RPF0276-No_College_Plans_for_Me
00:00:00.000 | The Hartford Small Business Insurance knows that running a small business is a big-time commitment.
00:00:05.480 | So this holiday season, they're celebrating hard-working small business owners with a chance to go to I Heart Radio Jingle Ball in Miami on December 16th.
00:00:14.480 | Nominate yourself or another small business owner for a chance to win a trip for two.
00:00:19.000 | Includes airfare, two-night hotel, tickets to the show, plus $1,000 in spending cash.
00:00:24.680 | For official rules and entry information, visit IHeartRadio.com/SmallBusiness.
00:00:30.560 | I am a young father of two young children. I have a two-year-old son and a six-month-old daughter.
00:00:36.240 | Education is very important to me, both formal education and informal education.
00:00:44.960 | I have a master's degree, a bachelor's degree, a high school diploma.
00:00:48.480 | I'm also a professional financial planner with a high degree of expertise in financial planning.
00:00:55.600 | I'm a certified financial planner. I actually have a master's degree in financial planning.
00:00:59.920 | But I refuse to establish a college savings account for my kids.
00:01:06.720 | Now, it's not because I don't know anything about them. I'm actually a subject matter expert in that area.
00:01:11.920 | But I just think they're stupid and a waste of money.
00:01:17.520 | And today I'm going to try to convince you to join me.
00:01:22.720 | [Music]
00:01:38.720 | Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets and I'm your host.
00:01:42.720 | [Laughter]
00:01:44.240 | Thank you for being with me today.
00:01:46.240 | Today we're going to deal with this question and the inspiration comes from an email I've received
00:01:50.800 | from a friend of mine who's a young father asking me, "Joshua, should I open an account for my kid?"
00:01:57.440 | And my response is obviously unemphatic, "Absolutely not."
00:02:03.200 | [Music]
00:02:11.200 | Now, perhaps if you're not familiar with Radical Personal Finance,
00:02:14.000 | perhaps you're surprised by an opinion like this.
00:02:16.240 | "Oh, why would a financial planner not do that?" And no, I'm not wasteful with my money.
00:02:20.960 | I'm actually a dedicated saver. I do plan and prepare for the future.
00:02:24.800 | I think carefully about all the opportunities that are facing me.
00:02:27.920 | So it's not just that I'm a spendthrift. I'm really not.
00:02:31.600 | But I have some reasons and ideas that I want to share with you.
00:02:35.600 | But let's start with this email that I received from my friend, a personal friend of mine.
00:02:39.760 | He wrote me this note. He said, "Joshua, my wife suggested I reach out to you for advice
00:02:44.000 | as we plan to start saving for our soon-to-be-born son's education.
00:02:47.920 | It's hard to believe it's going to be just a few weeks now.
00:02:50.320 | I've looked into our state's 529 plan but wasn't sure if there were better options.
00:02:54.800 | Any advice would be greatly appreciated, and I'll obviously check the Radical Personal
00:02:58.560 | Finance archives as well because I'm sure you've put some content up there. Thanks for any advice."
00:03:03.600 | My response to my friend was, "Don't open one."
00:03:09.120 | But I've got to defend that a little bit, and so I told him I'll record a podcast episode.
00:03:13.360 | And lucky you, you get to listen to my episode. Because here's the deal.
00:03:17.840 | Although I am massively in favor of education, my position is that education is of utmost
00:03:24.400 | importance. And although I'm in favor of some formal certification, my position is that
00:03:30.880 | formal certification can be useful for at least some people in some careers.
00:03:38.400 | I don't believe that college plans are a good idea for the majority of people who are in
00:03:45.760 | situations like me as a young father or situations like my friend.
00:03:49.760 | In today's world, college rarely equals education. Can it? Yes, it can, but it rarely equals
00:03:59.360 | education. And college certification is rapidly losing value in the marketplace.
00:04:04.480 | And so when you are sitting down and looking at a situation with limited resources,
00:04:09.760 | in my opinion, saving for your kid's college represents about the worst of your potential
00:04:17.280 | options. And if it's not the worst, it's certainly at least the most inefficient choice,
00:04:22.400 | the most inefficient way for you to deploy your capital. The specific college accounts are of
00:04:29.040 | limited value, and the opportunity cost of participating in those accounts is simply just
00:04:34.640 | too high in my opinion. And so I'm going to try to convince you to come over to my side,
00:04:41.840 | which is that parents should not save and invest for their kid's college. Rather, they should save
00:04:48.640 | for and invest in their kids. And there's a big, big difference between those things.
00:04:58.000 | So I'm going to give you four major overarching reasons at the beginning of this show that I
00:05:03.200 | believe this position to be a good one for many people to consider. I'm also going to give you
00:05:08.320 | five specific ideas on alternatives, better uses of the dollar that you can use instead of opening
00:05:17.200 | up a 529 plan or a Coverdell educational savings account. And finally, I'm going to give you,
00:05:22.240 | if you insist on saving for college, I'm going to give you three options that I think are
00:05:27.600 | better to consider first than a 529 plan or a Coverdell ESA. Please note, I am not ignorant
00:05:38.240 | of the benefits of specific college savings accounts. If you would like to hear an in-depth
00:05:44.560 | discussion of what they are, how they work, the major overarching function and structure of
00:05:52.000 | these plans and the specific little hacks that you can apply to them, there's about 15 to 20 hours of
00:05:59.040 | content in the Radical Personal Finance archives. Just search the website for 529 plan. You'll find
00:06:05.120 | all kinds of detail. I am not ignorant of those benefits. And I'm also not saying that nobody
00:06:12.320 | should consider using these accounts because they are a useful tool in the tool belt of a
00:06:16.480 | competent financial planner. And in those shows, I clearly describe where I think they are useful.
00:06:22.320 | But for somebody like me or for somebody like my friend, prudent young parents saving for their
00:06:30.000 | kids, I don't believe they're useful. So I hope you'll stick with me and give me a chance to
00:06:36.400 | present my opinions to you. Before we get through to the details of those reasons, I want to talk
00:06:44.080 | about our sponsors for today's show. And appropriately, today's sponsor number one is
00:06:48.880 | Jay Fleischman. Jay is a student loan attorney, a bankruptcy attorney, and host of the Student Loan
00:06:55.760 | Show, Student Loan Show podcast. He's been interviewed on Radical Personal Finance twice.
00:07:01.040 | And if you have student loans or if you know anybody who has student loans or if you're
00:07:06.720 | considering getting student loans, you should go and listen to those two episodes. They're episodes
00:07:11.280 | 214 and episode 258. Just search the website or look back in the feed on your mobile device.
00:07:16.880 | You should listen to those shows because you'll learn more about student loans over the course of
00:07:21.520 | about that three hours than frankly you probably ever have known. But more importantly, if you
00:07:27.040 | have student loans, you should consider sitting down with Jay for a personal option. He is a
00:07:32.000 | consultant, a very competent consultant, travels all over the country, teaches other student loan
00:07:37.680 | attorneys how to actually work through their options. And he's made available his consulting
00:07:42.560 | services at a reduced price for listeners of the Radical Personal Finance podcast.
