My mother recently told gave me a startling statistic: That $40,000 today buys what $16,000 bought in 1970. The trouble is that today there is so much more to spend your money on. Most of it is junk, but when you make that purchase there is so much rationalization about why a purchase that is really a luxury is a necessity. That is marketing. Does your child really need that $400 dollar high chair you just bought? Of course not. But what about your child’s education?
Statistics are clear that a college graduate will out earn a high school graduate over his or her lifetime. But graduation statistics for the United States are not good. As of 2006 68% of high school students graduated highschool. 62% of these students went on to college and the college graduation rates for the United States are all over the map at 22% for Alaska (I’ll censor the Palin jab I had planned here) to 69% for Massachusetts. The average rate was 56%. This data was taken from higheredinfo.org
Looking at those numbers, a kid has less than a 50% chance of going to college and only about a 50% chance of graduating with a bachelors in 6 years. Now there are many reasons for this. A great deal is written about student indebtedness, poverty and the failure of our public schools. Unfortunately very little is written about student motivation. Some kids lack the personal maturity and discipline to enroll in, attend and complete a 4-year degree. Children are about dreams, not reality and, unfortunately, parents are not very good at recognizing and working with their child’s limitations. I had a colleague who diligently set aside funds into a 529 plan to plan for his kid’s college. Except as the child got older I was pretty sure his true destiny was to become an arsonist or serial killer. That child needed resources TODAY. In that context a 529 plan or any thought of saving for college is silly.
I have seen grand kids not only fail to complete their degree, but default on loans cosigned by grand parents. I have seen kids drop out of college at the last moment, because they were willing to stay in as long as mommy and daddy were paying the bills, but didn’t value their educations enough to remain in college when the money dried up and they had to find a way to fund the final semester or two of college. I have also seen the opposite. I dated a young man in college who found out that the money he thought was going to be available from his parents for college wasn’t going to be. His parents exhausted the college fund during an extended period of unemployment. They always thought they could re-build it, so they never told him the money was gone. Jim didn’t find out until the end of his sophomore year that his family did not have the funds he expected them to have. Jim returned as a junior using a combination of part time work and loans. Jim illustrated an important concept. It is important to have skin in the game and all too often, kids who do not share the financial responsibility for their education have no appreciation for the sacrifices made by their parents and grand parents to help them stay in school and gain a leg up on the financial compensation ladder. Attaining higher education is akin to obtaining a high-powered insurance policy. It is about attaining a level of success equal to or better than your parents. What parent wouldn’t want that for their child?
Having a child, raising that child and paying for a child’s education take real dollars. The estimates are that it takes $200,000 for a middle-class family to bring a child from infancy to age 18. That number does not include private high school or college. Real dollars spent paying for educational expenses are dollars that won’t be available for retirement expenses in the future. For the first time since the post World War II era, Americans are responsible for the majority of their retirement expenses. Assuming that a child whose education you paid for will achieve enough financially to support you in your retirement is little more than a gamble. Given the present college graduation statistics, the odds are that half the time, the money spent on college by parents will be wasted.
I just tweeted about an article on CNNMoney this morning: Readers to the Rescue. A father asked if he was being selfish by not paying for his child’s graduate expenses. The discussion is pretty interesting. All of the respondents who paid for their own education said that they valued the educational experience more. A few even acknowledged that their educational expenses even bankrupted their parents in retirement and wished their parents had made other choices during their working years. A few even said that because they, not their parents, were on the hook for the money, they chose careers and degrees they could actually earn a living in.
Should parents pay for their child’s education? I think it depends on whether or not all retirement needs are being met, but my overall bias is no. I think it is more important that parents instill the notion of sacrifice in their children and give their children the skills of weighing evidence and making decisions based on that evidence. If kids had those skills maybe our graduation rates would be higher.
Please comment.
Am I exagerating? No. I am middle-aged and I am sick of sitting through bad films. There I was sitting at a UA Theater in Los Angeles having paid $8.50 for a matinee feature and I get macho male blow ‘em up schlock. Let’s just dispense with the plot why don’t we as long as we can just blow something up?
