The real question that both articles strive to answer, though, is where should I put my money to ensure the best possible outcome for both me and my children? Retirement savings? College savings? Splitting it up?

In my eyes, the issue really comes down to the job every parent is charged with: raising a functional, critically thinking, independent child. If you are truly able to succeed in this regard throughout their childhood, you’re going to raise a child that doesn’t really need your help at all to succeed in the world.

In other words, if you take the time to really focus on parenting your kids in a way that makes them functionally independent and critically thinking adults, you don’t need to save for their education. They’ll be able to make their own way in the world without your financial support. Thus, you can channel almost all of your long-term savings into retirement savings so that you’re not a burden to them in whatever they wind up doing in life.

How do you do that?

Over the last five years, I’ve read a pile of books on the psychological needs of children and young adults, everything from Mindset and Born to Buy to The Read-Aloud Handbook and Raising Financially Fit Kids. I’ve come up with three basic conclusions.

First of all, praise children on their hard work, not their natural gifts. Focus on when they improve their results, not on when they simply succeed because of their talents.

Second, give them room to explore independently. Don’t hover. Don’t be paranoid about kidnapping. Send them out in the yard to explore things on their own, then when they’re done, ask them about it. The more independent exploration they do, the more resourceful they’ll become.

Finally, put them into challenging situations. Don’t protect them from failure. One of the most valuable childhood lessons is learning how to fail. What do you do next? You pick yourself back up and try again. If you go through childhood without knowing how to do this, adulthood becomes much, much harder.

If you are constantly conscious of these three things, you’re going to naturally mold your children to be self-reliant and independent. Those traits will serve them very well in whatever they choose to do in life, and because of that, you don’t need to hand them their education.

They’ll be able to make it themselves.

A final reason to save for retirement: if you do choose to help, retirement savings are usually flexible enough to allow you to help. You can often take out loans to help with education purposes from a 401(k), and you can take back your Roth contributions whenever you’d like to spend as you wish. If you decide that financial help is really needed, you can provide it with retirement savings.

So fund the 401(k) and the Roth IRA and don’t worry as much about the 529. Instead, focus your parental energies on being a parent that raises an independent and curious child.

Good luck.

When I envision my life thirty years from now, one key part of that vision is that my children are financially independent and not relying on me for any of their financial needs. I don’t want to be in a situation where they’re still living at home or they’re relying on regular cash infusions from me when they’re thirty.

One major avenue to this level of success is earning a college degree, which can directly lead to a much higher level of earning than life without a degree. I can help pay for this degree, but it may come at the expense of saving adequately for retirement.

What are the advantages of college savings when you’re young? An adequately funded college savings plan, started when a child is young, can grow into a major resource for paying for significant portions of a child’s college education.

For example, let’s say you start funding a 529 plan with $250 a month when your child is born. The account returns 8% per year. On their eighteenth birthday, you’ll have $116,844 sitting there waiting for their college education. If you don’t worry about it until they’re in junior high, starting at age twelve, they’ll have only $22,888 in savings.

What about your retirement? Many people who make this choice are also making the choice to work later in their lives than the typical “retirement” age. They have no qualms with starting their retirement savings in earnest after the kids are out of the house (say, age forty five or fifty) and planning on a retirement that starts much later (say, seventy or seventy-five).

For some people – especially people who find a great deal of personal value in their work – this makes a great deal of sense. Take myself, for example – I pretty much never want to be idle until I literally am unable to do anything at all. I’m just not wired that way.

What if I change my mind? If you’re using a 529 savings plan to save for college, you can withdraw the money from the account as you wish. You will have to pay taxes on the gains plus a 10% additional penalty for misusing the account.

However, if you wish to use that money for educational purposes for someone else – say, yourself or a child’s sibling – you can change the beneficiary without a penalty as long as the new beneficiary is a close family member.

I don’t want to burden my children in my dotage. If you find yourself needing their assistance in your old age, you will have given them a tremendously strong platform from which to help you if they so choose. The financial advantage you gave to them by ensuring that they were not burdened by student loans puts them in a much stronger financial position in adulthood, one in which they can afford to help you if you need it.

What if I reach my retirement age and don’t have adequate savings because of this choice? You’re finally pushed out the door, but you don’t have enough money to make ends meet. What happens then?

To put it bluntly, you’ll have to find a source of additional income. It’s important to recognize, however, that reaching this point without adequate money isn’t necessarily a disaster. Most people in this situation – having chosen to help their children instead of saving for themselves – do have a myriad of options available to them when they reach old age.

This might come from finding another job. It might come from financial support from your children. It might come from goverment support. It might come from something as simple as being the daycare provider for your grandchildren. If you choose this route, there will be options available to you at this point. It does not have to be devoid of options if you’re willing to step up and take action.

Wait a second! You’re probably wondering what my actual conclusion on this topic is. Is it better for the parents of young children to save for retirement first – or save for education first? As you’ve seen, there is a case to be made for both sides of the coin, but I actually do have an answer… which you’ll read about tomorrow afternoon.

When I envision my life thirty years from now, one key part of that vision is that I’m not financially dependent on my children. I’m able to live the life I want to lead without them worrying about me (at least financially) in the least, particularly in my final years.

The best way to ensure that kind of a future is to focus primarily on shoring up retirement savings, even if it comes at the expense of saving adequately for the college experience of one’s children.

What are the advantages of retirement savings when you’re young? The big advantage of retirement savings when you’re young is that it has a huge number of years to grow and grow and grow. The power of compound interest has plenty of time to work in your favor.

The real numbers tell the story better than anything else. If you invest $10,000 when you’re 45 at an 8% rate of return, you’ll have $46,609 when you’re 65. Invest $10,000 when you’re 35 and you’ll have $100,626 when you’re 65. Invest $10,000 when you’re 25 and you’ll have $217,245 when you’re 65. The earlier you sock away money for retirement, the better the deal is.

What about their education? Self-motivated students can always make college work if they choose to do so. There is a myriad of financial aid options available, plus most schools also accept transfer credits from very low-cost institutions, enabling students to fulfill many of their general education requirements at a very low cost from community colleges.

Beyond that, having a student take a large deal of responsiblity for their education forces them to learn some personal responsibility that they might not otherwise learn. It can also show them, first hand, the cost of their education – and the value of it. Those are lessons that aren’t taught by simply writing a check for them.

What if I change my mind? If you start saving for retirement, then change your mind about your choice, you’re not completely without options. Most common retirement savings plans allow you to use some – if not all – of your retirement savings to help with college education.

Most 401(k) plans allow you to borrow against them to pay for educational expenses. However, if you do this, you lose out on the returns during the years that you’ve got the money out on loan. If you’ve used a Roth IRA, you can withdraw the amount you’ve contributed at any time without penalty, but you can’t put that money back.

I’ll feel guilty about saddling my children with lots of student loans. There’s no reason you can’t help them pay off those loans when you’re very secure in retirement. At Christmas, write a check to their student loan holder, knocking off a chunk of their loans for them. This way, you’ll be making the payments from a position of total security rather than from a position where the future is uncertain.

