Small Changes, Big Results | Your Wealth Journey Podcast

0:00:00.6 Speaker 1: Welcome to your Wealth Journey podcast, powered by Bradford Financial Center, where we'll only share how small changes equal big results, because your wealth journey is our focus.

0:00:14.2 Shallon Weis: Hello everyone, this is a Shallon Weis and Jim Tausz, financial planners for Bradford Financial Center. Today we'll cover the wealth journey topic of college planning, and more specifically, we'll explore the financial strategies for parents and students on how to pay for college. So whether you're a parent listening to us today or a college bound student, we'll be discussing how to pre-plan for the financial part of the college journey, and throughout this series, we'll talk about the various stages of college budgeting. First the early years as parents. If you're fortunate enough to start planning early, then these are the smart moves you can make to be in good financial shape when your child is graduating high school. And then we'll explore the next stage of ramping up a college savings in the high school years. If college savings caught you off-guard, you're not alone, but there are some strategic moves you can make to put you in a better position with your college-bound student. And finally, the last minute moves.

0:01:07.1 Shallon Weis: This is when budgeting for college wasn't even on the radar and you're months from your child choosing their desired college. And stick with us until the end as we share our five in five. Each episode, we offer five smart financial tips, and today we'll give you five fast ways to keep student debt down. As we dive into budgeting for college, let's clear up this question first, "What's the parent's responsibility?" Now, this is hotly debated, you know, should parents be squirreling away money the minute you hear you're expecting? How much of a vested interest should be placed on the shoulders of the student? Should this be a hands-off approach and leave it to the dream of earned scholarships and financial aid?

0:01:45.6 Shallon Weis: While the first and most important responsibility of the parent is to lay down the financial expectations as early as possible, today's parents need to instill in their children good saving techniques, a solid understanding of needs versus wants, and how to budget for all aspects of their lives. Beyond just discussing their financial matters of college, I think it's always important to set an expectation of what your family thinks about a college education. Let's be honest, we come from families that are diverse, with some parents being first generation college students, or we still have parents who may not have gone to college and have still been successful in their lives, so these experiences all shape our expectations for our children and how we see their futures play out with or without a college degree.

0:02:27.7 Shallon Weis: So a good starting point in this conversation is whether or not you as parents have an expectation that your child attends college and works to get a degree. This also opens a great opportunity to explore what other opportunities might look like, especially if your child has an interest in alternative routes like the military, a delayed college start, apprenticeship programs, and more. So an open communication is the best first step, and how all of these things get paid for begins with a plan. So when I think back to my college education, we didn't have things like 529 plans or the access to robust scholarship opportunities, and financial aid packages looked a lot different from what we have today, so there weren't as many creative ways to plan for this investment in education. There's also more included in the cost of tuition today, and a partnership approach to paying for these costs can be split up into appropriate segments. Consider how you'll approach this while your child is still in his or her formative years. Some examples are when your children are young, you know, if they ask you for money, have them look what they got for Christmas or their allowance, and have them budget and figure out what they can afford at that time, instead of just giving them money and instilling into them they can get what they want whenever they want it, instill into them, "You have to have money to get what you want, and sometimes you need to save and go without."

0:03:43.8 Shallon Weis: So that's a good place to start, when your children are young. So planning starts with knowing what you're up against. Since 1980, college tuition and fees in the United States have increased by 1200%, and that's according to the US Bureau of Labor Statistics and the Consumer Price Index for college tuition and fees. And because of the shift in online classes, 2020 saw the lowest tuition increase in the last four decades. So we already know that student debt is at an all-time high, so how can we be smarter about changing this statistic for our children?

0:04:15.0 Jim Tausz: I agree, Shallon. I think it starts with an honest conversation between the parents to discuss their hopes and their dreams for their child together, then together they can develop a plan or approach. For instance, parents might suggest that a student pay for their actual tuition, the cost of the books, and so on. The parent will pay the room, the board, and possibly transportation costs to and from college is as an example of that. In this way, parents lay the responsibility on their student who is now financially invested in the cost or the credits. The goal here is that they actually are inspired and motivated to work harder to do better and to achieve good grades because they've got some skin into the game, they're paying for those credits. Only a parent knows how their unique student will handle this kind of responsibility, and it's not a solution for every family either. And then, college planning is pretty important. You sit down with one person, they'll say, "I wanna take care of my child's college education, 'cause I feel it's my responsibility to pay for everything," that'd be things like tuition, books, room and board, incidental expenses and so on.