00:07:46.800 | For details on that, go to studentloanshow.com/radical. But if you have student loans,
00:07:52.640 | as we begin 2016 here, make sure that you at the minimum sign up for a email review of your student
00:08:01.120 | loans with Jay Fleischman. Details on those packages are at studentloanshow.com/radical.
00:08:07.520 | And also while you're there, make sure you subscribe and listen to his podcast.
00:08:10.640 | Sponsor of the day today, number two, is Trade King. Trade King is my choice
00:08:16.080 | and my personal recommendation and endorsement for who you should consider housing your brokerage
00:08:22.560 | accounts with. Trade King is a wonderful discount broker. You can make trades with them for $4.95
00:08:29.040 | on stock trades. And they will give you a great deal on the price of your trades and the price
00:08:36.640 | of holding your accounts. But they'll also give you great customer service.
00:08:39.840 | And the key thing to recognize with opening a brokerage account is in many ways, the actual
00:08:45.760 | substance that you own, the investment is a commodity. One share of Apple stock in a Trade
00:08:51.040 | King account or one share of Apple stock in a Merrill Lynch account or one string of Apple
00:08:56.000 | stock in a Charles Schwab account, those all function exactly the same. It's one share of
00:09:00.880 | Apple stock. So what can you look for? Well, you got to look for a good price. And that's where
00:09:07.040 | Trade King is among the cheapest of the options out there. They're not the cheapest, but you got
00:09:12.240 | to correspond that with good value. And Trade King prizes themselves on customer service.
00:09:18.000 | I've been to the Trade King offices. I've met the CEO. I've spoken in depth with some of their
00:09:22.080 | executives. And I am confident that they are an excellent resource for you to work with for your
00:09:28.080 | brokerage. So if in 2016, you're thinking about opening a trading account, giving your hand,
00:09:32.320 | whether that's short-term trading or just buy and hold investing, consider going to
00:09:36.000 | TradeKing.com/radical. If you sign up through that tracking link, not only will it help me,
00:09:40.800 | it'll help them to measure the performance of their advertising relationship with me here on
00:09:44.960 | the show. Thank you very much. But you'll also get $100 in your account if you follow the
00:09:49.920 | conditions there. And basically, you've got to fund the account with $1,000, and then they'll
00:09:52.960 | do three trades. And you can read all the fine print there, but they will give you an extra $100
00:09:57.440 | bonus for opening an account through that link. So if you've thought about establishing a trading
00:10:02.640 | account, purchasing some shares here, you want to get yourself started or at least get your
00:10:06.240 | account funded and start to look at your investment plan here, please go to TradeKing.com/radical.
00:10:10.160 | Claim your $100 offer. So let's get to my reasons why I think that you are ill-served
00:10:19.600 | by opening college savings accounts for your kids. And reason number one,
00:10:22.240 | it's my opinion that the market value of college certification and screening is declining and
00:10:31.280 | will continue to do so. Now, those of you who are familiar with data and statistics should
00:10:36.160 | instantly say, "Well, prove your case, Joshua. Where's your evidence?" And I would say, "Well
00:10:41.440 | done. I definitely need to prove my case with a statement like that." Because we're all familiar
00:10:45.200 | with the chart that shows that the higher your level of formal education, the higher your earnings
00:10:50.000 | ability. Whether it's a high school graduate, a high school dropout earns the lowest amount,
00:10:53.360 | high school student earns a little bit more, and the median wages absolutely do rise based
00:10:59.120 | upon your level of formal education and your level of certification. So if I'm going to make
00:11:03.840 | a statement that the market value of college certification and screening is declining and
00:11:06.960 | will continue to do so, you should demand some good evidence. I do not dispute the fact that,
00:11:12.720 | on average, college graduates earn more than non-college graduates. I do not dispute that.
00:11:19.600 | And I don't even dispute the fact that the college degree can be very valuable,
00:11:24.400 | very valuable in the marketplace, even especially for somebody with a technical degree. Details on
00:11:29.040 | that later in the show. But I do dispute the fact that for the majority of college graduates
00:11:34.080 | gaining some kind of miscellaneous liberal arts degree, that their college education is what
00:11:39.840 | really makes the difference for their level of educational attainment. Number one, go back through
00:11:44.320 | the data and do some research and compare the number of people who start college versus the
00:11:50.640 | number of people who finish college. And all of a sudden you find that the numbers change a little
00:11:55.600 | bit. And what you find is that college graduates who earn well are the ones who finished their
00:12:01.920 | college degree. They were the ones for whom college was a good choice. And yet there are
00:12:08.640 | many people who, based upon data and saying, "I got to go get a degree," put themselves in very
00:12:13.120 | difficult positions. And they're calling Jay Fleischman, where they're deeply in student loan
00:12:17.360 | debt, for a degree that they didn't finish that has zero market value, and college just wasn't
00:12:23.760 | right for them. Next, I personally believe there's much more correlation between the type of people
00:12:33.520 | who finish college degrees and their career success than causation. And consider me as a
00:12:40.800 | sample set of one as I illustrate my own personal experience with college.
00:12:44.880 | The highest level of formal academic certification that I've achieved is a master's degree. I think
00:12:50.240 | at some point I will wind up earning a PhD or doctorate degree in some discipline,
00:12:55.440 | possibly in financial planning, possibly in some completely different unrelated field like
00:13:00.960 | philosophy. I have an interest in those types of things. But I don't expect that PhD or doctorate
00:13:07.040 | to make any impact on my earning ability. It's just simply the type of thing that fits my character
00:13:12.960 | set. I'm the type of person who finishes things. And if you put a challenge in front of me that
00:13:17.280 | has graduated steps to it, then I'm the kind of person who will just go ahead and try to achieve
00:13:23.360 | the highest that I can. And many people, especially those people who are good earners, have similar
00:13:28.960 | character traits. I can give you an example from my youth that will illustrate this more clearly
00:13:34.160 | than even a college education. I'm a licensed amateur radio operator, ham radio operator.
00:13:39.280 | And when I got my first amateur radio license, I think when I was 11 or 12 years old, 10,
00:13:45.120 | somewhere in that, before I was a teenager, I had very little interest in radio. I had a little bit
00:13:50.240 | of interest, but not a ton of interest. But I got it simply because I had a wallet. And the only
00:13:54.240 | thing I had in the wallet at that time was cash. And I didn't have anything else to put in the
00:13:57.200 | wallet. So I thought it'd be cool to put some kinds of licenses in the wallet. So my dad was
00:14:01.200 | an amateur radio operator. He said, well, get a ham license. So I got a ham license. Well,
00:14:05.600 | at that time, there were five levels of amateur radio licensing. There was a novice class,
00:14:10.000 | a technician class, a general class, an advanced class, and an amateur extra class, which is the
00:14:14.480 | equivalent of bachelor's, master's, and PhD. Today, there are three levels of licensing--
00:14:19.920 | technician, general, and amateur extra. So at that time, I quickly got my novice license.
00:14:25.520 | And I quickly got my technician license because what I really wanted to be able to do was to be
00:14:29.680 | able to talk in the local area on something in amateur radio terms, which is called the 2-meter
00:14:35.760 | band, which is a local VHF, very high-frequency radio waves that are suitable for your local area.
00:14:42.320 | And that's what I wanted. And I needed a technician license. But I'm the kind of
00:14:45.840 | person who likes to finish things. Now, the major benefits to increasing your level of licensure
00:14:51.840 | in amateur radio are simply that you have expanded operating frequencies on the amateur radio bands.