What if this makes my children fail to get an education? From my perspective, that’s more of a commentary on the initiative of your children than anything else. If this roadblock somehow “prevents” them from going to college, they’re showing a lack of self-motivation that will hinder them in more ways than just not getting a degree. Without that kind of drive, they’ll be hard-pressed to succeed in any high-pressure field.

They might also simply not be interested in what college has to provide for them and are intelligent enough to make that decision on their own. In that situation, a trade school or something similar might actually be the best situation for their temperment, for one example. Students who attend trade schools can often earn a very good salary doing a wide variety of skilled labor.

This makes a strong case for saving for retirement instead of saving for your kid’s education. But what about the flip side of the coin? Tune in later today to see that discussion.

We are friends with another couple that is around our same age, income level, status, and number and age of children. When I was mentioning to them that we were planning to pay off our car this year (leaving us with our mortgage and a small student loan) and the starting to put $50 to $100 per into 529s for each of our kids (currently aged 1 and 3), she mentioned that they were not starting 529s, but rather had a different philosophy….. They were going to contribute up to the company match in the 401K, max out a roth IRA (every year) and then pay off their house in 15 years, which would be just when their oldest is about to start college. Then they would use any excess from their income (that was now free because they no longer had a mortgage) in order to help with their child’s education. She also mentioned that she did not believe that her children would qualify for much (if any) financial aid. This would be the case for us as well. We are currently putting approximately 10% into our 401K and we plan to put approximately $3,000 per ear into a Roth IRA starting this year. Can you comment on what might be the pros and cons of either financial philosophy? I suppose that I should also mention that I do not forsee us having any issues with having enough $ for retirement and my philosophy is that I would like to contribute to 25-33% of my children’s college costs.

First things first: with all things being equal, you’re better off putting your money into retirement savings than into college savings. There are several reasons for this.

First, your children can make college happen even if you don’t have a dime saved for them. Between student loans, scholarships, and other aid, most students who are accepted to a school will be able to find some way to go there. They may end up with a lot of student loans in the process, but it won’t prevent them from getting an education.

On the other hand, you can’t make up for missed retirement savings. Nothing can undo missing the early years of your retirement plan, because those are the years when compound interest is at its most powerful. The money you put away right now will be much more valuable than any money you put away in your 50s or 60s.

Another factor to consider is that many retirement plans allow you to “borrow” against them for educational expenses. You can withdraw some amount, agree to a repayment schedule, and use that withdrawn money to help pay for your children’s college education.

A final note: if you haven’t saved adequately for college, you may end up being a financial burden for your children late in life. You might not ever ask them for money, but they’ll see that you don’t have much money and will stretch their wallets to help you when they can. I have seen this many, many times.

In short, if you’re unsure, I recommend saving for your retirement over saving for your child’s education.

The next question, then, is why should one ever save for their children’s educational expenses?

We’re saving for that purpose. That’s because we have plenty of money to save at this point – our retirement savings are fully covered, plus we have extra money beyond that to push towards long term goals. One of those long term goals (for us) is to pay for some significant portion of our children’s college education. After doing the math, we decided that saving $100 per month for each child from the day they were born to the day they leave for college is the best bet.

In other words, if you can save for college without short-changing your retirement, go for it.

What about that third factor, though? Where does paying off your house rank?

When it comes to using your home as an asset for college savings, you’re betting on two things. First, you’re betting that the payments you make on your home mortgage are more financially efficient than money socked away in your 529. If your mortgage interest rate is 6%, then your money channeled into that is effectively earning a 6% return. If you put that amount in a 529 instead, you could earn more or less than 6%, depending on your investment choices and the risk you’re willing to take on.

The second (and more challenging) bet comes later, when you want to tap your home equity. You’re betting on the interest rates at that future date, because your loan will charge you some interest rate. Will you need the money at a time like today, where the Federal Reserve is keeping rates low? Or will you need it at a more challenging time, when interest rates are higher?

If saving for college is important to you and your family, I would probably do things in this order: retirement savings, then college savings, then mortgage.

One final note: I would never rely on future earnings to pay for college education. Our lives are far, far too uncertain to bank on your professional income in fifteen years as a source for college savings – or savings of any type. People radically change careers. People are downsized. People are disabled. People stumble into great opportunities. These things happen all the time. To bet on stability there would be the biggest gamble of all.

Good luck.

Education – $945

Education is another expense that varies widely from family to family. Many families have no education-related expenses at all. Other families have multiple children in college or on the way and are in a much different situation.

Obviously, education spending is an area where I think it’s a strong investment to spend if you need it. Education can have an enormous positive effect on your lifetime earnings beyond the personal growth that education can trigger.

The question here is how you can maximize your education dollars. Here are several suggestions for doing just that.

Keep in mind that college success isn’t a matter of getting into the best school. The Wall Street Journal found that, although attending college is important, what’s more important is drive and ambition: “When comparing students who graduated from elite colleges, as measured by students’ average SAT scores, with those who graduated from less-selective schools, the researchers found no significant income differences between the two sets of students. In fact, being rejected by an elite school where students had higher SAT scores was a better predictor of higher earnings than the competitiveness of the college the student actually attended. The findings suggest a student’s innate ambition, as reflected by his or her willingness to stretch in applying to exclusive schools, is a factor in career success.” In other words, if you want your child to succeed, don’t throw money at test preps or admissions for the right college or pressure to choose the right major.

Help your child find their passions. Hand in hand with the above idea is the idea that students who are driven are the ones who succeed. How can you help your student tap into some sort of internal drive? Help them figure out where their passions lie and then give them the support and room they need to chase those passions. This is a big part of parenting – in my opinion – as your child begins to grow up, through adolescence and puberty. If you can help your child find that passion, that passion can carry them to great heights – and help greatly with the value of the education they’ll get.

Stay on course. The most expensive thing you can do in college is switch majors – it almost always tacks on more semesters to your experience there, and thus a lot more expense, too. Again, this is an example of why it’s incredibly valuable to help your child figure out their passion as early as possible – not only does it fuel their drive, but it also helps them find a major they’ll stick with.

Apply for as many scholarships as you possibly can. Yes, this can be a giant time sink. However, it’s almost always a profitable one, because there are a lot of scholarships out there that don’t even receive enough applicants to pay out all of their money. Ask around your social network. Ask at your place of employment. Ask at your church and any other social organizations you belong to or your child belongs to. In particular, look for scholarships that take advantage of special traits of your child: their ethnicity, their accomplishments, their socioeconomic status, and so forth.

Focus on top public schools, particularly ones in your state. If you’re looking for a school to aim for that maximizes “bang for the buck,” the top public school in your state is almost always a great target. Many top public schools are very competitive with private institutions, but beyond that, they offer much more affordable rates than private schools, particularly if you’re a resident of that state.

