Archive for College Planning

College planning, child-rearing expenses & a novel approach

I put off having a child as long as I could. My own mother made it seem like a lifetime sentence, where you’d have a continuous stream of hard work and never have any time to yourself again. Also, in her assessment, I wouldn’t make a very good mother as I was far too impatient. She sure made it sound like fun.

How we live now

Okay, she was partly right but thank heavens mostly wrong, although you might get some agreement from my daughter on

Sunrise in Botswana

Sunrise in Botswana (Photo credit: Wikipedia)

the assessment of my parenting, depending on when you ask. Nevertheless, my mom was pretty much in tune with our current U.S. culture of child-raising. I know more than one mom with a full time job and more than 200,000 miles on the mommy-mobile. Most parents I see are quite worried about college for the kids, and even more worried about what a top-level admission will mean to their finances. When I see people with infants, we always discuss not only college, but how much tutoring, music lessons, sports activities, and arts training are going to cost. And if the kids are old enough, we’re probably going to talk about a college admissions coach.  In 2009, estimates were that it cost $1.1 million to raise a child through college—and college costs have gone up a lot since then.

It can seem like a rat race from the moment they’re born. However, as I mentioned in my previous post, I’ve been living in an alternate reality every night from 10:30 pm to midnight or so: I’ve been in Botswana. No not really, and I’m not even sure the actual Botswana is as depicted, but in the No. 1 Ladies Detective agency world, children are quite a different matter. In the 2nd book of the series, Tears of the Giraffe, we can experience an entirely different way of being with and rearing children.

Spoiler alert! Stop here if you don’t want to know details on this book!

An alternative life

A little background: Mma Ramotswe is the heroine and chief detective. Her fiancé is Mr. J.L.B. Matekoni, a warm hearted and easily buffaloed owner of a car repair service. He spends significant time doing free work for a friend who runs an orphan farm (which seems to care for many children orphaned by the AIDS epidemic, among other reasons). In one very swift meeting with the head of the orphan farm, Mr. Matekoni finds himself going home with two children, one of whom is in a wheelchair.

His thinking is extremely straightforward—these children would benefit by a home, he can give it to them, and Mma Ramotswe will be happy to have them also—because who isn’t delighted by children, any children? So the kids are bundled into his truck, with wheelchair, and off they go. He does consider that maybe he should have talked about it a bit with Mma Ramotswe, but he’s pretty confident she’ll go along.

Are you gasping at this point? Can you imagine this scene in the U.S.? Me neither. Contrary to my expectations, this is not setting the stage for a big blow-up. In fact, Mma Ramotswe does wish he’d talked to her ahead of time, but sees it as further evidence of what a good man her fiancé is. She does mention that some people have too many children—6 is enough, she says—but since they do have extra bedrooms and do make enough money to feed them,  she’s okay with the sudden transformation into parents.

Parenting transformations

I think the way this sudden parenting is handled is what makes it all so different, and indeed a pleasurable experience:

  • Everyone sits down to dinner every night after school and work. Mma Ramotswe cooks dinner nearly every night anyway (with help from the girl, and Mr. J.L. B. Matekoni at times.) What’s on the table is what Mma Ramotswe likes (with an eye to pleasing Mr. J.L.B. Matekoni). No special meals, no complaints, and plenty of family togetherness. No extra work.
  • School is pretty simple. They walk, and go to the public school. Private schools are mentioned, but in the context of helping kids with problems. At one point the kids experience some bullying, but it’s dealt with very matter-of-factly by helping the kids (in a family discussion) decide how to respond.
  • Entertainment and recreation are simple and center on the family. After dinner, the kids clean up and study (no driving to endless activities). They spend time with each parent, and when the boy starts acting sullen, Mr. J.L.B. Matekoni spends more time with him and takes him to some sporting activities. On weekends, the kids go to visit relatives with one or both parents. Mma Ramotswe remarks how one aunt is extremely long winded, but it’s good for the kids to hear her stories because it teaches them about Botswana and who they are.
  • There’s a huge awareness of the natural world, and one of the favorite recreations is sitting outside listening to sounds, talking with each other, and walking through the garden.
  • When there are behavior problems, the parents are confident that they can be solved by connecting with the kids. Mma Ramotswe also attributes some misbehavior to “kids are like that” and is certain that with time will come wisdom. She has a great ability to laugh things off.
  • Both parents are confident that the kids will find their niche in life. They both value education, and are very impressed by people with college or other advanced training, but there’s no mad rush to channel the kids toward anything specific.
  • Even though Motholeli has a significant handicap, it’s not a cataclysm. She is still regarded as a capable person who can make a contribution, has tasks, and has interests that the family finds ways to involve her participation. No one is ashamed of her, and she’s fully integrated into all activities.