00:14:57.680 | You can use more of the frequency spectrum. And you can use additional bands if you get a higher
00:15:02.160 | level of licensing. But this is primarily applicable in what are called the HF, the
00:15:06.880 | high-frequency bands. And I didn't really do much of anything in the high-frequency bands.
00:15:12.080 | But I wanted to finish things. I went as high as I could in the licensing classification to that
00:15:18.240 | time. But my constraining factor was my speed with being able to communicate using Morse code.
00:15:24.080 | And as you went up in the licenses, your speed had to increase. I believe it was up to 30 words
00:15:31.280 | per minute. And I wasn't dedicated enough to get my speed past about the 15 words per minute
00:15:37.120 | that I needed for the general class. Well, a few years later, the amateur radio rules changed. And
00:15:44.400 | they eliminated the higher speed necessary for the higher levels of licensing. Well, I immediately
00:15:50.720 | went out, got a book, studied it for a few hours, went and took my amateur extra test, and got the
00:15:55.440 | highest level of licensing as soon as it became easy enough for me to do so. And I didn't have
00:16:00.880 | to do the long time-consuming Morse code thing. I had zero benefit or zero practical use for the
00:16:09.040 | additional licensing. It was just bragging rights. And I wanted to have the highest level. I checked
00:16:13.360 | the box. I went on with my life. Didn't touch a radio until recently. Didn't touch a radio for
00:16:17.600 | five or six years. Just never bothered with it. But I still keep that license because I'm the type
00:16:21.360 | of person who wants to finish things. Now, that same thing has been evident in my life through
00:16:26.320 | other areas. So the nagging thought of, "I want to get a PhD," is simply a calculation of the hard
00:16:33.680 | work of it versus the interest and a desire to go as high as I can. Many people who have college
00:16:41.040 | degrees are similar. When you apply those things over into the work field, it shows a character
00:16:48.240 | ability. And you bring somebody who had academic ability, that person is likely to go higher.
00:16:53.280 | And when the path into college is relatively easy in today's modern U.S. American society,
00:16:58.880 | most people like me are going to do what I did and just take the easy path, easy route,
00:17:05.520 | go into college, have that as a backup plans. And because college was so instrumental in
00:17:10.480 | my parents' generation, as far as being that mark of success, that mark of a guaranteed source of
00:17:16.960 | income, even though the market has changed, people still do it. And it's not that college
00:17:21.840 | causes that financial success per se. It's just that the type of person who's likely to be skilled
00:17:27.680 | in college is also likely to be skilled, more likely to be skilled, in a modern technical
00:17:32.320 | workforce. So filter that data for me in terms of causation versus correlation.
00:17:40.240 | And prove me the case. I believe it's much more correlative than causative. But more important
00:17:46.160 | than either of those two reasons, the marketplace is changing. As the best evidence of that,
00:17:52.000 | consider the news stories back in 2014 when Google, one of their key employees that was head
00:17:58.000 | of HR, some high-level dude, I think the guy's name was Block or Bok or something like that.
00:18:02.960 | Google came out and started talking about how they, at this point, were generally disregarding
00:18:07.920 | college degrees, certifications, and GPA because there was no predictive value from those factors
00:18:16.880 | that would indicate the level of success and the level of effectiveness that an employee would
00:18:21.600 | have. And they were looking for people who had established their own path, who had demonstrated
00:18:27.760 | other skill sets. Thankfully, as I understand it from the news reports I read at the time,
00:18:31.920 | they were also dumping some of the weird questions they would ask interviewees. The
00:18:37.200 | Google interview process was always legendary. I was always offended by it. I thought it was stupid.
00:18:41.920 | But they had their reasons. I never understood them. But thankfully, they were shifting away
00:18:46.240 | from some of the wacky questions that became so famous. But the point of the college degree was
00:18:52.320 | that it wasn't predictive of success. Now, it's easier to see that in a quickly moving tech
00:19:02.320 | company that has to be at the vanguard of an industry that is, in and of itself, very fast-paced.
00:19:09.600 | But even though that pace of change is harder to see in other industries, the same thing is
00:19:17.600 | happening. And the idea that you can prepare a student in today's world with 12 years of studies
00:19:25.360 | to be well-equipped for what the world is going to look like 12 years from now is laughable.
00:19:30.640 | And the idea that you can teach content in four years of university studies that's going to be
00:19:35.600 | applicable to the world that exists in almost any industry four years from now is, I wouldn't say
00:19:42.080 | laughable, but it's a hard pill to swallow. There are very few hard sciences in which that may be
00:19:49.600 | the case. And there might be some degrees that teach principle and have a well-developed body
00:19:58.240 | of knowledge, but most of the degrees that many of the students are earning today, these soft,
00:20:04.560 | squishy liberal arts degrees, very little benefit. And the world is marching on. College is not going
00:20:13.440 | to be predictive of career success. The whole formal structured career plan
00:20:21.680 | that was supposedly going to be based on college has disappeared.
00:20:26.400 | And if your industry is not being affected by that, I believe it will be.
00:20:30.080 | So we've got to do something completely different. Those are forward-looking statements.
00:20:36.240 | I believe there's good evidence for them, but you've got to look at it.
00:20:39.760 | Just ask yourself, is your career success based on your college degree? And are you still using that
00:20:49.360 | for predictive purposes in your business? Now, there are businesses that will still use that
00:20:55.600 | as a screening tool. So in my initial opening statement of my position, I do think that formal
00:21:01.440 | certification can be useful. In my business, for example, financial planning, college certification
00:21:06.960 | is still a screening tool. But the presence of a college degree is not the guarantee that it
00:21:16.880 | possibly was years ago. Still benefits. If you want to know all my benefits, my reasons, my in-depth
00:21:22.000 | discussion, go listen to episode 227 of the show entitled "The Five Benefits of College and Radical
00:21:26.800 | Ways to Exploit Them." There are other benefits of college. But when you take those industry changes,
00:21:32.720 | those technical changes, and they look forward, and you combine that with the fact that any person
00:21:38.480 | can now effectively market themselves using digital tools and can market themselves into a digital
00:21:45.760 | market, can market themselves into a job, into a career, into a specialization, that is truly
00:21:51.360 | powerful. And that demonstrates, that type of marketing is the type of thing that companies
00:21:57.840 | are looking for. They're looking for people who are self-starters like that. So point number one,
00:22:03.360 | the market value of college certification and screening is declining. And my prediction,
00:22:07.440 | it will continue to do so at an ever-increasing speed. Don't put your hopes for your child's
00:22:13.360 | future in a college degree. My argument number two, the cost of college is declining and will
00:22:21.280 | continue to do so. Now here again, I'm at odds with the majority of news articles that you read
00:22:27.280 | about the constant never-increasing cost of college. But read those articles and ask yourself
00:22:32.080 | this, what are they using as the metric for the cost of college? And you'll usually find a couple
00:22:37.040 | of factors. Number one, they use the retail cost of college. What's quoted in the school's catalog
00:22:42.480 | is their retail price, rather than the actual cost that students are paying. Number two, they don't
00:22:49.360 | include the cost of classes. They include the cost of classes and room and board and tuition.