Start saving as early as possible with an open-ended 529. A 529 savings account plan enables you to put cash away for your child’s (or your own) future college education. The earnings in such accounts are tax-free if the money in the account is used for educational purposes (and if it never gets used, you merely have to pay taxes on the earnings plus a 10% penalty). If you’re sure that educational spending in some form or another is coming for your child (or for you), you’re better off opening such an account now and starting an automatic investment plan.

Shop around for textbooks. Many students make the mistake of rushing headlong into book buying – and when they do that, they overspend. Find out what books you actually need for your class, then take the time to shop around for them, particularly looking for used ones. Check online book resellers and auction sites. Take a look at the bulletin boards at your school. Spending a bit of time doing this can save you 75% easily on your books over the sticker price.

Take challenging courses in high school, both for the AP credit and the experience. Many high schools offer AP courses and courses that are dual-listed with a local college. Attempt to take as many of these as your student can handle, particularly in areas where their skills are the highest. These classes not only help you earn AP credit or college credit (saving on tuition later on), but also help you gain the skills you need to succeed at the college level.

Take general education classes at a community college over the summer. Many lower-level general education classes can easily be taken at a community college and transferred. Take advantage of this – community college classes are usually incredibly inexpensive and if a few of them over a few years can shave a semester off of your college tuition, jump on it.

Take advantage of education-related tax benefits. If you’re attempting to get an education – or one of your dependents is – the IRS gives you tons of tax benefits: the Lifetime Learning Credit, student loan interest deduction, the American Opportunity Credit (?), and so on. These credits and deductions can literally save you thousands of dollars each year when you file taxes. Here’s a great overview of some of the tax advantages for education.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

That’s not to say that students who attend a more selective school don’t earn a higher salary – they do. However, it is the selectiveness that causes the higher income, not the exceptional quality of that school’s education.

What does that mean for saving for our children’s education?

First of all, it shows that setting your children up for success comes much earlier than we might think. Challenging them and encouraging them to solve problems on their own during their earlier years and providing opportunities for them to grow and learn when they’re young sets them up to be ahead of their class during their secondary school years – a lead they’re likely to maintain no matter what they do.

Second, it reinforces the notion that it’s more important for a parent to save for their own retirement than for a college education. Remember, a college education can always be covered with scholarships and loans, but there aren’t loans that will pay for your retirement.

Third, it doesn’t deny that getting into a good school is a wortwhile goal. If a student’s goal is to get into an Ivy League school, the work you’ll have to do to get there – pushing yourself hard in school, involving yourself in intense extracurricular activities – will themselves create the foundation for success in a student’s life.

Here’s the key message behind that paper: if you’re making a choice to spend less quality time with your kids so that they can afford to get into a good school, you might be making the wrong choice. The school doesn’t make the kid – the kid makes use of the school. While quality time and effort are never a guarantee of such success, they’re certainly a strong step in the right direction.

It’s not the school, it’s the student.

I’m a high school senior and I’m going to college next fall. When I go to college, I want to be completely independent, paying my own bills. My parents insist that this is financial suicide and that they should support me through college. What do you think is the right way to go?

Shortly after my eighteenth birthday, I left my parents’ house and went to college. When I left, there was a pretty implicit understanding that I would not be moving back in with them in the future. Sure, while I was a student, I could spend between-semester breaks living there and I could live there in short spurts after college if necessary to facilitate moving on to somewhere else, but my parents’ home was no longer my own. It was up to me to find my own way in the world.

This flies squarely in the face of many parenting trends today in which children often live with their parents throughout college and afterwards, sometimes for many years. The reasons are many, usually revolving around the child’s inability to earn a sufficient income to be financially independent.

Even when children reach a point of “independence,” meaning they don’t live at home, many parents still provide some sort of regular financial support, just to help the children make ends meet.

My belief is that I learned much more valuable lessons by having to make it in the real world than I ever would have back under my parents’ roof. Yes, even if that means a very low standard of living during one’s twenties if necessary.

I’m not saying that parents shouldn’t help if a child completely loses everything. However, there’s a big difference between a helping hand and long term support of a lifestyle.

Short term help in a problematic situation is great – it’s the type of thing that strong relationships are made of. The ability to rely on someone else for a short while when life has knocked your feet out from under you is a tremendous boon and I absolutely do not begrudge parents for helping out in those situations.

The problem comes when that help progresses into expectation and reliance. Any situation in which an individual is unable to be independent and is reliant on someone else is dangerous to both parties. It hurts the parent by taking money away from their future plans, ensuring that they’ll be in the workplace longer and will have fewer assets to rely on late in life. It hurts the child by denying them the skills they need to survive in a world that will eventually not include the parents. Plus, it extends the inevitable ending of support to a later date when it’s quite likely to be much more uncomfortable for both parties.

Yes, financial support of one’s children in adulthood makes life “easier” for them in the short term, but it makes life harder for them in the long term. Such support stunts the budgeting and money management skills that they’ll need to survive when they actually do become independent. It also encourages the establishment of a pattern of spending that exceeds their real income.

The real danger, though, is how it impacts you. The money given to your children when they should be independent is money that’s not going to support your retirement. You’ll have to work longer – and if you’re unable to, you’re much more likely to become a late-life burden to your children than you would be if you invested in your retirement now.

I’ve witnessed this phenomenon with my own eyes. My grandmother gave tons of support to her children, even in their adulthood, and during her final years, she barely had enough money to keep the power on and wound up having to fully support one of her children. If she had completely cut the cord when the children entered adulthood, she would have been able to enjoy a financially comfortable retirement – instead, her final years were fraught with financial and personal worry.

My conclusion, if you haven’t figured it out, is that delaying your children’s independence for longer than necessary is detrimental to both parties and should be avoided. If you’re still relying on your parents – or if you’re a parent still providing support to a child that should otherwise be standing on their own two feet – now’s the time to break that cycle. It’s the only way both of you can thrive and grow freely.

To the young lady who wrote in initially, tell your parents to take that support money and put it towards their retirement by bumping up their 401(k) contributions by 2 or 3% a year. Suggest to them that this retirement savings is actually a benefit to you because it reduces the chances that they’ll be a financial burden to you later in life while also giving you the opportunity now to figure out how the world works.

What I saw was a lot of clutter. A fridge I rarely used. A robe I think I used once. A big rack of rarely-watched videos. Way more clothes than I ever needed. Lots of little tchotchkes that just took up space.

When I was first planning for college, I had little idea what I was doing. I read lots of “here’s how to get ready for college” articles and vacuumed up the suggestions like a Hoover on overdrive. I spent the entire summer collecting and buying things I’d need for college.

When we finally arrived on campus, I had a pickup truck full of stuff. It filled up my half of a tiny dorm room. A dorm fridge. A microwave. A big television. A computer tower (actually, I didn’t get that one until I was on campus a while) and a monitor. A desk lamp. A giant teapot. A ridiculously huge shower bucket stuffed with stuff. Clothes that overflowed my dresser.

Virtually all of it was a waste of my time and my money. I didn’t use any of that stuff. I had little idea what I would actually use in advance, so I just more or less bought everything that I thought I might need – and it turned out I didn’t need most of it.

