Education planning for your children or grandchildren is one of the most important financial goals you could plan for in 2014. The economics of higher education today are more complex than ever. Not only are college costs soaring everywhere, but the promise of getting a good-paying job right out of college isn’t always the case today. Consequently, education debt is now the biggest financial problem in our country, with over $1 trillion in loans outstanding. Careful planning can help them thrive in a changing world and to avoid burdensome debt.
Here are 3 reasons to get started on an education plan in 2014:
1) Choosing a career is tricky
Choosing a career is trickier today. It’s still important to choose a college major that your student is passionate about, but they have to think about opportunity and cost more than ever before.
For some fields of study, the economics are completely out of whack with the opportunity. The American Veterinary Medical Association reports that starting salaries in 2013 averaged $45,575, with average debt at graduation of $151,672. The crux of the problem is a glut of new vets and falling rates of pet ownership. Your daughter may be an animal lover, but that’s an awfully expensive way for her to express her love.
2013 research by the Georgetown Policy Institute found unemployment rates among recent grads that ranged from 4.8 percent to a whopping 14.7 percent, depending on their major. Here are the best and the worst:
Other fields with strong employment today are marketing, finance, hospitality management, math, chemistry, and some engineering. Of course, your grandson wouldn’t choose a career based solely on potential unemployment rates, but being blind to economics can lead to financial hardship – the very thing education is intended to help avoid.
2) 529 savings plans
529 savings plans are flexible and easy. The 529 plan is the best way to save for college. Here are some highlights:
You still own the money in the account, and you can change beneficiary to another student at your discretion. If the student doesn’t go to college, or if you change your mind about paying for their schooling, you can use it for another family member, including yourself.
The money grows tax-free, but the contribution itself isn’t deductible in California, although it is in some states. If used for qualifying education expenses, the withdrawals are tax-free, including interest and gains from the investments.
Qualifying expenses are tuition, room & board, mandatory fees, books, supplies and required equipment, including computers.
529 plans are sponsored by states, but you can use any state’s plan regardless of where your student attends school. Morningstar Research gives its gold rating to just 4 states - Alaska, Maryland, Nevada and Utah. California’s plan earns a silver rating. A search on the internet will quickly find websites for any of those states where you can sign up directly. This is one of the easiest financial choices to make.
Each plan offers easy ways to select a diversified portfolio from a menu – making it nearly foolproof.
529 funds can be used at many universities, colleges and vocational schools – including trade schools for cosmetology, auto mechanics, integrative health, acupuncture, and even golf academies. Even after earning a degree, 529 plan funds can be used to take a few classes to add new skills, even if it doesn’t lead to an advanced degree. To qualify, a school must be eligible to participate in federal student aid programs. Schools can be found on the fafsa.ed.gov website.
3) Education never ends
No longer can your son or daughter end their education with a bachelor’s degree and expect to thrive throughout their career. Nowadays I hear a term used often – “lifetime learning.” Continually adding new skills and expertise is the reality today. Whether it’s to further their expertise in their current field or to re-launch a second career, they should expect a lifetime of learning.
The rapid pace of change in the economy will quicken, and our children and grandchildren face global competition for jobs. New opportunities will be created which will require new skills and expertise. Helping them plan and pay for a lifetime of learning in our dynamic economy is the most valuable assistance you can provide.
Gary E.D. Alt, AIF®, CFP® is co-founder of Monterey Private Wealth in Pleasanton, CA. Please send questions or comments to gary@MontereyPW.com.