I guess it is okay to expect a blockbuster to be followed by a flop. Lazy writers and lazy directors who understand that they will simply get paid for getting out of bed as long as they make a movie on the coattails of a block-buster.
Robert Downey, Junior should really be getting tired of playing the drug addicted playboy or the drug addicted detective sorely in need of rehab. It’s getting old and becoming a cliche. I say move on, brother.
And speaking of brothers, are we not supposed to notice that Don Cheadle and Terrence Howard got swapped out while playing the same character? Take s0me poetic licence writers and change the name of the character because, folks, we don’t all look alike.
I am tired of watching Gweneth Paltrow play an airhead. Well okay, this time she was an hysterical airhead. But high-pitched babble does not dialogue make. You know, since she got the Accidental Oscar a few years ago, she seems to think she can act. Or maybe she has realized she can’t act, got lucky and is now just along for the ride. I cannot figure that one out. Robert Downey, Junior and Don Cheadle who did little more than carp at each other didn’t do much better in the dialogue department. Note to Hollywood, bitchey is sooooo not in. Everyone just needs to go back and rewatch “Freebie and the Bean” to see how it’s done.
This movie was so bad that they wasted a great bad guy, Micky Rourke, who has truly become scary in middle age. Hopefully he got paid well, because this movie will do nothing to move his resurging career forward. Since the writer was hell-bent on not working and the director was hell-bent on having an excuse to blow things up, anyone could have stepped into Rourke’s role, shoved more metal in his mouth than the most jacked up gangsta rapper, mumbled a few words in Russian and given Iron Man an excuse to sober up and blow lots of things up all for the common defense.
Am I mad about the $8.50? Nah…I am just wondering why we don’t get to expect quality for that $8.50. If quality happens in sequels, it happens more by accident than by design. Peter Jackson is THE notable exception. If I had my copies of the LOTR Trilogy with me, I’d plop them in right now to wash the memory of last night’s debacle right out of my mind.
My youthful Saturday Mornings were spent watching the super heroes. Instead of being transported back in time, I sat trapped in my seat praying for a mistake to end. The Avengers are on tap for 2012. The Avengers has been plugged at the end both Iron Mans and The Hulk. After Hulk and Iron Man I I was hopeful that it would be a great super hero movie. Now…not so much.
Please comment.
About 5 years ago I came across and article in the Albuquerque Journal. A group out of Santa Fe had procured a grant to travel the state and host financial literacy seminars for women the grant targeted women for two reasons: First because the odds are overwhelming that at some point in her life a woman will become the financial head of household and second because women are more responsible with money than men. Teaching women about financial literacy and how to make sound financial decisions can help keep families out of poverty. Other organizations like RoomtoRead.org seek to raise the standard of living in communities by targeting young women and providing them with books. Programs aimed at improving the educational level of young girls are at least as effective as providing contraception in reducing the incidence of unintended pregnancy and early child rearing two correlates of poverty in communities.
I contacted the group from Santa Fe and they agreed to come to Gallup, NM. I just had to advertise the seminar and find a venue. The venue part was easy. Low cost advertising was not. I tried word of mouth but got few committals for people to attend. I put up a sign in our local chamber of commerce. On the day of the event, I approached the head of our hospital and asked permission to send a mass e-mail to hospital staff.
The event was well attended, standing room only. It is pretty clear to me that people want information about how to manage their money. Most folks are willing to attend a class, but few are willing to read a book or ten or make learning and living financial literacy a habit. But attending a seminar is a start.
The leaders of that seminar espoused a philosophy that is antithetical to the way that most people, especially women who tend to nurture the people in their lives, think. What they advised was not to put any money away for your child’s college until all savings and retirement needs are met. Their rationale was simple, having a comfortable retirement depends on the length of time money is put away for retirement and it is hard to make that amount of money up later in life. “Your child can always take out loans,” they said. They also said that a child is likely to be more responsible with the money if they are taking out loans.
During my mother’s talk on financial literacy that I alluded to in an earlier post, she expressed considerable concern that graduating with significant undergraduate debt would stunt the economic prospects for kids. In this arena, I truly don’t know what to think. My mother and I had a deal. She took care of undergraduate school and I was responsible for my graduate education. It makes me quake in my boots to think that the assistance that my mother provided my brother and me may have stunted her retirement prospects, yet I did ask the question in an earlier post if living in a pension-less society will force parents to choose themselves over their children when planning for the future.