If I started college all over again, I could fit everything I’d use in a single backpack. Here’s what I’d take.

A laptop with a webcam and microphone This would take care of all of my research needs, report-writing needs, and, yes, telephone call needs. I suppose I might also take a prepaid phone with me for uses where I didn’t have a wi-fi signal.

A small reading lamp For studying and taking notes in dim lighting. I’d get a very tiny clip one that could go anywhere, powered by LEDs.

Enough clothes for about five days or so, rolled up tight Nothing fancy, just sturdy pants, shirts, and underclothes. I can do laundry once every five days or so.

Some basic toiletries Gotta keep clean.

Notebooks and writing supplies Obviously, for note-taking purposes. I find that taking notes longhand is the way for me to absorb complex ideas, but some people might find that just typing on their laptop might work – it depends on how you learn, which you should already know before college.

I’d also need textbooks, of course, but I could get them when I arrive via Amazon and re-sell them at semester’s end.

Sure, I might find that I needed some more items along the way, but wouldn’t it be better to find out the items that you actually need rather than buying a bunch of stuff you think you might need in advance?

Doing that saves money. It saves a lot of time. It saves space. It saves a lot of mental energy. It gives you a very clean and open space to rest your head and figure out what comes next in your life.

The next time you read a long list of things that people say you “need” for college, ask yourself a simple question: do you need it, or is it just something that seems like it might be useful? If it merely seems like it might be useful – even if you can envision a lot of scenarios where you’ll be using it – hold off. Pick it up later on.

My gameplan when I send my own children off to college is similar. I intend to send them with the minimum amount of stuff they need – basically, the stuff listed above, with variation based on the technology at that time. If they find they actually need more items, they can either use their own savings to get them or make the case to me with regards to it.

They’ll save time. They’ll save money. They’ll save energy. And in a college dorm, what exactly will they lose?

When I was growing up, my parents didn’t save any money for me for college. Not because they were neglectful, but mostly because there weren’t resources for such saving.

Where are we at now? I’m doing just fine, with just one college loan remaining, and my parents are safely in retirement, leaving me without worrying about how they’re going to make ends meet.

This experience, when I reflect on it, makes me question the value of college savings. I do understand the benefits of helping my children through school, especially if they realize the value of it. However, looking at things from a post-college perspective, I’m actually much happier that my parents are safely retired than I would be if they had floated my college bill and were still working.

For me, at least, it makes sense to focus on retirement savings and make absolutely sure that it’s covered before even considering college savings. I think we’re there.

What to Expect from College
Many parents seem to expect that once the kids are out the door to college, they’re well on their way to a lucrative career. Ha. On page 169:

If you are sending your kids to college because you want them to be guaranteed a job, success, or wealth, you will be dramatically let down. In some cases, the letdown won’t take long because as soon as they graduate they will move back in with you. Here me on this: college is great, but don’t expect too much from that degree. [...] Because we have turned a college degree into some kind of “genie in a bottle” formula to help us magically win at life, we go to amazingly stupid extremes to get one.

This kind of talk is anathema to some. How dare someone impugn the value of a college education!

Here’s the thing: the actual college education only teaches you a bit of what you’ll actually need to know in the workplace. The value of college comes in other areas: the relationships you build and the skills and ability to actually get through the minefield. The college degree merely says that you were able to navigate the minefield, not that you picked up invaluable knowledge that will help a business make money.

I found that the “cramming” skills I learned in college didn’t pay off until I had secured a job. The relationships I built paid off helped me get my foot in the door for my first big job interview, but I had other opportunities on the table that weren’t connected at all to those relationships. My actual college degree? It was a nice resume filler, but it was not what got me the job and it was not what helped me succeed when I got there.

Devaluing the Pedigree
Page 171 discusses the idea that where your degree comes from doesn’t matter that much:

In some areas of study and in a very few careers, where you graduate will matter, but in most it won’t. Pedigree means less and less in our work culture today.

The panic that people feel about how they “must” get into this certain college is completely overblown, from my perspective. You succeed or fail based on what you do and the relationships you build, not the environment around you. You can flame out just as well at MIT and at your local tiny state school. You can also succeed dramatically at both if you work at it.

I would far rather have a child that went to a small school without a great pedigree, took advantage of all of the opportunities there, built some great relationships with people, and got good grades in an area they’re passionate about than to go to Harvard and flunk out after two semesters.

Pedigree matters less. What matters more is the individual: did they take advantage of their opportunities, or let them idle around them?

College Lifestyle Adjustments
When I was in college, there were two groups of kids. There were the kids with “helicopter parents” who gave them plenty of cash to spend, seemed to stop by the dorms all the time, and would actually call professors on their behalf. There were also the “free” kids, the ones whose parents dropped them off, came and visited on occasion, but mostly let the kids do their own thing.

I was in the latter group. My parents came and visited regularly, especially when I was a freshman, but success was largely up to me. They never contacted a professor, and outside of a $10 or a $20 bill left behind on occasion, they didn’t provide me with funding beyond buying some of my textbooks as my “birthday” or “Christmas” present. I had a job starting my first semester and I kept multiple jobs throughout my college years.

Dave riffs on this on page 171:

[T]hose precious kids can probably get a good degree if they will suffer through lifestyle adjustments and get a job while in school. Work is good for them. In past generations, students lived with relatives, slept in dorms, ate cafeteria food, and endured other hardships to get a degree.

I do not want the path my children have to college to be incredibly easy. For me, the aspects of college where I actually learned things were the areas where I was pushed and challenged. Having everything paid for makes big swaths of college incredibly easy – and many college students, especially those lacking self-motivation, will fill those gaps with gratuitous wastes of time and money.

Obviously, the path shouldn’t be impossible, but no path that is a cake walk is one worth taking.

Tuition Inflation
College tuition goes up by leaps and bounds. On page 174:

College tuition goes up faster than regular inflation. Inflation of goods and services averages about 4 percent per year, while tuition inflation averages about 7 percent per year. When you save for college, you have to make at least 7 percent per year to keep up with the increases.

In other words, if you want your investment today to actually grow faster than the rate of tuition growth, you need to be making more than 7% on your return.

How can you do that? Well, there’s no guaranteed way to get that kind of return. However, if you start early in your child’s life, you have a period of almost twenty years to watch your dollars grow in a long-term investment, which means you can take on more risk than you could if your kid is fourteen.

I have my children’s college savings almost entirely in stocks (the oldest child is three years old). As they get older, I’ll slowly begin to shift their savings towards bonds and safer things, but for now, the potential growth of the stock market and the time frame I have for saving makes stocks a great choice.

Will Baby Life Insurance Work?
I know of several grandparents who have written to The Simple Dollar asking whether buying whole life insurance for their newly-born grandchildren is a good option. I told them no – I suggested starting their grandchild a 529 if they’re saving for college and if they really wanted life insurance they should buy a small term policy for the grandchild. Dave seems to concur on page 174:

Baby life insurance, like Gerber or other Whole Life for babies to save for college, is a joke, averaging less than a 2 percent return.