00:22:55.040 | And so yes, you're subject to the same factors. And then often, if you look at it, just because
00:23:01.920 | the general cost is increasing, doesn't mean that the alternatives are not there.
00:23:06.320 | Today, the best one I've seen, I think it was, what was it called? University of the People?
00:23:10.800 | I can't remember. But I saw one college, one online university that is offering college degrees,
00:23:16.960 | accredited certified college degrees for about $4,000 total. There are a bunch of options
00:23:23.760 | that will offer you an accredited online degree for $10,000 or $15,000 total.
00:23:30.080 | You compare that to the cost of $15,000 a semester, and there better be some significant
00:23:37.200 | economic benefits on the other side to make you be willing to pay $120,000 total,
00:23:42.160 | if you're comparing $15,000 a semester to $15,000 total. Big difference there.
00:23:46.960 | And when you compare the cultural dissatisfaction that recent college graduates have with the price
00:23:53.760 | that they paid for college, the price competition is only going to get more and more severe.
00:23:59.280 | Now, we're stuck with all the legacy costs of the ridiculous system that exists. We're stuck with
00:24:05.440 | way too many professors earning way too much money, way too many big fancy ivy-covered buildings,
00:24:11.360 | and the world has gone technical and online. If you want to support that system, go for it,
00:24:16.320 | but I'm going where the future is. If I were doing it today, not a chance in the world I
00:24:21.200 | would spend the money it costs to go to a traditional brick and mortar university,
00:24:24.960 | when I can massively cut those costs and punch that certification ticket with an online-only
00:24:33.600 | school. So the first factor that the cost is declining is that there are newer, cheaper
00:24:38.080 | options. The next factor is look at the political winds. By the time your or my child gets to the
00:24:45.200 | age of college entrance, the majority of college educational options are likely to be free,
00:24:52.240 | as in paid for by your fellow taxpayer as part of state benefits.
00:24:56.640 | So why on earth should you bother to waste your time and money saving for something
00:25:03.440 | that the political winds say is going to be free?
00:25:05.440 | Do you really see anybody arguing against that? The majority of you who are in the listening
00:25:16.000 | audience, the majority of US American citizens have their children in a state paid for school.
00:25:23.760 | Your fellow taxpayers are sending your kids to school. So most of you are not saving for
00:25:29.680 | your own kids' private education. You didn't need to plan for it, so you're planning for college.
00:25:35.600 | Well, look at the political winds that are in this country. My best guess, Hillary Clinton
00:25:40.960 | will be elected our next president. Bernie Sanders has obviously gained a huge foothold.
00:25:46.000 | None of the Republicans have any really serious objections to the expansion of state-sponsored
00:25:54.320 | education. So why would the trend not continue? Over the last few years, you've got people
00:26:02.400 | striking on the street. You've got all kinds of dissatisfied people with their student loans.
00:26:09.280 | Government is already heavily involved with the establishment of expansion of federally
00:26:14.240 | guaranteed student loans, stabilization of interest rates. It's this cultural thing.
00:26:19.600 | It's the only state-sponsored religion that we have in the United States of America. It's the
00:26:22.960 | religion of state-run schooling. So why would it not be expanded to the college age? So could I be
00:26:30.480 | wrong? I could be. But my guess is by the time my two-year-old is there, it'll be free. And thank
00:26:37.040 | you all for paying for it, if I ever send my kid to that. Who knows? We'll have to see what happens
00:26:41.920 | in 15 years. But it's going to be free. The number of people you say, "Well, if I have money, I'm
00:26:49.840 | going to vote against it being free because then it wasn't fair." Well, the number of people who
00:26:53.760 | are going to vote against it is very small versus the number of people who will vote for it.
00:26:58.320 | The trend in most of Europe is to have free college tuition payments. I don't see any
00:27:05.120 | practical, serious indications that it's going to be any different in the United States of America.
00:27:09.680 | So my prediction, it'll be free. Why bother to save for something that's going to be free?
00:27:16.560 | Interesting question there with regard to macroeconomics. I'll leave it for you to consider.
00:27:21.600 | But even if it's not free, paid for by the state, for good students, college today is free
00:27:29.520 | and can be free. And if your child is not a good student, then why on earth should you torture them
00:27:37.520 | by going to college? The people who do well in college are the people who are good students.
00:27:43.200 | And the people who are good students already have tons of options to get paid for for school.
00:27:49.280 | I was a good student in high school. If I had made different choices, I could have gone to a
00:27:54.800 | state-run school and just gone to a traditional state-run school and with scholarships, grants,
00:27:59.360 | academic stuff, fully had that entire thing paid for. I had to pay for some out of pocket because
00:28:05.280 | I chose to go to a private university instead of a public university. But why torture your child
00:28:11.600 | with college expectations if they're not a good student? And if they are a good student,
00:28:15.520 | there are already tons of options to go to school for free. So argument number two, the cost of
00:28:21.440 | college is declining and will continue to do so, especially for those people who are good students,
00:28:26.000 | especially in the cultural environment that we have, and especially as the entire world
00:28:29.920 | transitions to the delivery of educational materials over online. Number three, the
00:28:35.280 | financial and tax benefits of college savings accounts are minimal for most families. The tax
00:28:43.280 | savings are minimal and the investment options are mediocre, generally speaking. Why are the tax
00:28:49.920 | savings minimal? Number one, most people don't put much money in them. Generally, people like my
00:28:55.680 | friend. I don't know. I haven't asked his specific situation, but people like my friend are going to
00:29:00.000 | set up an account and they're going to put $100, $200 a month in there. Well, when comparing that
00:29:06.000 | amount of savings to the total retail cost of a tuition bill, it's meaningless. In my financial
00:29:13.360 | planning career, meeting with over a thousand people, I couldn't count dozens who had fully
00:29:20.480 | funded educational accounts. There were not that many. There were some, but there were not that
00:29:28.240 | many. Generally, the only people who had those fully funded accounts were people who had done a
00:29:35.040 | prepaid tuition program, paying a tuition only approach, things like that. But what person is,
00:29:42.320 | I mean, most people are not going to set up, setting aside $700 or $800 a month into a college
00:29:46.560 | savings account, which is probably what they need in order to pay the tuition at the prestigious
00:29:50.880 | Ivy League school. So most people aren't saving very much. Number two, the tax benefits on college
00:29:58.720 | savings accounts are slight. There's no upfront tax deduction for contributions to an account.
00:30:06.880 | So you fund the accounts with after-tax dollars. The only tax benefits that you get is the year
00:30:13.760 | by year deferral on gains and the possible tax-free distribution when those gains are
00:30:21.040 | used for an accredited certified college program. So how much money is that actually?