What financial planning lessons do I take from this?

People more than things.  What gives this family pleasure and solid relationships is the emphasis on being together. They have very little interest in acquiring more than is necessary and they are very dedicated to making things last and wringing the last bit of use out of anything. The things they treasure have personal meaning, not monetary value: a photo, a commemorative plate, a teacup, but mainly each other.

Confidence, optimism, and realistic expectations toward life. Without a pre-planned agenda or specific expectations for the children, they are much freer to allow natural talents and preferences to emerge.

Reliance and enjoyment of friends and family. When you keep up with even remote relatives, there are plenty of ways to get help, advice, entry, information, and support when you need it. Mma Ramotswe is also very conscious that she has reciprocal obligations, and hands out time, sometimes money, and effort for her vast network of distant relatives and friends. When, in a later book, an employee asks her to be godmother, she sighs a little knowing that this will require obligations to contribute to school fees, gifts, and all sorts of needs (for the rest of life), but focuses almost immediately on the need of the child and the honor being done to her, and gracefully accepts the offer. She thinks we cannot always choose whose lives will become entangled with our own; these things happen to us, come to us uninvited.

We don’t live in Botswana, but these books are giving me lots of opportunities to think about how to dial down the burners a little bit, to enjoy what we have, and to choose relationships and activities over possessions. Even for a financial planner, it’s not all about money.

Save

How will the election affect your financial plans?

What now? It’s very early to make predictions but I have at least as good a chance as the pollsters, right? We really don’t know what this incoming president will do, since his policy statements have been so thin, simplistic, and utterly without actionable detail. Nevertheless, some things seem obvious, so here are my thoughts on possible steps.

Never has saving been so important

One thing that seems pretty clear is that support for the vulnerable, the disabled, the elderly, and the ill will be diminished or eliminated. Even under Republican presidents there was opposition to much of the social support network, but now that the mandate seems to be for the ultra-conservative right wing, social programs and benefits are likely to be drastically cut. Certainly we’ll be unlikely to see any new initiatives. This means:

  • You won’t see any assistance to make education more affordable. If you have school loans, you’re not going to get any breaks. If you have children, saving for college will be critical. Without savings, it’s very likely you won’t see your children in college.
  • The incoming president has absolutely no plan to remedy the problems in Social Security. I can say with near certainty that you won’t see any impetus to bring benefits up to an actually livable retirement income. Without your own savings, you’re going to have a bleak old age.
  • Health care costs will be on you. Since the incoming president is unlikely to favor cost containment, single payer options, or public provision of service, we may well see a free-for-all where service providers scramble to snare the people who can actually pay out of pocket. Same goes for colleges, now that I think about it.
  • Charities won’t pick up the slack. The national mood to support the vulnerable seems to have disappeared. One of the most shocking things I’ve learned as a financial planner is how few people give to charities at all, and how small some of our contributions are. Especially in an economic downturn, charitable donations will lessen. Most charities are not able to float extensive programs for continuing care on their own, and depend on public, government support which is unlikely to continue.

Money, as always, gives you flexibility and protects you even in severe economic downturns. If you have to pay, yourself, for all the services most Western democracies provide their citizens, you must have savings.