Whole life insurance is never a good deal. If you’re tempted to invest in it, consider something different. Instead of dumping, say, $100 a month into a whole life policy, buy a similar insurance policy for $10 or so a month, then invest the other $90 or so into a dedicated investment – a 529, a Roth IRA, or even just a taxable account. Put it into index funds through Vanguard (that’s what I do with my dollars) and just sit back.

You will be ahead. Why? The $90 you’re investing in index funds won’t have commissions taken out – the cost of a typical index fund is about 0.2% a year, while whole life funds have commissions so large that they often eat the entirety of your first few years’ worth of contributions.

If you’re thinking about it, get the information and projections from your insurance salesman, step back, and run the numbers yourself. Compare your investment in that policy with an investment in an index fund like VFINX and see where things wind up.

What Kind of Account Should I Use?
On page 175, Dave points towards a Coverdell account:

I suggest funding college, or at least the first step of college, with an Educational Savings Account (ESA), funded in a growth-stock mutual fund.

An ESA is often referred to as a Coverdell, named after the late Senator Paul Coverdell.

I usually recommend a 529. What’s the difference? The Coverdell has the advantage of enabling you to choose your investments on your own instead of choosing among the plans offered by various states. Iowa’s plan, though, is handled by Vanguard, which is who I would choose, anyway.

The big drawback to a Coverdell, from my perspective, is that it has to be used by age thirty or else given to a younger relative. I don’t like this at all, which leans me towards the 529. Many students who go on to graduate school often wind up in school past age thirty; others may make the choice to go back for a different degree after some years in the “real” world. If I invest in my child’s 529 and they have money left after getting that four year degree, I’d like it if that money sat around in case they chose to go back to graduate school or for another degree later on in life. That option is cut off with a Coverdell.

What I hope for is that my children will earn enough scholarships to cover their undergraduate degrees (I earned enough for a majority of my expenses). If that happens, they can keep that 529 for any graduate work they might do.

Do you have any other thoughts on this chapter of The Total Money Makeover? Please share them in the comments – and feel free to respond to any of my impressions as well. After all, a good book club is all about discussion!

On Saturday, we’ll tackle the eleventh chapter – Pay Off the Home Mortgage.

The New Global Student by Maya Frost is one of those books that takes what you think you know about a subject and flips it on its ear. This time around, it’s the standard route that most high schoolers take towards their education: take lots of AP classes, sweat about the ACT and SAT, apply to hyper-competitive colleges and hope you get in, apply for piles of scholarships, sweat out the FAFSA, then go on to college, where you’ll likely be buried in mountains of student loans.

This process is seen as so standard that many people don’t even question whether or not it makes sense to start pushing our fourteen and fifteen year olds through this woodchipper. The New Global Student argues that this path is not the only path – in fact, Frost argues that there is a much better way to help your children transition into the latter stages of their education. Hence the eye-catching subtitle: Skip the SAT, Save Thousands on Tuition, and Get a Truly International Education.

I fully expect that many people will immediately reject the central premise of this book – that the “traditional hypercompetitive SAT/AP/GPA path” can be easily dumped and a new path to educational success can be found. All I can say is this: time and time again, throughout my college career, the people that seemed to have the best grasp of what they needed to do to succeed and the value they could get out of college were people who came in from outside that treadmill.

Ready to dig in? Here are my impressions of and thoughts on The New Global Student.

One: Creative, Not Crazy – Our Family’s Story
In the summer of 2005, the Frost family sold everything and moved to Mexico for a year, then to Argentina. The family had four teenage daughters, including a high school freshman, a junior, and a senior, and they were unable to speak Spanish when they left. Not only that, the girls also spent years in other countries on yearlong exchanges. They did not worry too much about the perfect GPA and they also didn’t take the SAT. You might think that this would blow up all of the girls’ chances of getting into a good school, but instead it did the opposite – it painted very compelling pictures of young women who were experiencing the world, not just pumping up their numbers. Compelling enough to get them piles of scholarships and admissions to good schools.

Two: Beyond Math and Mandarin
Frost’s argument about why all of this works really boils down to two big factors. First, the diversity of experiences forced the children to learn how to be collaborative. They were constantly being put into cultural and intellectual situations where they had to learn to work well with others in order to get through it. In contrast, high school in America – with the SAT/GPA/AP milestones – are highly competitive without much focus on collaboration. The collaborative nature of their high school experience, in other words, was a huge advantage.

Second, the children were heavily ingrained throughout their lives with five key principles: flexibility (independent thinking, eagerness to explore new ideas and places), awareness (ability to intelligently discuss a wide variety of topics, compassion and respect for others), curiosity (an interest in a variety of areas and the ability to ask questions and investigate those areas), trustworthiness (realization of the vitality of being dependable, strong communication skills, complete things on time), and self-direction (establish and move towards goals, internalized work ethic and motivation).

These aspects combine together to make young people who are ready to tackle anything. In my eyes, it’s a great recipe for parenting in the modern world – I strive for all of these things with my own children, even at their young age.

Three: Fego: You’re Soaking in It!
What keeps our children from having these attributes? Frost points at two huge factors.

First, fear. We fear letting go of our kids. We fear not doing enough. We fear taking charge. We fear slowing down. We fear unstructured time and unstructured activities. We fear falling behind. These fears all lead us towards pushing our children hard down that typical path. Instead, we’re better off hammering in the big principles of independent thought and self-responsibility when they’re young and letting go as much as we can when they’re older.

Second, ego. We want to believe that we’re vital to the process of our children’s final steps towards adulthood. We’re not. Once puberty hits, we’re a support staff – we’re no longer absolutely vital to the process. Similarly, we tie our own sense of self-worth to the accomplishments of our children – if our kids get a high score on the SAT or get an A in an AP class, that’s proof that we’re great and something we can brag about to others, right? Wrong. It’s just ego fuel that actually hurts our kids.

Another interesting argument: our children have huge advantages with the advent of computers, the internet age, and the easy access to information. Shouldn’t this mean that they blow us away in terms of intellectual growth at a young age? The problem is that instead of focusing on actually raising intellectually curious and self-reliant kids, we focus on them getting A’s in classes that likely aren’t pushing them very hard at all. So why should they grow if all that matters is that A? Instead, the book suggests using local community colleges to put your child in genuinely challenging classes that really push them – a “B” in a class that really pushes their work ethic and intellect is much more valuable than a cruise-control “A” in every aspect other than the almighty GPA.

Four: AP, IB, & SAT – OMG!
So many students today stress themselves out over taking tons of AP classes and getting a great SAT score. Frost argues that both of these have less value in terms of getting into college than you might think.

First of all, she argues that so many students are taking AP courses that they’re becoming watered down. With B- students taking the courses and sometimes passing, the material may be at a somewhat lower level than before. On top of that, students are now taking three or four AP courses at once. As a result, many colleges are eliminating the credits they offer in exchange for AP courses. In the end, the value of an AP course is lower than it once was, both in terms of what’s learned and in terms of how colleges value it.