00:30:29.200 | Well, if you want to hear some detailed calculations, go back and listen to all my
00:30:33.760 | shows on 529s and ESAs. It's not that much, especially when you factor in the volatility,
00:30:40.240 | which leads you to the fact that you generally are funding these accounts with mediocre investments
00:30:45.520 | that aren't very aggressive. By mediocre investments, I mean many of the accounts
00:30:50.320 | are restricted to mainstream investments. We face at least a much more difficult headwind in the
00:30:56.880 | forthcoming decade, much more difficult economic headwind in the United States,
00:31:02.240 | especially for mainstream investments. And these investments, due to the relatively short duration
00:31:09.760 | of planning for college as compared to planning for retirement, you have to be much more conservative,
00:31:15.280 | which automatically lowers your returns. And worse, many of the investments in these types
00:31:22.000 | of college plans are overladen with fees and expenses. What I mean about time horizon is that
00:31:30.000 | if I'm planning for my two-year-old's college tuition payments, and I'm going to assume that
00:31:37.360 | he's going to go the traditional route of going to school at the age of 18, going to school from 18
00:31:42.000 | to 20, my total prospective time horizon is 16 to 20 years. That's longer than the five-year time
00:31:50.320 | horizon that we financial advisors tell people to plan for with their investments. So I've got,
00:31:56.960 | okay, I've got 16 to 20 years. But what happens when my kid starts to become 15 years old and
00:32:03.840 | we're going around doing the great college tour? I'm going to be looking pretty carefully at my
00:32:09.200 | accounts. And especially if I'm facing a big tuition bill, I'm going to start to pull that
00:32:15.120 | account back in terms of volatility. And I've got to manage it much more carefully than a stock
00:32:23.840 | account that I've got set aside for my retirement where I've got an investment time horizon of 30
00:32:27.520 | to 40 years. So when you compound these factors, I don't believe the tax benefits to be all that
00:32:34.560 | great for parents who are going to be setting aside $100, $200 a month. Tax benefits can be
00:32:40.960 | great for parents or grandparents who are setting aside massive lump sums early in their child's
00:32:46.720 | life. For details on those strategies, again, go listen to all of my previous shows. But for me,
00:32:52.160 | for my kids, tax benefits are minimal. Investment options are often poor.
00:32:57.520 | Reason number three to avoid the accounts. And number four,
00:33:02.400 | when you calculate the opportunity cost of saving money for my kid's college,
00:33:11.520 | the opportunity cost, what I'd be giving up with that money is simply too high,
00:33:18.720 | especially given the fact that I can't know the future, and I especially can't know the future
00:33:24.800 | for my child. I don't know what the college situation is going to be like in 15 to 20 years,
00:33:31.120 | neither do you. I don't know what the economic value of a college degree is going to be like
00:33:35.600 | in 15 to 20 years, neither do you. I could be right about the political wins or I could be
00:33:40.480 | completely wrong about them. None of us know, we'll have to wait and see. And I don't know
00:33:45.280 | if college is going to be appropriate for my child. I think the system will look dramatically
00:33:50.960 | different in 15 years. I see the market forces at work and I don't see how the entrenched bureaucracy
00:33:56.560 | can withstand those market forces. So I think the situation will be different, but I just don't know.
00:34:02.240 | When you add all of that uncertainty to all of the uncertainty with investment choices,
00:34:08.880 | all of the uncertainty with tax codes, all of the uncertainty with all of those other factors,
00:34:14.880 | there's so much uncertainty. And when you look at some of the alternatives that I'm going to lay out
00:34:20.000 | for you and the benefit those can have in your child's life, I believe the alternatives are
00:34:24.240 | much more certain. So when you compare all that uncertainty with some of these much more certain
00:34:30.480 | alternatives, I am not willing to give up the things that I can do with the money now to invest
00:34:38.080 | in my children in order to segregate it into a separate account that is specifically earmarked
00:34:44.560 | for college expenses. And let's go on to those five alternatives that are big picture alternatives
00:34:50.720 | I'd like you to consider. Before I do that, I need to correct myself on one thing I misspoke
00:34:55.600 | on the previous point where I said the financial and tax benefits of college are minimal and I
00:34:59.840 | stated that you get no upfront deduction. Let me clarify that. These details are totally clear in
00:35:06.000 | the extensive shows that I've done previously, but let me clarify because some of my sharp-eared
00:35:09.840 | listeners will catch me in that mistake. There are no upfront federal tax deduction benefits
00:35:15.680 | for contributing to most college savings accounts. It's possible that there can be some
00:35:21.520 | state income tax deductions for some 529 plan contributions. So check your state. Those vary
00:35:30.000 | dramatically across states and they may or may not have value depending on the state that you live in,
00:35:35.200 | but they're minimal. But there's nothing on the federal level. So just that quick correction and
00:35:39.760 | let's go on to my alternatives. Alternative number one, better use for the money that you would save
00:35:46.160 | in a college account is this. Switch your focus from helping your adult children to helping your
00:35:53.680 | children children. So number one, if you just change from focusing on the four years of your
00:36:02.480 | child's life from 18 to 22 to focusing on the four years of your child's life from zero to four,
00:36:10.080 | I believe you'll have much better results. Time will tell. You're welcome to look at my children
00:36:17.680 | in 20 years and we'll find out together. But I think the argument is compelling and here's
00:36:23.280 | some ideas for how to do that. Number one, take the money and if you have to use the money to do
00:36:29.120 | this, get mom home with the kids. Get mom home with your little babies and your young kids.
00:36:37.680 | That is much, much tougher for mom, but it has dramatic benefits for the child. Now, I'm always
00:36:44.960 | interested in personally, this starts first with a religious conviction because much of the
00:36:50.880 | character formation from children comes in the first few years and I'm not willing to surrender
00:36:55.520 | that over to paid caregivers of questionable reputation. But whether or not you share my
00:37:03.440 | personal religious convictions, I'd encourage you research the subject. I'm always interested in the
00:37:07.680 | intersection of the modern secular social sciences with my own personal convictions.
00:37:14.560 | And there's a bunch of interesting data on this. I'll link over to, well, I just got a book as an
00:37:21.120 | example. I just got a book called Home Alone America by Mary Eberstadt, the hidden toll of
00:37:25.200 | daycare, behavioral drugs and other parent substitutes. One past, I guess she wasn't a
00:37:30.320 | guest. I had scheduled an interview but it didn't work out. Penelope Trunk, formerly associated with
00:37:35.920 | the brazen careerist is a woman who has written extensively about this from a secular perspective.
00:37:41.680 | So whether or not you share my perspective or not, check it out from a social development,
00:37:46.560 | a social science development. And it's fascinating. Most families would enjoy that.
00:37:51.440 | Most moms want to be with their children, especially during those early formative years.
00:37:56.320 | I don't particularly care if I can finance or fund my child's college education if I've already
00:38:04.160 | invested in them for the first few years. So take the money and get mom home. Even better,
00:38:11.600 | take the money and get dad home. Get both parents involved. Downsize your lifestyle.
00:38:18.000 | And if you downsize your lifestyle or you take that money that you would otherwise save and you
00:38:22.880 | use it for less overtime, less weekend work, less travel, transition to a job that gives you more
00:38:28.080 | flexibility, transition to a job that you can integrate your children in, transition to a job
00:38:32.400 | that helps with you to have a relationship. Now you've got the ultimate. And it really bothers me
00:38:40.400 | when I see parents who are trying to set aside money for their child and what your child is
00:38:45.520 | craving is not money but time. So get mom home and get dad home. And then invest that time and money
00:38:53.920 | into training their character and into early childhood education, whether that's formal
00:38:59.920 | education or informal education. Go and do the research. The best one to research would be if
00:39:04.560 | you want to talk about the formal education side, research all the Montessori schools. They're the
00:39:10.160 | most vocal with their research on early child education. Spend the money you would spend on
00:39:14.880 | four years of college on an early Montessori education for your child or create your own option
00:39:19.920 | of experiences. One of the biggest things that for me is if you study the amount of knowledge that a
00:39:29.280 | child learns from the amount of the character development, their worldview, their vocabulary,
00:39:36.080 | their perspectives on life, so much of it is determined in the first three, four, five,
00:39:40.960 | six years of life. So if you're raising your child in front of a TV or you're paying a minimum wage
00:39:50.480 | daycare worker to care for your child so that you can go off and earn a bunch of money and save it
00:39:55.840 | for your child's college education, don't think that's the most efficient use of your money.