Try to arrange catastrophic protection on your own

There is unlikely to be any movement toward increasing protection of the elderly and disabled. Long-term care insurance appears to be a necessity for anyone but the super rich. There certainly won’t be any type of long-term care insurance provision at the government level, and most likely no regulation of the industry. Unless you want to face complete impoverishment in needy old age, you should consider the catastrophic protection long-term care insurance provides. Medicaid, for when you’re completely broke, is unlikely to receive enough funding to provide enough care for enough people.

Similarly, disability insurance becomes even more important. Getting Social Security disability, already extremely difficult, will certainly not become easier or more generous. Even those with some savings could easily be wiped out by a disability.

I can’t comment on health insurance, because all the alternatives look so bleak to me that I have no idea what may still be available in the next years. This is a significant drain on entrepreneurship and small businesses. One of the biggest blocks to people starting new ventures has always been the inability to secure individual health insurance. The insurance safety net now becomes more important while simultaneously becoming more damaged.

Review your employment situation

Even if laws protecting workers are still on the books, the federal agencies still have plenty of options on how to enforce them (or not). A professor of mine once said that the most important thing a president does is make the 250 or so critical appointments to agencies that actually run the government. I think it’s pretty safe to say that anti-discrimination provisions, OSHA protections, affirmative action efforts, and environmental protections will be dismantled as much as possible. If you get in an employment situation where legal protections might be important…well, I hope you have the savings and insurance to tide you over a long legal sojourn with a potentially poor outcome. Don’t forget, a president gets to appoint judges and prosecutors.

Do whatever you can to develop your technical skills. The only way to make yourself valuable in a recessionary economy is to acquire skills that are so in demand no one will care who you are: computer, health care, accounting, and engineering come to mind. These are skills that are valuable world wide.

If you’re in college or have children who are, it is with a heavy heart that I say it appears to be a poor idea to concentrate on the liberal arts. My own daughter majored in Anthropology, and my long-ago degree is in Sociology, and I have (all my life) rigorously defended the value of a liberal education. I still believe in it, because I don’t think education should be job-training; it should be developing the life of the mind. However, with the reality of the current developments, any student needs to think about how to add technical or in-demand skills to their education, at least as a minor or certificate program. This is the time to add pragmatic skills to education, because you can’t count on any help or justice except what you can muster on your own.

If you are part of any vulnerable group—women, minorities, immigrants, disabled, LGBTQ, to name a few—this advice goes double. As Cal Newport has said, be so good they can’t resist you. It didn’t work for Hillary Clinton, but I’m hoping your luck will be better.

Stay with diversified investments

I don’t know what the impact will be on markets as yet. I’m guessing socially responsible investments, green energy, and anything dependent on health care funding are going to take a hit, while military contractors will see windfalls. I doubt that defunct industries can be brought back. Will Europe become more attractive? Will the Fed have any tools left? As always, the only mitigation of catastrophe is to have eggs in many baskets.

It all depends on your personal situation, of course, but this may not be the time to pay off a house (locking up your cash). You may need it—it’s easier to lose a house than to go without critical health care. However, it may be the time to nail down a low-interest mortgage, because rates aren’t going any lower.

Take care of yourself

The future looks stressful beyond anything I have encountered in my lifetime, while the quality and availability of health care is almost certain to be drastically impacted. Try to improve what is in your control: lose weight, eat healthy (and don’t be a victim of the corporate manufactured pseudo food complex), try to get exercise. You’re going to need to try to stay as healthy as possible, as long as possible.

I hope it will be possible to compartmentalize some of this, to get relief by pursuing craft, authentic relationships, the pleasure of pets. I almost said the joys of nature, but the impact on our natural world and climate is likely to be catastrophic.

Think realistically about emigrating

 For most of us, it’s not going to be easy or even possible. Without significant money to take with you, and skills so in-demand that you’d be embraced by any country in the world, you’re probably not going to be obtain residency, particularly if you need to work. And if you own a house, who do you think is going to buy it? Those immigrants that are being deported? It’s going to take a lot of planning and forethought to actually accomplish this.