0:05:26.4 Jim Tausz: And then some people will say, "You know what? I didn't have any help when I went to college. I had to borrow money, I had to work when I was going to college. I had to do all the things necessary in order to earn enough money to get through college." And the parent says to themselves, "Well, we'll give you some of the money, but we're not going to give it all to you," so it becomes a coordinated effort between the student and the parent. Some people say, "You know what? I wanna help a little, but I don't wanna help a lot, but I wanna do more than my parents or grandparents did for me." Then all of a sudden you have a decision to make, "How much is enough?" How much do you consider is enough? In this college planning section, we're gonna be discussing these situations, because every family that has a college student, whether it's a college student in a four-year college or a two-year college, or perhaps even a trade school, it takes money, money, money to make a college education happen. Now, some people will say, "How can we save for college?" So you have the group that doesn't wanna pay for any college, and then you have a group that wants to pay for some of the college, and then you have a group that says, "I'm gonna pay it all 'cause I feel it's my responsibility."

0:06:39.9 Jim Tausz: But there are different ways of being able to make a plan, and I feel that probably the first thing you need to do is commit yourself to a plan. Based on the child's age, you're gonna have to figure out how much it's gonna take in order to make things go the way that your plan is designed to go. So to give you an example, there are things out there that states have called 529 plans. 529 plans are basically for college education and for higher educational use. That money has to be used by the student for college. Now, there are rules to the 529 plan that we'll get into a little bit later, but there's also another way to save for college, and that's called the Iowa Uniform Gifts to Minors act or whatever your state that you find yourself in, they all have a Kansas Uniform Gifts to Minor act or Missouri Gifts to Minor acts and so on. Those rules are kind of interesting. The rule is, is that you save the money for the child, and basically that money can be used for education. However it can be used for other things, maybe your child needs to have transportation, get to and from work when they go to their higher educational college.

0:07:54.1 Jim Tausz: So what you're going to find is that the Uniform Gifts to Minors act has more leeway as far as what you can do with the money that you put aside for your student. Also there's called a Single Account Reversionary Trust. This is perhaps the most excellent way to save money, because it's money that can be used from the time the child is born until the child gets through college. You have different expenses that come up that now and then are specifically going to be used and needed for that child. Giving an example, in the younger years, before a person can drive, you perhaps set up the single account reversionary trust, and you put yourself as a custodian of it. I'm talking about the parent, you can put both parents on there with right of survivor, or you can put one parent on there, and then you have a beneficiary that'd be listed, which would be your child.

0:08:53.1 Jim Tausz: And you may have three accounts because you have three children, but you can put so much money away at your discretion, and then when you put that money away, it's available for whatever happens to come up. So for example, if your child in growing up needs a little bit of money or quite a little money because of medical situation that isn't covered totally by a medical insurance, that money can be used for that. Also, what you can do is when the child is old enough to be able to drive, you may wanna buy the child of car, and tell the child, "I'll tell you what, I'll buy the car, I'll pay for the insurance, I'll pay the taxes, but you're gonna have pay for the gas and oil and repair, and you need to take care of it."

0:09:36.2 Jim Tausz: So the reversionary trust could be used for something like that. When your student goes to college, then the money can be reverted to those uses. It could be used for tuition, it can be used for board and room, it could be used for books, etcetera, whatever is needed in college. What's interesting about reversionary trust is it is controlled by the parent, and if the parent says to themselves, "You know what? This is the need that we need to use this money for," you make the decision to use it for that student. If you feel that you don't wanna provide that particular benefit to the child through reversionary trust, then you don't do that. In addition to that, there's another thing to think about, and that is death.

