Personal Finance (Bryan Sudweeks) Part 3

Savings for Children's Education:  What We Can Do Now

• Helping pay for children's education is a personal choice.

Why get an education?

• The more education you have, the more money you will make over your lifetime
• The greater your education, the greater your ability to serve
• An education is a good investment
• Is an education cheap?  No, but the cost of ignorance is higher.

Principles of Financing Education and Missions

Teach Children to be Financially Responsible

• Teach them to work and earn, consistent with age and abilities
• Teach them to share the things they have
• Teach them to be accountable for their spending
• Teach them that they earn and receive money for their working, not their whining.

Help Children Save for Their Own Education and Missions Consistent With Their Abilities to Earn

• Encourage savings goals
• Set up bank accounts for them and contribute
• Give them the ability to earn money for educations and missions
• Don't put your retirement at risk for children's educations

Develop Education and Mission Plans for your Children Consistent With Personal Goals and Budget

• Help save for children's education and mission plans
• Set aside money for their accounts each month (1% of income)
• Encourage children to participate
• Plans that require work and contributions by the children have a better chance of teaching the principles discussed
• Share the plans with children

Start NOW and Make it Part of Your Budget

• Make saving a key part of budget
• Begin now and early
• Have the children help save 
• Encourage other family members to contribute to each others educations

Invest Wisely and Tax Efficiently

Priority of Money for Education

1. Free Money: scholarships from schools and private sources, grants (Pell, ACG, SMART, SEOG), armed forces scholarships
2. Family Money: If the children help out, they'll be more responsible.  Start the process of financial self-reliance as soon as you can.  Do what you can but don't do it all.  If people help out, express appreciation.
3. Employment: Have them work to help save money.  No more than 10 hours a week for high school and no more than 20 hours a week for undergraduates.
4. Loans:  Ask Questions.  Who pays the interest? When do you pay it back? Who takes out the loan (parent or child)? What is the interest rate cap?  Is it subsidized, unsubsidized or stafford?  Stay away from Plus Loans (parents responsible) and Private Loans (expensive interest rates).  Federal loans are less expensive.  Don't use credit cards, pay day loans or take money out of your retirement.

College Savings Plans

     With Tax Benefits

• EE and I government bonds (too much $)
• Education IRA (NOT recommended)
• 529 prepaid tuition (hard to know what school your child will go to)
• 529 savings plans (RECOMMENDED): Has no yearly limit for contributions, has a $368,000 max amount in the account, each state has one but you don't have to use the one in your state although you may get state tax breaks (You do in VA)

     Without Tax Benefits

• Tax efficient investing
• Know tax rates     Calculate after tax return
• Invest long term    Long-term capital gains
• Invest wisely         Use qualified stock dividends/stocks
• Receive tax-exempt income     Purchase muni//treasury securities when rates are attractive

How to save for missions

• No tax benefits
• Tax efficiently invested assets- have accounts in each child's name
• Custodial Accounts: UGMA/UTMA (NOT recommended)

Audrey's blah blah:

Calvin turns 9 in January.  That's halfway to 18, halfway to college.  We started a 529 plan when he was one and did the same for Natalie.  We put in money each month and should probably look at increasing the amount we put in now that he's getting older.  But it is fun to see that money grow and get bigger and think that when they are ready for college, we'll have at least something to help out.  Before Calvin was born Travis' job started a thing where they would take out a little bit of money of each paycheck and put it towards a savings bond and when it got to be $50 they would send it to you.  We decided to do that and that's what we used to start their 529 accounts.  We didn't make much back then, but it was great to be able to cash in the bonds to start their accounts.    We have also opened bank accounts for each kids and at the end of the year, whatever they have in their piggy banks at home, we deposit into their accounts using the fun change machine counter thing.  A little bit here and there, even when you don't have a lot, can add up over time.