html

Saving

Investments are a good way to save money for future use. Children have a BIG OPPORTUNITY to create wealth by reinvesting stock returns that will multiply the value of their investment. Chart 4 shows the future value of $1 invested in the stock market when all dividends and capital gains are reinvested in stocks. This mechanism of growth is called “compound interest”.

Compounding Interest
chart 4, growth of compounded stock returns

Dividends and capital gains are types of interest called “stock returns”.  The colored dots in chart 4 represent values of compounded returns at selected time intervals. One application of a growth curve is the use of time intervals to help plan big projects.  For example, childhood goals of saving for college and retirement fit into uniquely different time intervals:

  • The growth of $1 to $3 in 18 years is a realistic expectation of saving for college.
  • The growth of $1 to $30-$114 in 50-70 years is a nice investment for retirement.
More information:

‘Minor’ Requirements (‘red tape’)

Young investors need trustworthy adults to help navigate the red tape of opening a banking or investment account (chart 5). Minors (those youth under the age of 18 or 21 years depending on the state where they live) are unable to open the account without the written consent of an adult parent, guardian, or acceptable attorney. Full control of the account reverts to the young person at the age of majority (age 81 or 21 depending on the state).

family teamwork
chart 5, requirements

Big Projects

Big projects require saving thousands of dollars.

  • Short term projects include saving for a computer, car, vacation, or wedding.
  • Long term projects include saving for college, a house, or retirement.

Planning a big project requires setting the goal, estimating the deposits of money, overriding the obstacles, and occasionally reviewing the plan. A simple Retirement plan might be the following:

  • goal, save a million dollars [this may change later]
  • deposit 10% of earned income [this will change later]
  • override obstacles with frugal investing (chart 6) and other protections (chart 8)
  • review the plan when there are substantial changes of income, expenses, or personal life.

Frugal Investing

Brokerage firms charge fees for professional advice, trading services, accountants, and safekeeping of securities. The fees are inescapable, but they can be minimized by frugal investing (chart 6).

RaisingYoungInvestors.007
chart 6, frugal investing
  • Automatic reinvestment: Ask your broker to automatically reinvest cash payments from stocks and investment funds.
  • Infrequent trading: Otherwise, frequent trading (especially small amounts of money on a daily or weekly basis) will dilute investment returns.
  • Low trading fees: Consult online ratings and reviews of brokerage firms to assess their trading fees.
  • Dollar cost averaging: The best way of compensating for fluctuations of market prices is to make monthly contributions to the investment account which will then purchase varying numbers of investment units (i.e., shares) depending on the market price. Dollar cost averaging requires a dependable source of money (e.g., payroll deduction, bank account) and a receptive account (e.g., direct deposit plan, 401-K, brokerage).
  • Taxes reduce the profits from investing. Here are several ways of protecting the profits from taxes:
    • The Kiddie tax defers some of a child’s investment returns from taxes.
    • Tax-efficient investments reduce the capital gains & dividends taxes (e.g., growth stocks) or state taxes on bond interest (e.g., muni-bonds).
    • Federal taxes are not charged on the profits from Roth retirement and Education Savings accounts.
  • Long term investing: stock prices rise and fall frequently during the short term, but in general the price of a stock will gradually rise in the long term. The young investor can expect a rise in stock price over 30-70 years.
  • Diversified investments: Some stocks fail to earn returns for the investor. Consequently, it’s a good idea to own several different kinds of stocks to protect the total investment.

“College” is a Big Project

“College” is defined as any 2-year, 4-year, or career school after high school graduation. College prep is a family enterprise that prepares the high school student to negotiate their admission to college. Negotiation is the bargaining process that occurs between the student who wants to attend a desirable college and the college who wants to admit desirable students. The student’s ideal financial goal is to balance the cost of college with family savings and scholarships. Financial aid is only used if needed (chart 7).

RaisingYoungInvestors.011
chart 7, college prep

TIMELINE FOR COLLEGE PREP

  1. Family starts saving for college 15-18 years early with a “529 Plan” or “Coverdell account” owned by the parents. Grandparents can help fund the plan.
  2. Family has early discussions about college and the opportunities offered by a college education.
  3. Student starts seeking scholarships during the freshman year of high school. Start with the school guidance counselor and librarian. The family can help with the research, proof-readings, practice interviews, travel costs, etc.
  4. Student reduces the cost of attending college by earning college credit during high school.
  5. Family applies for financial aid during the senior year of high school.
    • FAFSA (Free Application for Federal Student Aid) is required by all colleges.
    • CSS Profile (College Scholarship Service Profile) is required by colleges that award non-federal aid
  6. Student negotiates the terms of college admission.
Quick references:

Protect them

In the event of a catastrophe, every household should have an emergency fund to sustain their budget for at least 3 months, preferably 6-9 months.

protect
chart 8, protect
More information:

In closing:

conclusions

 

Copyright © 2018 Douglas R. Knight

Retirement savings

Retirement savings plans are increasingly used to supplement Social Security pensions. The 401(k) is the most common retirement savings plan offered by employers. What will happen to the future retirement income of young employees if their Social Security benefits are reduced or their employers suspend 401(k) matching contributions? The employee will then have to make up the savings deficit. It would help if they have their own long-term investing plan for retirement.

Imagine an investment in stocks that grows by multiples of 3, 30, and 90 times the original value during successive time periods of 18, 50 and 67 years. Helping a child make such an investment would help them retire in comfort IF that child learns how to manage the investment throughout adulthood. Homeschooling will help determine how well the youngster ultimately manages the investment.

Many of today’s retirees worry about a shortfall of lifetime savings. Children could avoid this future worry by starting a long-term investment in stocks that accumulates more than two million dollars.  Today’s formula is simple: Start early to make regular deposits in a Roth IRA that invests in a broad-market, stock-index fund. Then build the fund with payroll deductions.

Why aren’t there more millionaire retirees? Because of obstacles along the way; college, debt, taxes, and low income to name a few. Dedication and planning are needed to circumvent the obstacles. And here’s an idea for low income families: Help your child open a custodial savings account to accumulate sufficient funds for starting an investment account. Irrespective of family income, parenting skills can instill motivation, participation, and the investment habit in a growing child.

References

  1. Retirement plans for children: https://www.investopedia.com/articles/retirement/06/retirementforminors.asp
  2. Roth IRA for Kids: http://www.irakids.com
  3. Facts about retirement savings plans: http://www.pensionrights.org/factsheet-topic-areas/retirement-savings-plans
  4. IRS retirement plans: https://www.irs.gov/retirement-plans

Copyright © 2018 Douglas R. Knight