0:10:19.8 Jim Tausz: You could have mom and dad driving down the road, and you may have a freshman in college, and lo and behold, they're going down the road, and they get hit by a semi-truck and both people die. Well, there's where the reversionary comes in. The reversionary trust, what it does is it reverts to that college student. Basically, if you're not old enough, and it happens, for example, you've got a 10-year-old rather than someone old enough to own securities, then what happens is you have a successor trustee to that reversionary trust until the child comes of age and be able to use the money. But one thing is for certain, alive or dead, basically that child is focused on in a reversionary trust. It will go to the child, whether you live as a parent or whether you died as a parent. Well, we've already mentioned earlier the 529 plans, how the Uniform Gifts to Minors act or whatever state you're in, and also the single account, or reversionary trust. All of these things have one thing in common, and that is parents can put money in this and they do it on a monthly basis, or you could do it on an annual or semi-annual or quarterly, whatever you decide to do. What's awful nice too is that you can increase and decrease the amount you're putting in, but my suggestion to you is using any of these plans that you tried to build on your wealth by actually taking and putting the money in and having a goal to attain.

0:11:52.3 Jim Tausz: So in other words, you wanna have maybe so much money available by the time your student is ready to go to college. In addition to that, students can add to these accounts in any way that they desire, so the student maybe works part-time, and you tell them, "You know, you need to put a little bit into your college fund," and perhaps you give them an allowance, and you do the same thing, you put some of that money in the college fund. In other words, have the student put a little skin in the game, that maybe will help them be more successful when they go to college. Also, many times you have relatives, friends, and grandparents who like to give gifts, and you can have gifts at birthday, you can maybe have gifts at Christmas. Well, you can put your money in any of these plans that you desire at any time, so that's what's nice about building a plan that is college-oriented and college-focused. There's other ways also to fund college, you can get a Roth IRA. The Roth IRA is taxed when you put it in, however, it is tax-free when you withdraw it if you've held it for five years, and you can use some of that money to help fund the student's education. Also, you can invest in things like stocks, bonds, mutual funds, and annuities and various other types of investments out there.

0:13:10.6 Jim Tausz: My suggestion is, is that when you invest, that you remember when your child is young, there's a lot of years to go, and as he gets older, you're going to get closer and closer to the day when you need to use that funding, so you need to also be good stewards of your money. You should put your money into investments that will have a gain over the period of years. It might be interesting to note here that out of every 10 years or every decade, only one decade has there ever been a loss in investing in mutual funds and stocks. There's also another figure out there, it's put out by the Institution of Finance, that says the average decade usually has six or seven ups during a 10-year period. So six or seven years, you can expect it to go up. You can also have it go down and you will have it go down, because that's the nature of the animal, so it'll go down three or four years out of every 10, but the average over every decade except the one that I just mentioned is about 11.7% per year, and that's with the ups and downs.

0:14:19.6 Jim Tausz: So you have to be a good steward, you're gonna have to keep up with inflation, and the many expenses that you don't count on that are going to be there, well, you have to have money to cover it, so you have to invest properly to do so. Also you could take out permanent life insurance in addition to that. Look, nobody expects to die too soon, but people do, so you might wanna say to yourself, "You know what? I'm gonna include my life insurance program, I'm gonna include life insurance for my child, just in case I don't make it long enough to be able to do the things that I feel that I wanna see accomplished in my student's education." So you buy life insurance, and within the life insurance, you can have a cash value policy where you can build some cash value so that if you do live long enough, what you can do is take the cash out of the life insurance policy and use that money to help fund education.

0:15:13.5 Speaker 1: I can't go without talking about a home equity loan. You know, nowadays you can't really deduct things the way that you used to be able to do. For example, you used to be able to deduct just about any interest expense that you had. Today that's not the case. The way it works is simple, if you have a house mortgage, you get to deduct a house mortgage interest that you pay. But you also maybe have built equity in your home and you wanna use some of that equity for your college education for your student. You can do that, and because it's a home equity loan, you can deduct whatever interests that you have to pay the bank or the supplier of your money for that home equity loan, that is a write-off. And the only other way you can have a write-off is expenses for business. So it's really very, very narrow anymore what you can deduct and what you can't deduct, and you can only deduct home mortgage, home equity, and business expense, and you can deduct that for your child, 'cause you can use it for your child for their college education. Let's jump right into the five in five segment now.