A similar phenomenon is happening with the SAT and ACT. High schools are now beginning to require the exams; meanwhile, community colleges don’t require the test at all and most colleges and universities are de-emphasizing the test in terms of admission criteria. In other words, instead of becoming a useful prep tool for college, it’s become so universalized that it no longer matters as much as it once did.

What does matter, then? How can a student stand out? Frost points towards the IB, which provides a rigorous plan of study available in many different nations that, upon completion, is accepted (and often considered quite valuable) for college admission. Plus, the IB de-emphasizes the pressure of AP classes and the SAT, instead focusing on teaching how to learn and how to collaborate, skills invaluable in a person’s career. Another approach: taking the GED as early as possible, skipping the high school “experience,” and moving on to college early.

Five: Meet the New A Student: Artful, Advanced, Atypical, and Adventurous
Frost argues (quite well, with a pile of anecdotes) that a well-balanced student is incredibly well served by spending time abroad during their high school experience. Such an experience provides a huge deal of personal growth, vastly improves personal awareness, and demonstrates on college applications that a student is committed to outside-the-box exploration.

Here’s the thing: people at this age are passionate and that passion floods in surprising directions. If you stifle that passion and attempt to channel it in a way you see fit, you’re likely to see the dam break and see passion flow in a terrible direction. Instead, offer your child as many positive channels as possible and see where their passion takes them. Putting a study abroad experience on the table certainly does that.

Six: The Boldest Advantage: A Yearlong High School Exchange
Almost all parents feel some strong reticence at the idea of sending their child abroad for a year to study. That’s the “fear and ego” mentioned earlier raising its head.

Instead, a study abroad program – if done with thought and planning – is probably the best move you could make for your child. It’ll help you deal with the “empty nest” problem in a cold turkey way, keeping you from being a helicopter parent when your child moves on. It’ll show your child in the clearest way possible that you respect their independence. Most importantly, though, it’ll give your child a huge dose of personal and intellectual growth as they learn about a different culture and different way of life while also continuing their education. Few things set up a student better for college than such an adventure.

How can you make the most of this? Go early (sophomore year is a good target), go long (a full year instead of a semester), and go challenging (a place with a different language and a different culture).

Seven: How to Save Thousands on College: Study Abroad
A similar philosophy applies in college – go early (sophomore year is a good target), go long (a full year instead of a semester), and go challenging (a place with a different language and a different culture). A study abroad program while in college also has an additional benefit: it’s cheap.

Many people scoff at this, pointing toward expensive study abroad packages offered by schools. The truth, though, is that those packages are often glorified travel packages – instead of immersing the student in another culture, it actually isolates them in a vacation-like bubble, housing them with other native English speakers and providing every possible accommodation. Very little actual value is gained.

Instead, consider applying directly to the university you desire to attend as an independent international student. You’ll live in the same housing as students there and will be fully immersed in the culture instead of isolated in a “submarine” of your own culture. Plus, the price is reasonable – often very reasonable. In many cases, it’s far less expensive than the price you’re paying for university at home.

Eight: The Full Family Deal: Sabbatical or Sell-It-All?
A third option – one that works well if you have multiple high-schoolers at once – is to simply spend a year abroad, enrolling your kids in school in that country for a year. This will be something we consider circa 2019, for example, when we have two children in early high school.

Obviously, this doesn’t work for everyone, but it does have certain advantages. If you can find a job in your career in another country, it’s a huge resume booster. If you’re engaged in a creative career, immersing yourself in a different culture can pay real dividends.

This is something that’s at least on the radar for us in several years. If my wife can get a job teaching English in another country for a year, we would be quite interested in pursuing this. I can in theory write from anywhere, too, so that also helps.

One good compromise – a summer-long sabbatical. Rent an apartment in a foreign nation for three months and see how things go. Engage in every activity you can while there – not tourist stops, but the way of life that people have there. Shop at their stores. Eat their food. Learn their language.

Nine: The Get-Real Guide for Bold Parents
The final chapter is something of a clean-up of the many issues brought up by this book. How do you handle the criticism from others who say you’re sinking your child’s chances because you’re not following the “normal” path? What about their safety?

Each of these questions has a very reasonable answer. As for the criticism, such study abroad programs actually vastly improve chances of college acceptance and of growing a student to the point where they can really take advantage of college. With the safety issue, high school students are often more safe abroad than at home – no drivers under the age of eighteen, students are protected from anti-American sentiments by their youth, and students are naturally more cautious because they’re in unfamiliar territory.

Is The New Global Student Worth Reading?
I’ll be honest with you: I’ve been questioning the absoluteness of the high school/SAT/college application/expensive college pipeline for a long time. I’m actually in favor of delaying college for a year or two after high school, allowing other life experiences to fill in the gap. Why not let a student spend a year working hard at a job or for a non-profit in between high school and college, learning what it actually means to earn a paycheck and make ends meet and what the value of a college education actually is. I know I certainly would have benefited from such a sojourn. I’ve also been thinking a lot about traveling abroad for an extended period when my children are older, perhaps spending a year in another country and allowing them to attend school there (Great Britain, perhaps, or maybe a nation where we don’t speak the language natively).

Reading The New Global Student actually knocked down the idea of the standard pipeline even more. It’s loaded with food for thought for any person with children school-aged or younger. Even if you consider the general idea to be nonsensical, there’s enough material in here about how to set the path for your child to excel in their educational and professional career and save money along the way that it’s at least worth a read for specific tips.

For us, it’s opened the door to a lot of discussion about what we can do as parents to prepare our children for this ever-shrinking world.

If you have kids, you owe it to yourself to read this one. It’ll really make you think about their education and how simply connecting the dots might not be the best route.

Transferrable skills are often left by the wayside in competitive college majors. In order for a computer science major to get a leg up in the post-graduation workplace, for example, it’s often preferable to jam in another programming or algorithms class than it is to insert another public speaking class. Even if the program does require classes on transferrable skills, those classes are often looked down upon as “blow off” classes – ones that have to be finished in order to get down to the real classes within the major.

I believe this is a mistake. As change in this world accelerates, people are spending less and less of their life strapped to one particular career. They have the freedom to choose other avenues – starting a new career, starting their own businesses, and so on. In that environment, transferrable skills become more and more valuable. In fact, a well-polished transferrable skill makes for brilliant resume fodder no matter what your job – communication skills and leadership experience are a plus for almost any post-college job you might apply for.

Obviously, course loads often aren’t very flexible in a college environment, so my recommendation would be for college students to seek out other sources for picking up and mastering transferrable skills – extracurricular activities, internships, and other sources. Beyond college, transferrable skills are useful for everyone to work on at any stage in one’s career

Here are six significant areas of transferrable skill well worth working on, both to improve yourself and to prepare for your future.

Leadership Can you actually lead a team? Can you herd a group of people towards a greater purpose? Are you self-motivated enough to do this? Can you set goals and actually achieve them? Can you plan large projects and push them forward?

How can I get it? Join a community or student organization and take charge of a large project. Later, run for a leadership position within that group. The best way to learn leadership skills is to learn them in the laboratory of life, and organizations provide the perfect opportunity.

