Posts for October 2011
College planning for your Tween?
By Jeff Eusebio
You’ve got plenty of time to start thinking about college, right? Or do you? Considering the average in-state tuition at a four-year public college is around $30,000 (not including room & board!), it’s actually not too early to take some steps now to save money down the road. Over at Fidelity Viewpoints, they explain there are a few little steps you can take even now to increase your chances of getting financial aid. Here are a few highlights:
Steps you can take now include:
1. Finesse financial aid
If you can lower your EFC, you may position yourself to be eligible for more financial aid. “Fidelity suggests performing a dry run with the CollegeBoard EFC calculator—even five years before you complete your first FAFSA application—in order to obtain a ballpark EFC figure and get a sense of what family financial data is required to participate in the financial aid evaluation process,” Devaney says.
2. Get familiar with grants, scholarships, and loans
Possibly the most attractive are subsidized Stafford loans. These are federal government loans available to any student who meets the FAFSA eligibility requirement and who typically has an unmet financial need after Pell grants and other financial aid are factored in. Subsidized Stafford loans have a subsidized interest rate, and interest is paid by the federal government until six months after the student leaves school. Also, the student may wait until six months after leaving school to start repaying the loan.
3. Revisit how you’ve invested your child’s college savings
Five years before college starts is a good time to make sure that your mix of college investments (allocation) makes sense, given that you’ll need to pay the tuition bill in a few years. In fact, many people don’t understand the need to reduce their equity investments—and thus their risk—as college approaches.
4. Research educational institutions to match the student to the best aid packages
Colleges and universities may be pretty strategic about awarding financial aid, so if it is determined that you do qualify for financial aid, you may be eligible for a better package if your child has a background or interests that match a particular school’s criteria.
5. Consider working with a trusted adviser who possesses college planning expertise
…an expert adviser can help you evaluate your family’s income, assets, and liabilities, and suggest actions that may allow you to enhance your financial aid eligibility. These discussions are more successful when they are conducted well in advance of your child’s financial aid application deadline.
Admittedly, I wish I would have taken some of these steps a few years ago myself as my oldest are months away from college visits and applications. This is definitely worth a look and a few minutes planning well ahead of time.
→ 5 steps to take 5 years before college | Fidelity Viewpoints
Get familiar with grants, scholarships, and loans
Letting Kids Participate in Family Money
By Jeff
We had a mom write in with some ideas that she uses with her own kids at home. We thought they were great, so we wanted to share them with you.
This mom said she wanted to find ways to give her kids more visibility and involvement in everyday decisions she was making as a mom about money and budgeting. Here are the ideas she came up with and put into practice:
- Let them open the bills. She said their shocked faces were priceless as they absorbed how much they had to spend each month on their mortgage payment, utilities, and other bills.
- Let them help pick out groceries, but make it a game in that they can only buy things that are on sale. Whoever finds the biggest discount on things they need to buy wins.
- Let them hand over the cash at a store or a restaurant counter. There is a real feeling of loss when they have to hand over cash in their hand to someone else. It helps makes spending “real” vs. just swiping a credit card.
- Put them in charge of some of their own spending. Give them a budget for eating out and, even if they go out as a family, they must “pay” for it themselves out of this budget. She said she set up an “Eating Out” goal in FamilyMint that she makes a deposit into each month, and the kids withdraw from each time they go out.
We think these are all great ideas, and love to hear about ways you are creating teachable moments to make your kids money-smart on a daily basis.
Copyright Letting Kids Participate in Family Money © 2011. All rights reserved
“Deficit” vs. “Debt”
By Bob Masterson
With the national debt currently at $14.9 trillion, we hear a lot of talk about reducing our national deficit. My teen posed a question while watching a recent debate as to what the difference was between debt and deficit. “That is an excellent question my son,” said I, knowing that many politicians bank on most people not knowing the answer or are not paying close enough attention to how politicians spin it.
So, let’s put it into terms of a household. Let’s say our income is $5000 a month after taxes. Now we subtract all of our household and living expenses such as mortgage, insurance, utilities, food, etc. If we spend less than our income we have a surplus. Yea!!! On the other hand, if we spend more than our income, we have a deficit. Boo!!! If we have a deficit, we must borrow money in order to cover the difference, which is called debt. We have to pay interest on this debt until it is paid back in full.
If a deficit happens every month, we are living beyond our means and are forced to borrow more money and incur more interest on the ever growing debt. If we do nothing to change our habits, then over time, the interest on the debt becomes larger than any other item within our family budget. Further, if no one is willing to loan us money to cover the interest payments, we face the possibility of bankruptcy. Not a pretty picture is it?
Now that we understand debt vs. deficit at a family level, let’s return to my son’s original question about our national debt at $14.9 trillion. The government is no different than a household. The government has income it receives through taxes and fees. Expenses are subtracted and the government either has a surplus or a deficit. What do you think the government usually has? If you answered deficit you are correct! Believe it or not, the U.S. government has run a deficit in all but 5 years since 1969[i]. Not fiscally sound practices by any household standards.
Each year the interest on this growing debt gets larger and larger cutting into the government’s budget. So when you hear politicians spouting about how they are going to reduce the deficit, this is just a meaningless sound bite hoping to confuse the voter. Because, as we just learned, any deficit greater than zero requires us to continue borrowing and therefore does not reduce our debt.
By the way, your personal share of this national debt currently stands at over $47,000. That’s $47,000 that you, your spouse, and each of your kids will have to pay to our government in order to help them pay off the debt they have incurred on our behalf.
Here’s an interesting video entitled “Brother, Can You Spare A Trillion?: Government Gone Wild!” to help put this $14.9 trillion national debt into perspective.
[i] http://usgovinfo.about.com/od/federalbudgetprocess/a/Budget-Deficit-History.htm
Copyright Deficit vs. Debt © 2011. All rights reserved