Darn, tried to keep out that bitter tone. Did avoid naming He Who Must Not Be Named. I’ll do my best to help puzzle through how all this relates to your own personal financial picture. It’s never been a better time to shore up and plan for what is in your control, and take steps to protect yourself. Let’s work on this together.

Financial aid: sorting through student loans

English: A vector image of a mortar board hat.

When I see clients with really big student loans, the money has been used not for college, but for graduate or professional education. Many people will borrow $20,000-$40,000 for college. I view that as an acceptable amount if the person has any reasonable hope of employment after graduation. The rule of thumb is don’t borrow more than you can reasonably expect to make your first year of employment. That way, you’ll end up paying about 10% of your income, and that’s doable if you are at least a little frugal. After all, many people spend that much on a car and pay it off in 5 years.

Where there’s really trouble in River City is when the student has an undergrad loan for that much, and then goes on to graduate school. Getting a masters or PhD in an academic field is pretty chancy unless you’ve carefully researched employment possibilities. Without getting significant aid you’re probably wasting your time and money—we all know how difficult it is to get a job in academia. Even with a free ride, you need to think very carefully about the lost income over the years when you continue to be in school.

If your career really requires an advanced degree, you should first look into whether your employer will foot the bill for at least some of it, whether you can study part time, attend a weekend intensive program, etc. But let’s say you’re determined to pursue a professional degree that pretty much requires full time study (Physical Therapy, Occupational Therapy, prestigious MBA and law school programs, etc.) Let me exclude from this discussion medical school because I must confess I don’t know how even affluent middle class people can pay for it any more. Medical school, particularly an advanced specialty, can cost hundreds of thousands of dollars and unless family is willing to foot the bill, I think young medical students are, under our current system, pretty much faced with career-long debt.

The kinds of loans available to you are going to be quite different from the more favorable ones that you might have had as an undergrad.

Basically, the fun subsidies are over. You’re not going to see that lovely subsidized loan (where the Feds cover your interest while you’re in school) at that 3.76% interest rate. The Ford Unsubsidized Loan (also known as the Stafford loan) is the best deal you can probably get as a graduate student. Interest begins accruing as soon as you take the loan, although payment of interest and principle can be delayed until 6 months after you graduate. And the rate (currently) is 5.31% + a 1.069% origination fee.  The loan limit is $20,500/year.

Do you need more than that, Bunkie? First, explore everything you can to cover other costs—teaching assistantships, a job, choosing a state school, scholarships and awards, and living at home with mom and dad. Your next option is a Direct PLUS loan, where you can borrow up to the cost of attendance (including reasonable living expenses) minus any other loan amounts (like the Ford Unsubsidized). You must have good credit for these loans. The interest rate on this loan is currently 6.31% plus a loan origination fee of 4.276% deducted as dispersed (so you have to borrow more in order to cover the fee).  You can choose a 10 to 25 year (ouch!) repayment plan on these loans.

Once you exhaust these possibilities, you’re into private loans. Some are made directly through the school and some come from private lenders. These are fraught with perils:

  • Are they fixed or variable? The fixed rate can be 5% (usually only if you’re already earning money or have a parent co-signer) up to more than 12% (thanks Sallie Mae). Before you sign for a variable with teaser rates, think about whether you expect interest rates to go up significantly over the term of the loan (yes, probably).
  • Do they require a co-signer? Note to parents: no, no, no. If you don’t know why, we need to talk.
  • Do you have to make payments while in school? Interest?
  • Do they have financial hardship forbearance? This doesn’t mean you get off the hook—it just means they won’t go after you while you’re ill or unemployed—but interest continues to accrue.

 

As you can probably tell by the length of this post, graduate school financial aid (and it’s almost all loans) is really complex and you really need to know what you’re signing before you choose how much, and how to borrow. Please use those research skills you learned in college to understand the different possibilities and traps of these types of loans.

 

Resources:

For more specifics on Federal student loans, comb this site.

More information on the terms and pitfalls of private loans can be researched here.

 

Save

Save