Administrative skills Are you able to prioritize the tasks in front of you? Can you analyze information and then describe it in layman’s terms for others to understand? Can you interpret rules and use them effectively?

How can I get it? Get involved in the planning of as many large projects as you can. Project planning teaches you many of the administrative skills you’ll need in life. If there is a large project, volunteer to help with the planning – if there’s already a planner in place, learn everything you can from that planner.

Information management Can you actually research a topic? Can you take a pile of research and use it to answer worthwhile questions? Can you communicate those facts to others? Can you manage a budget and handle financial records? Can you use a wide variety of computer programs?

How can I get it? If there are opportunities to present anywhere around you, take them, even if you aren’t familiar with the topic. Of particular use are topic areas where you’ll have to do some research in order to get the presentation right. Another great avenue is to volunteer to be the secretary or (particularly) the treasurer for a group. Such activities will require you to carefully manage a large amount of information on behalf of a large group.

Creativity Can you come up with interesting ideas of all kinds? Are you good at coming up with marketing ideas? Are you good at formulating the next step in a process? Are you good at creating visually appealing layouts?

How can I get it? Create some websites for groups – and learn how to do it along the way. Whenever there’s an opportunity for brainstorming, get involved and throw out ideas. Creativity is something that is best learned by practice – so practice it.

Interpersonal communications Are you willing to speak in public? Can you communicate your ideas well in writing? Can you lead a conversation? When you communicate with others, do they understand your ideas?

How can I get it? Participate in conversations and meetings instead of just sitting there. Volunteer for any and all public speaking opportunities that come your way. Volunteer for difficult and arduous tasks of documentation – that’s the best way possible to practice writing to communicate information.

Personal development Can you use the experiences in your life as a source for growth and personal change? Do you have a personal moral code that you actually follow? Can you effectively and honestly evaluate the strengths and weaknesses of others (both people and things)? Can you deal with stress?

How can I get it? Don’t shy away from challenges – step up to big projects. Keep a journal and use it to explore what you really think about things, particularly the people around you.

Every moment you spend learning the above skills is a valuable moment. You’ll find yourself returning to these skills time and time again throughout your life – and they’ll provide a surprisingly strong backbone for your career and personal success.

I manage a federal TRiO grant at a community college in Arkansas. If our funding proposal is approved again next year, we are required to include programs on financial literacy, as required by the new Higher Ed Authorization Act. We currently offer a money management fair and one or two workshops per semester. However, I’m really interested in your thoughts on how we can offer a full program to the students at low costs. A course in financial literacy would be the best, but I doubt that many would use their time to attend a class that is not required.

I live in a rural area of Arkansas that is very poor. Most of our students qualify as low income and are also first-generation college students. Many of them take out student loans to survive. Large percentages of them don’t make enough money to pay back these loans after they are out of school.

I decided to tackle this question because I know that many readers of The Simple Dollar are involved in situations just like Maggie. I get lots of requests to reprint articles from The Simple Dollar for classes like this, for example.

First of all, I agree with Maggie’s point that a full course in financial literacy at the community college level likely won’t attract a huge amount of interest. Most potential students are either too busy to take a class not directly related to their goals or won’t be interested in the topic – the very people who could actually use the help. I’m also going to assume from her email that her primary goal is to reach the largest number of students possible.

So what’s the solution here? My gut feeling is that a weekly seminar/meeting series, each focused on tight, individual topics, would be the best way to go. Whenever I think about how to present an idea, I break it down into three pieces: getting someone’s attention, keeping that person’s attention while you’re making your point, and making sure that the point sticks with them when they leave. So, let’s look at Maggie’s situation through each of these pieces.

Getting People’s Attention
In other words, how are you going to get people in the door to pay attention to these topics? It all comes down to the advertising and the ease of attracting people.

Make it as easy as possible to attend. Examine the schedules of people that you view as likely to attend such events if they’re free and plan accordingly. One good time to have an hour-long seminar/workshop is around lunch time, where it can be scheduled as a brown bag lunch. Another accessible time is in the early evening.

Also, you should not restrict people from attending. It is fine to have a “carrot” in place to encourage people to come back, but don’t create a situation that keeps people from attending or “punishes” people who miss a session or two. The best way to do this is to make each topic stand completely on its own, with as little reliance as possible on other topics.

Give a very obvious “hook” to get people in the door. If you’re teaching personal finance topics, the best way to do this is to directly translate the topic you’re going to present into dollars and cents. Find a way to make your lesson as tangible as possible, figure out how much money this will save people, then use that as part of the salesmanship of the session.

One great example: let’s say you’ve decided to do a session on reducing one’s utility bills. Your “hook” could be to provide everyone who attends a CFL light bulb that they can take home and install (for some more thoughts on how to make this work, see below). Then, when you advertise, you can directly state that this session includes a giveaway that will reduce their energy bill by $30. Make that the attention getter in any promotion that you do.

Make sure as many people know about it as possible. Once you’ve got that key attention getter, broadcast the news of this session as far and wide as you can, using that hook as the lead. Send out emails to any mailing lists you have saying “Want $30 more in your pocket? Attend ….” Make flyers leading with that idea. Make it very clear that anyone can attend, and include the time and location (and maybe even a map, if that’s necessary) on the flyers and emails.

Keeping Their Attention
Once you’ve got these people in the door, what can you do to keep their attention?

Make everything you say as tangible as possible. Everything you speak of should be as applicable as possible to as many people in the room as possible. Let’s say you’re doing a session on how to maximize your food dollars. Instead of speaking in intangibles, break out your own receipts and coupons. Go through the whole thing step by step – reading flyers, clipping coupons, making a meal plan, creating a shopping list – and actually do it instead of talking about it. As you’re going along, focus on meals and items that the people in the room might actually buy. Focus on simple meals that they might actually prepare at home.

Get them involved. The more audience interaction, the better. For the food lesson, ask people in the room what they’re going to have for supper tonight. Get several ideas, then use that as the basis for constructing a meal plan. When using the flyer, pick out a few foods from the flyer, then get people in the audience to name dishes they like that use hamburger (or whatever you discover in the flyer). For other sessions, convince people to bring in bill statements, credit cards, and other things that they’re willing to share. Bring in your own, too.

Focus on the big points, not the minutiae. Reduce each point you’re trying to make to as few words as possible. The rest of your talking should be focused on tangible examples. When you get lost in the minutiae of the larger points you’re trying to make, you lose the people in the crowd, too.

Sending the Message Home
You got them there, you got them interested while they were in the room, but now they’re about to leave. What can you do to make sure that they take the idea home with them.

Make sure they can take something home that encourages action. A simple bullet list of five or so direct actions they can take from the class can be incredibly useful. Don’t make it overly complex – just give enough so that they can actually do it on their own, no more. If a page is too filled with words, busy people will overlook it. If you feel the need to include lots of words, use brief headers to make sure the main five (or so) points are very clear.