00:40:02.400 | So switch your focus from helping your adult child to helping your child child. And if you do that,
00:40:08.640 | you won't need to bother with paying for your child's college education because they'll have
00:40:14.000 | the ability to figure it out themselves. I didn't need my dad to pay for my college education.
00:40:21.200 | I was easily able to figure it out myself. Many of you were as well. But would I have had the
00:40:30.560 | character and the discipline to do that if my mom and dad hadn't been there in those first few years?
00:40:37.600 | If I hadn't learned to read and to study at an early age, if I hadn't developed those academic
00:40:43.440 | skills, if mom and dad hadn't poured their lives into me in those first four years?
00:40:48.480 | Consider it. Number two, switch your focus from college education to primary education.
00:40:57.680 | It's very difficult for me to understand why anybody would save and bother to save and buy
00:41:05.040 | college schooling for their child if they haven't created some kind of better option
00:41:10.240 | in the primary and secondary years. Now, we can argue night and day about what option is best,
00:41:17.600 | whether it's unschooling, homeschooling, self-directed education, Montessori,
00:41:25.200 | your local charter school, a private school, Thomas Jefferson education, or whatever the latest
00:41:32.080 | thing is. You got to deal with that. But any option like that is going to be better than
00:41:40.240 | government schooling. Now, it's a little bit scary because if you invest in those options,
00:41:44.960 | your kid might not need the college education because they might be financially independent
00:41:49.760 | by the time they're 25 or they might have enough money to pay cash for their own house by the time
00:41:54.960 | they're 23 or they might have a business that they started in their spare time when they were 15 that
00:41:58.880 | has them earning $100,000 a year by the time they're 18. It's a little scary, but all of those
00:42:05.680 | things will be much better for the economic future of your child. So simply switch your focus from
00:42:12.240 | college education to primary education. And here's the fun way to do that. Calculate what you think
00:42:17.680 | is the cost of college and then ask yourself, "How could I spend that money now on their earlier
00:42:25.360 | educational opportunities?" And then figure out what's right for you and your family.
00:42:29.440 | It's not my place to tell you what's right, but figure out what's right and be willing to put
00:42:35.680 | the money there. Number three, switch your focus from social and societal acceptance to the
00:42:42.800 | individual development of your child. Switch your focus from school to education. And then even
00:42:49.680 | better, switch your focus from school and education even to character development.
00:42:53.920 | Switch your focus from social indoctrination to personal empowerment and ask yourself,
00:43:00.960 | "How can I spend money on the actual individual development of my child?" And if you're writing
00:43:08.640 | the checks, you might care a little bit more about the content of your child's curriculum.
00:43:13.600 | You might throw out a bunch of the time-wasting stuff that really is irrelevant because every
00:43:17.680 | single one of us with a high school diploma and a college degree would look back and easily
00:43:21.440 | recognize how much of what we studied was irrelevant. And you might work on things
00:43:26.000 | that are a little bit more relevant to actual social career success.
00:43:35.920 | Focus on the actual development of the child.
00:43:38.960 | I guess my next one, number four, I just jumped the gun, but invest your money in your child's
00:43:46.800 | education, not their schooling. What if I gave you a budget? Here are just some ideas that I've had
00:43:51.760 | working through these with my own children. What if I gave you a budget? Let's say I'm going to
00:43:55.360 | save $300 a month into a college account for my child. That'd be a good starting point. At this
00:44:01.120 | age, I could fund a state school at the retail price and my financial planning software if I
00:44:05.840 | set it aside at $300 a month. So what if I took that $300 a month and I said, "I have to spend
00:44:13.440 | this money now on my child. I can save a little bit of it up and I can take some of that money,
00:44:22.160 | but I've got to spend it at least, say, once a year." What if I had to spend $300 a month once
00:44:29.440 | a year on my child each year? Well, if they show some particular skill, some particular talent,
00:44:38.160 | I'd have the money to invest in a world-class tutor for that skill or talent instead of just
00:44:44.800 | taking whatever we're around and hoping that somehow the local state school has a good
00:44:52.320 | professor. I can choose a world-class tutor. I could send that child for a week to go with some
00:44:58.320 | world-class tutor in their area of interest. I could buy a lot of books. So if my child
00:45:04.080 | demonstrates a real interest in a subject area, we can cancel a lot of the time-wasting stuff
00:45:10.560 | in the government school system and I can buy a lot of books with $300 a month,
00:45:16.160 | especially buying used books off of Amazon. I can afford my high-speed Internet connection so
00:45:22.080 | they can have access to the world's greatest tutors there. I can pay for some web hosting
00:45:26.400 | fees to help my child develop an online presence. I can buy my child whatever gear and equipment
00:45:31.840 | that they need so if they're demonstrating an interest in a technical field and they want to,
00:45:36.080 | you know, it was that kid that was building, excuse me, young man who was building
00:45:40.160 | robotic arms for his middle school classmate, I could afford to buy the computers or the material
00:45:47.680 | that he need for him and give him the money that way. I could take the money and instead of wasting
00:45:53.600 | a summer working a minimum wage job, I could send my kid to Washington DC and tell him to spend
00:45:58.720 | weeks wandering the free museums all across the city. Which of you had the time when you were
00:46:07.680 | young and your parents did something like that? Dozens and dozens and dozens of world-class free
00:46:12.640 | museums. You think that might help the exposure? See, one of the major problems with college is
00:46:18.560 | people are going to college to figure out what they want to do. That's an expensive stupid way
00:46:24.240 | to figure out who you are and what you want to do. Much better to figure out who you are and
00:46:28.800 | what you want to do early and cheap and then when you go to college and you know this is what you
00:46:34.960 | want to do, you have a purpose behind it and now you're much more likely to be successful at
00:46:40.880 | following through, finishing school and you're much more likely to actually use the knowledge
00:46:45.360 | and education that you gained. For me, my own personal story is an example of this.
00:46:50.320 | My undergraduate degree is in international business. I use nothing. Nothing from that,
00:46:55.760 | no specific knowledge from that degree. Perhaps I use study skill, perhaps I use generalized
00:47:01.360 | ability to write or to read or to study or to manage my time. I certainly had formative
00:47:05.840 | experiences during those years, but in terms of actual content, I use nothing of that degree.
00:47:11.920 | But then when I got a master's degree in financial planning, I use far more of that
00:47:16.480 | because I was a financial planner and many of you the same thing. For example, my friend who
00:47:21.760 | wrote me this note is an engineer and just finished a master's degree in engineering.
00:47:25.840 | Getting a master's degree in engineering when you are an engineer is far different
00:47:30.080 | than being a sheltered, unexposed 18-year-old wandering into a college classroom trying to
00:47:40.880 | figure out who you are, what you want to do and what you believe about the world.