0:16:26.8 Speaker 1: In our last five minutes, we'll bring listeners a round up of five smart ideas they can apply to their own wealth journeys. So let's get started with this episodes five in five.

0:16:39.3 Shallon Weis: Today, we're going to keep our focus on college planning and help families, so five fast ways to keep student debt down. Americans owe more than $1.7 trillion in student loans. Ouch. We've got to start to change this narrative and find ways to reign in this beast. So here are a few thoughts on how to keep student debt down. The first one is, start early with a part-time job. You know, your high school and college student, they need to supplement their college tuition with maybe a student work program or a part-time job or both. And the second tip is to stick to a budget. So a student loan shouldn't be used to improve your quality of college living, meaning you should stick to a budget on eating out entertainment and the extras, and tighten up those areas, and your post-graduate self will thank you. And the third tip is to apply for a loan forgiveness. If you're going into public service, your loans could be forgiven after 10 years or your employer might pay your student loans or offer a program to get you some more education.

0:17:35.4 Jim Tausz: And then fourth, there are a lot of scholarships and grants out there. For example, there's academic scholarships out there. There are all kinds of them, every college has them. Also, there's things like sports scholarships out there. For example, I have a granddaughter that plays volleyball, she has a full ride at Kansas State playing volleyball. That, believe me, helps the parents and the grandparents' pocketbook as well as the student. Also, there're scholarships and grants for special needs students. In other words, if you qualify to get scholarships because of the fact of how much your parents earn or how much you earn, that will also help go a long ways to paying for your education. And number five, loans. You can of course get loans, and there are all kinds of loans out there, however, I would suggest that you check what student loans are available for your student. In addition to that, parents have loans available to them as long as they use that money to take their college student on to college, and they also have benefits as far as interest rates, how much, and all kinds of rules, that you have to find the right loan for you. And I might add the student needs to find the right loan, the parent needs to find the right loan or perhaps it's a hybrid of the two that you're gonna use.

0:18:58.0 Jim Tausz: Now, here's a little tip. This is pretty important. These five things are very important, but having said that, here's a tip that is really, really important for everyone to do before you go to school, and that is you can go to Amazon and you can go to other bookstores out there, and you can buy books that list available sources of money for advanced education programs. I would suggest that you get that information out of those books, many of them go unfunded every year or not funded to any students because nobody applies for them and they don't know about them, so be sure and check that source out, as well as checking out with the college that you plan on attending all of the available scholarships and grants that might be available to you. Then you need to apply, cross your fingers, and hopefully, you'll snag a few of those scholarships.

0:19:48.6 Shallon Weis: Our financial advisory team has helped countless families prepare for all the important stages of their lives and still get them to retirement. Bradford-certified financial planners are well-versed in helping clients prepare for this milestone and building college planning into smart financial plans. You can find us on bradfordfinancialcenter.com, or you can find us on Facebook, Instagram, and our address is 215 North Main, in Clarion, Iowa, 50525. And our phone number is 515-532-6661, or for our 800 number, it is 1-800-348-4419.

0:20:24.5 Speaker 1: Thank you all for tuning in to your Wealth Journey podcast, powered by Bradford Financial Center. Be sure to tune in to our next episode on budgeting for college, ramping up a college savings in the high school years. We'll explore smart strategies parents and students need to know. Securities are offered through United Planners' Financial Services member FINRA/SIPC. Advisory services are offered through Bradford Financial Center of Registered Investment Advisor. Insurance services offered through Bradford Insurance. Tax and accounting services offered through Bradford Tax and Accounting Network. Bradford Financial Center, Bradford Insurance and Bradford Tax and Accounting Network are not affiliated with United Planners. Neither Bradford Financial Center nor United Planners provide tax or legal advice.

0:21:07.2 Speaker 1: This podcast is for general information and educational purposes only, and not intended to be specific advice for any individual. Consult your financial professional regarding your personal situation. All investing involves risk, and there is no guarantee that any strategy will be successful. Keep in mind that current and historical facts may not be indicative of future results.

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