Today is May 7th. Yesterday the DOW lost 998 points in intraday trading. The year is 2010 not 2008. We are supposed to be experiencing an economic recovery. We had a net gain of 290,000 jobs in April, beating economists’ forecasts yet the markets are down. The markets are really like a party. The folks who arrive early have their choice of the available foods and can eat their fill, the folks who arrive later are left to pick over the remains and the folks who arrive at the end of the party are shut out altogether. Trouble is that when the food first arrives it seems to be without limit. No one knows when it will run out but everyone understands that it will run out. Those who benefited from the unprecedented bull market of the 1990s were in the market in the 1980s, they were early arrivals to the party. The market activity of the last 24 hours proves, yet again, that you cannot use the markets to goose retirement savings, so the only asset you have is time: saving early, saving often and prioritizing that saving over everything else.
Please comment.
You start a new job with benefits. One of those benefits is a 401K complete with a generous company match. You feel lucky, your new employer is interested in your future, interested in helping you build a secure retirement. But what if he isn’t? What if you 401K is just a way for your employer to cut expenses? Earlier this week, I ran across the CNN Money article: “Reality sinks in for 401K investors and providers” the article was pretty sobering. That people are finding that they will have to work longer than planned because of the market turmoil of the past decade is really no surprise. What I found surprising is the way employers view 401Ks, the coveted benefit that they offer employees. The CNN Money article quotes a study by Wells Fargo that looks at employer attitudes toward the 401K. The study found that:
1)Employers view retirement plans as a benefit rather than as the main way that employees will support themselves in retirement. Half of employers say that they offer competitive benefits to attract and retain employees.
2)Fewer than 1/3 of employers believe that employees participate in 401K plans in order to have a comfortable retirement. Many employers believe employees are only after the match.
3) Only 1/3 of employers stated that their 2010 goal was to educate plan participants about retirement needs and how much to save.
4) Only 20% of employers said that providing employees with the ability to retire was the greatest challenge their plan faced.
5) Only 10% said that they measured plan results against expected employee retirement needs.
In other words employers feel no obligation to assist employees in reaching retirement goals other than offering the 401K savings plan. Most plan providers do not provide financial literacy education or education about the implications of investing in the markets. When the markets were exploding during the heady 1990’s it seems that everyone became an investor, there was a millionaire born every minute, stock prices were destined to always rise and no one had to ask the important question: will the 401K really help people create the funds for a healthy retirement.
Some friends of mine would say that it was never or should never have been an employer’s responsibility to provide for an employee’s retirement. I am not sure I find the philosophical point relevant. Employee benefits are expensive and any employer will have to do something about those expenses if they hope to compete globally but the shift from defined benefit to defined contribution plans as the primary mode of retirement planning occurred gradually and quietly. Looking at where the DOW was in the 1980s before the proliferation of plans to where the DOW ended as 401K plans took hold, one cannot help but conclude that the proliferation of 401K plans created the market explosion of the 1990s by flooding the markets with new money, much the same way that creative financing and the securitization of those loans fueled the housing bubble. In short, the 401K plan fueled the very market boom that retirees were supposed to take advantage of. This is what we are left with: defined contribution plans are the primary vehicle of retirement planning, but the employer who provides the plan has no vested interest in making sure employees actually reach their retirement goals. This is America, we fundamentally believe in freedom of choice including the right of individuals to make unsound financial choices therefore it is unlikely that we will ever mandate financial literacy and education. I believe that the most that the American public can do is realize that Social Security is in trouble, that the 401K, maxing it out and getting a generous company match will not guaranty a comfortable retirement and that financial literacy is critical to building a sound retirement. Financial literacy is more than reading the jargon of the day, it means studying financial history, bubbles and true long term returns. Going forward a comfortable retirement will likely be due to a combination of Social Security, the 401K, savings outside of a defined plan, and entrepreneurial activity designed to generate reliable cashflow. One thing’s for sure the employee has never been more on his or her own to create a comfortable retirement.
Please comment.
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