00:47:43.920 | So take the money that you would invest in your child's schooling, especially college schooling,
00:47:52.560 | and invest it in their education now. And you probably won't even need to buy any college
00:47:57.040 | tuition down the road. And that way, whether or not college is the appropriate fit for your kid,
00:48:03.200 | you've at least got some… they have a lot more options.
00:48:08.880 | A lot more options. And number five, switch your focus from equipping your child with a
00:48:18.720 | college certificate to equipping your child with economically valuable skills.
00:48:25.760 | My best example of this, I interviewed in the past Jonathan Harris, the site member of 10k to
00:48:34.400 | talent. Jonathan and his wife Renee are members of the community. They're involved in the Facebook
00:48:38.080 | Irregulars group. And they do a great job. But they have a bunch of kids. And I follow one of
00:48:43.520 | their children, a young man named Caleb, who is an amateur knife maker. I follow his stuff on
00:48:50.320 | Instagram. And Caleb, I'm actually going to be giving him some advice. I intend to release it
00:48:54.240 | as a future episode, but on starting a podcast. But Caleb, I think, is 17 years old. And he's
00:48:59.040 | built for himself an incredible platform as an amateur bladesmith, helping and encouraging other
00:49:05.280 | amateur bladesmiths. And the work that Jonathan is doing at 10k to talent, helping your child to
00:49:09.760 | actually develop and build talent is truly, truly… it's awesome. Now, Jonathan and Renee
00:49:16.960 | haven't told me about what they've spent or haven't spent. It's none of my business. But
00:49:20.880 | I'm pretty confident that they've had to spend some money to help Caleb get established.
00:49:24.800 | But if you take the money that you would be putting into a 529 plan,
00:49:33.200 | and you take it and use that to buy your son a forge and an anvil, and the special metal that
00:49:39.760 | he needs to forge blades while he's blowing through the stuff, screwing up the first 250
00:49:45.280 | versions of it, if you take that and make that investment, then you wind up with a 17-year-old
00:49:51.920 | young man who is nationally known as a young and up-and-coming amateur bladesmith.
00:50:00.000 | That's what I mean by opportunity cost. What if you were putting the $300 a month into the 529
00:50:04.880 | plan? Well, guess what? Anvils and forges and metal are not approved qualified distributions
00:50:15.760 | from a 529 plan. Which of those is going to make a bigger difference? Now, if you've got the money,
00:50:23.600 | can you do both? Sure. But I don't at the moment have the income where I can do both.
00:50:29.840 | And most people who are in my bracket, young families, don't have the money and the income
00:50:36.560 | to do both either. And so we rob the now in order to fund the future for a system that's
00:50:47.520 | out of date and broken. If you shift the attention from the four years of 18 to 22,
00:50:58.640 | and you shift that from the years of zero to, I don't know, 12, 15, 18,
00:51:03.520 | you won't need to do all that hard work from 18 to 22.
00:51:12.480 | It'll already be done. And instead of investing in the financial markets where the value will go
00:51:18.080 | up and down and your investments will wander around and you're subject to the latest vagaries
00:51:21.840 | of the government regulation and a bunch of bureaucrats who write laws, you've invested in a
00:51:25.920 | person with whom you have a relationship. And guess what? Whatever the world is in 15 or 20 years,
00:51:33.360 | that person with whom you have a relationship will be competent to fend for themselves.
00:51:41.120 | And I think this is one of the best ways that parents can fulfill the old axiom of
00:51:47.600 | teaching a man to fish instead of giving him a fish.
00:51:51.200 | My dad didn't fund my college education. He offered to let me live at home rent-free
00:51:58.560 | during the years of college if I wanted to, but he didn't fund my college education.
00:52:02.880 | Never regretted it, never was bitter towards him, never needed it.
00:52:09.680 | I looked at my friends who were dependent on their parents and had this weird
00:52:13.680 | controlling relationship with their parents where they had to go show their parents their
00:52:18.640 | report cards at 21 years old because their parents were funding their college. I'm like,
00:52:25.200 | "Why don't you just do it yourself?" It's probably a useful concept to talk through. I'm not prepared
00:52:32.160 | to discuss it today. But as far as the dependency that continues on and the control that parents
00:52:38.160 | probably try to exercise too late because they're financing something. But I just looked at my
00:52:43.840 | friend and was like, "Why don't you do it yourself? Have some self-respect. You're an adult."
00:52:47.680 | When you look at the options, there are many more effective uses of the money now,
00:52:55.120 | and it's a much more secure investment. The very few ideas I've laid out here are just the tip of
00:53:03.200 | the iceberg. Now, let's say that my arguments are not compelling to you, or let's say that
00:53:11.440 | my arguments are compelling, and you just say, "Well, I've got the money. I want to do both. I'll
00:53:16.560 | fund what's now, but I also want to fund the future." Awesome. Here are three final ideas.
00:53:20.880 | Number one, don't dilute your wealth-building efforts and fool yourself with the idea that
00:53:28.320 | by funding various accounts on a minimal basis, you're somehow going to become rich.
00:53:33.520 | Start by getting rich and then paying for the stuff that you want. Here's what I mean.
00:53:37.840 | Many people do a little here, a little there. Put a little bit of money in a savings account to save
00:53:43.600 | for Christmas, pay a little extra on their credit cards, put a couple percent on the 401(k),
00:53:48.960 | put $100 a month into the 529 plan because that's what we can afford,
00:53:52.880 | and they don't make much progress because they don't really focus on anything.
00:53:59.680 | Do a little here, there. As Ziegler used to say, "They're wandering generalities."
00:54:04.880 | I believe the impact is far higher if you become, as again, Ziegler used to say,
00:54:12.960 | a meaningful specific, focusing on clear, specific goals. It doesn't mean you can't
00:54:21.360 | use those accounts. It means that you have a plan. The best behavioral finance guy I know
00:54:27.600 | is Dave Ramsey. If you look at the power of the Dave Ramsey plan for people who are in debt,
00:54:33.280 | where he focuses them in, laser focused on, "You're going to get out of debt." Guess what
00:54:38.160 | happens? People get out of debt. It works because they're focused. One bill, one credit card,
00:54:44.960 | one baby step at a time. Take that same thing and fast forward it to your wealth plan.
00:54:50.000 | So many people would be much better served by saying, "I'm going to get my debt paid off.
00:54:56.160 | I'm going to get my house paid off. I'm going to get the down payment saved up for a rental
00:55:00.640 | house to buy. I'm going to get this account fully funded." Much better to focus on one of
00:55:06.880 | those things one at a time than try to do a little bit here and a little bit there.
00:55:09.920 | And if you're rich, you can pay for college. So start by just having a clear plan to get rich
00:55:17.440 | in a short period of time, as is appropriate to your situation.
00:55:22.240 | Those things are not necessarily mutually exclusive. You can work a good job. You can say,
00:55:28.240 | "I like this job. I'm happy with it. I'm just going to fund these accounts and do fine if you
00:55:32.160 | have enough time." It's not mutually exclusive, but make sure you have a clear plan and a clear
00:55:36.160 | focus as appropriate to you. That kind of generalized plan, it could be personality
00:55:44.320 | or it could be effectiveness. I don't know. It doesn't work for me. I'm rather obviously
00:55:51.840 | something of an extreme guy. The reason this show is called the Radical Personal Finance Podcast.
00:55:56.400 | But I just find it far more effective to focus. If you're going to work, work. If you're going to
00:56:02.800 | play, play. So number one, don't dilute your efforts and do a little everywhere.
00:56:08.160 | Have clear financial goals that are measurable. Number two, before you fund a college plan,
00:56:14.640 | if you at least recognize that there is at least some uncertainty with the future value of these
00:56:21.280 | accounts, consider some type of cash flow plan rather than a savings plan. Here's what I mean.
00:56:28.320 | If I'm right about my predictions of college and things that are going to happen and the potential
00:56:36.320 | challenges, the limited benefits from the tax perspective, the fact that you're diluting your
00:56:41.280 | efforts, blah, blah, blah, all that stuff I just spent 56 minutes going over with you.
00:56:46.080 | If I'm right about that thing, that stuff, then having a few thousand dollars in a college
00:56:52.560 | savings account is not going to be really that impactful. But if you focus on other things first,
00:56:59.600 | specifically having free cash flow, then if you want to just pay for college when your kids are
00:57:06.320 | older, you can do that. So take that focus and focus it in on paying off your cars and not
00:57:12.480 | borrowing money on cars. Focus it in on paying off your credit cards and not borrowing money
00:57:15.840 | on credit cards. Focus it in on getting your mortgage paid off. If you arrive at the time
00:57:24.320 | that you have an 18-year-old heading to school and you don't have a mortgage and you don't have
00:57:28.640 | car payments and you don't have credit cards, even if you're just working a job, you can just
00:57:33.520 | simply cash flow the college benefit, the college payment. Since there's an economic benefit to all
00:57:39.680 | of those things that works whether your child goes to school or not or whether they go to an
00:57:44.560 | expensive school or whether they get scholarships or not or any of those other factors or whether
00:57:48.480 | school is free or not, you're going to be better off either way. So plan ahead and plan on a cash
00:57:55.600 | flow plan. Another option is just simply plan on a cash flow plan with regard to your investments.
00:58:02.800 | So my point number three here is fund your retirement accounts first. Please don't open a
00:58:07.600 | 529 account or an ESA until you have first funded fully your retirement accounts, 401ks, Roth IRAs,
00:58:16.640 | whatever accounts you're eligible for because it'll give you far more flexibility and you might
00:58:24.160 | be able to use the money for college or you can pursue the cash flow plan. So with a Roth IRA,
00:58:31.600 | what I would do is first fund a Roth IRA for you and then if you want to pay for college,
00:58:36.400 | then just take your basis distributions tax-free out of the Roth IRA and use that to pay for
00:58:40.800 | college. First fund a 401k as aggressively as you can until it's full and then probably the
00:58:47.920 | best move would just if you have to cut your contributions to the account while your child
00:58:54.960 | is in school and/or cut them to at least the level of the employee match and then pay cash for
00:59:01.680 | the college tuition payments. At least in those situations you have options and from a financial
00:59:07.600 | aid perspective you have options, your child has options, if you've encouraged your child
00:59:11.920 | and your child is academically excellent, you're not stuck with $15,000 in an account and say,
00:59:16.400 | "Well, you got to get a master's degree now." You've got the money in a retirement account,
00:59:20.240 | which is a little more flexible and a little bit more useful to you.
00:59:22.960 | So fund your retirement accounts first. Then only after all those things are done,
00:59:30.720 | you got to plan to get rich, you got to plan to be debt-free. If you're going to pursue
00:59:35.120 | retirement accounts, those retirement accounts are fully funded and you're investing in all of
00:59:39.280 | your everything that you can see now that's going to help your child now, whether that's the
00:59:44.000 | exclusive $40,000 a year private school tuition, there's a reason you don't see the elite in our
00:59:49.600 | society sending their kids to local government school. There's a reason they go off to the
00:59:54.080 | boarding school. It's a very different educational approach. If you're not aware of that stuff,
01:00:00.000 | go and research, research, research, research. But after you've done all those things,
01:00:06.560 | then you can consider the retirement account. And hey, good luck to you.
01:00:13.360 | I hope this has been useful to you. I hope you've enjoyed it. I know I'm presenting some very strong
01:00:19.920 | opinions. I'm doing that because A, I hold strong opinions, but I'm also doing that simply because
01:00:26.640 | I'm fighting against the general tide of advice and information that comes at us in our society.
01:00:32.720 | And you got to see through it because otherwise the peer pressure is all around.
01:00:37.600 | You're a bad parent because are you saving for your kid's college because don't you know the
01:00:41.600 | college tuition is going up? Most people are out of touch with the actual facts of what's going on
01:00:46.640 | in society. Most people are out of touch with the benefit of a college degree. Most people are out
01:00:50.880 | of touch with the college degree costs. Most people are out of touch with the options. Very
01:00:54.960 | few people are in touch with the changing roles of many industries. There are always exceptions to
01:01:00.080 | all these things that I've said, but you got to recognize that most people are out of touch. I
01:01:04.080 | could be out of touch. You got to be the judge of that. But go and research these things heavily.
01:01:09.200 | Read a book on Maria Montessori. Go and visit with your average 18 year old government school
01:01:16.080 | graduate and ask yourself if you want your kid to look like that. Do some research and make an
01:01:23.440 | educated decision. But this is my go-to resource now as to why I refuse to save money for my kid's
01:01:29.680 | college. I think it's a dumb system. It's antiquated out of date. It was never that
01:01:34.640 | effective to begin with. I think it's a bad use of the dollar. Too many risks and uncertainties.
01:01:39.760 | If you disbelieve all that stuff, hey, I got 15 or 20 hours of free stuff to tell you how to
01:01:46.880 | exploit all those accounts with all the loopholes and everything like that. So go search the website.
01:01:51.840 | Thank you all for listening. If you've enjoyed this show, let me know. Drop me an email. Send
01:01:56.080 | me a comment on the show. Feel free. If you hated it, feel free to let me know that too.
01:02:00.400 | I don't mind that. If this has been useful to you or beneficial, please consider supporting
01:02:04.480 | the show on Patreon. Also consider working with our sponsors. That's helpful. Both of those are
01:02:09.360 | helpful. But this is how I have the money to invest in my kids. And the primary means for
01:02:14.560 | that is the crowdfunded listener support method through the Patreon page. Details for that at
01:02:21.120 | radicalpersonalfinance.com/patron. Radicalpersonalfinance.com/patron if you would like
01:02:28.400 | to support the show. Thank you.
01:02:30.080 | [music]
01:02:38.720 | Sweet Hop is an online marketplace curating the best in premium seating at stadiums,
01:02:43.200 | arenas, and amphitheaters nationwide. With Sweet Hop's 100% ticket guarantee,
01:02:47.760 | no hidden fees, and the personal high-level service you expect with a premium purchase,
01:02:52.240 | you can relax knowing you'll receive the luxury experience you deserve.
01:02:56.320 | Visit SweetHop.com today to book your premium tickets to your favorite teams,
01:03:00.480 | artists, and all the must-see live events to Sweet Hop Around LA.
01:03:04.480 | S-U-I-T-E-H-O-P.com. It's more than just a ticket.