Get sponsors. Another clever technique to make the class tangible is to give away something to each attendee (or to each person that participates). Of course, a good giveaway has costs. The best way to mitigate those costs is to seek out a local sponsor.

Remember the example above of giving out CFL bulbs? Try contacting the management at your local Home Depot or Lowe’s or local hardware store. Explain to them that you’re doing a class on how to save energy and suggest that they donate a number of individually packaged CFLs to the class. To each one, they could attach a small flyer for the store that also works as a dollar-off coupon on another CFL. For them, this is a great advertising promotion, as you’ll be explaining to the audience how they can save money with these bulbs and their business name will be attached right to it. For you, it’s a great way to obtain something to hand out that also serves as a tangible reminder of the lessons from the class.

Remember, personal finance is a topic that many people find tedious – or they simply don’t want to hear about it at all. The best way to overcome that is to make it appear quite easy to apply personal finance tactics in their lives – and there are a lot of subtle ways to do just that.

How do you feel about this, readers? Is this the type of event that would be interesting to you? Would you be excited if something like this appeared in your community?

Just a handful of gifts fell into a third category, and those were the most memorable. Great sentiments on handwritten notes. Long dinners with real conversations. Thoughtfully-given books with some suggested passages to start with. A nearly-invisible helping hand to get my career going on the right path.

To put it simply, the best graduation gifts for me were ones that were thoughtful, ones that were inspirational, and ones that actually opened doors for me.

For the most part, these gifts didn’t cost the giver very much at all in terms of money. Instead, the value of the gift was delivered via time and thoughtfulness, and that always means much more than a twenty dollar bill stuffed inside a forgettable card.

The best part is that most great graduation gifts won’t cost you much money at all. Instead, they require some thoughtfulness and some planning. Here are four things to think about as graduation season approaches.

A Thoughtful Conversation
The best way to understand what exactly a graduate is thinking about for the future is to sit down with that graduate and have a real conversation. A great way to do this is over dinner – invite that graduate to your home or take that graduate out to dinner. If that doesn’t work for you, a telephone call also works.

The key is not to bury them in advice and your own anecdotes. Instead, you should seek to get the person to talk about what they’re thinking about doing in the future. Some good questions:
+ What are you going to do after graduation?
+ Where are you going to college?
+ What are you thinking of majoring in?
+ What do you enjoy doing?
+ Do you have a job lined up, or any prospects?
+ What would you like to be doing?

Listen to what’s being said. Many students feel an urge to tell a particular story about their dreams, aspirations, and post-graduation plans that doesn’t really reflect their true story. Listen carefully and try to seek out the things that they really enjoy.

More important, give encouragement to the graduate. Tell them that they can do anything. Offer a few specific pointers, but don’t drown them in advice. Let them do most of the talking.

Don’t drown them in personal anecdotes, either. A few are fine, but the focus is on what they’re doing, not on what you did.

Your goal here should be to figure out where the graduate really wants to be going – and whether or not they’re on their way. Pay attention. Listen to what the graduate is saying. Be positive about the things they’re passionate about. Let the graduate do most of the talking. And, when you’re done, make sure you’ve taken away two or three things about the graduate’s dreams and future that are clearly true and that the graduate is clearly excited about.

A Telephone Call
Once you have that source material, look through your contacts. Do you know any people that are doing anything close to the area toward which the graduate is focusing? Call them up. Explain what’s going on. Ask for their thoughts.

If there are opportunities for the graduate, pass them along. Let the graduate know of any opportunities you discover for them. Even better, if you have the chance to make a positive case for that graduate, do so. Grease the rails for them so that those early, tentative career steps go quite easily.

Most likely, though, you’ll gather some useful insights about their direction and you might also gather an additional contact or two.

Take all of the information you discover and deliver it to the graduate. Tell them that you called an old friend of yours who’s doing that kind of work and here’s what he/she had to say. Pass along any useful contact information if you can.

In short, help the graduate (if you can) by getting their foot in the door. Every bit helps, and if you can help that graduate open a door, you’ve changed their life.

A Single Key Reflection
Taking together all you’ve learned about the graduate and where he/she is headed, spend some time thinking about the one piece of advice you’d like to give that student. Don’t just go with your first instinct – don’t be afraid, even, to jot down several ideas and think about them, but stick with just one – the real home run.

The graduate won’t remember the $20 bill you stuck in the card. But they might remember something insightful and useful that you wrote, especially if it clicks with them. That $20 will be lost in the mists of time, but a useful bit of knowledge pays dividends forever.

Surround that one piece of advice with some strong positive reinforcement. Let the graduate know that you see great potential in him/her and that you look forward to their great future.

Words like this can really have an impact. I still remember the advice and similar sentiments that people gave to me in graduation cards, but I don’t remember who gave me $10 and who didn’t a decade ago. The advice stuck with me and helped me to grow – a truly great graduation gift.

A Follow-Up
Most people limit their congratulations and help to the graduate to the days around the actual ceremony. When that graduate will probably need help, though, will come a while down the road.

Touch base with the graduate a few months after graduation and see how they’re doing. Are they still struggling with finding their place? Or have they found a happy home?

You may find that you can offer much more help early in their career than at their graduation. Encouragement can be key in the midst of early challenges. A little helping hand can be much more useful after the glow of graduation has come off and the realities of professional life are starting to appear.

If it seems potentially useful, get ahold of your contacts again and see if anything has changed. Are there any new opportunities? Pass these along to the graduate.

Here’s the big thing: graduation and entry into professional life is often a huge shock for people, but the support they get usually just comes in a burst at their graduation party. If you really want to give something with impact, give them time, both before and after graduation, and help pull a few strings for the graduate. It won’t cost you much at all – and it can make all the difference to a motivated graduate.

Good luck!

But what’s a 529? Erin writes in with a typical query:

You write all the time about saving for your kids college education in a 529. What is that? How do you do it?

Let’s dig in.

What Is a 529?
A 529 plan is simply an investment account with a few tax advantages that make it very useful for saving for higher education. To be specific, any interest or investment income earned in the account that is then used for higher education is exempt from federal taxes (and from state taxes in many locations). In some states, the contributions themselves are deductible from state taxes.

There are two types of 529 accounts: prepaid accounts and savings accounts. Prepaid accounts are used to purchase tuition “credits” at certain institutions at current rates, so, for example, you might be able to purchase a semester’s worth of tuition at East Overshoe Tech at the current rate of $10,000 a semester, but in fifteen years when your child is actually attending the school, tuition might cost $20,000 but you won’t pay a dime – you’ve already purchased that semester.

On the other hand, savings accounts are basically just investment accounts – you contribute money, it goes into the stock market or into bonds, and any gains you earn stay within the account. When the account’s beneficiary goes to college, the money can be used at any school. In other words, savings-style 529s are more flexible, but they often don’t return quite as well (since higher education tuition growth is usually greater than the stock market).

Most states have their own 529 plans with specific rules; however, many states have plans that are open to people from other states to contribute.

Another important aspect of 529 plans is that the beneficiary does not control the account – the person that opens the account controls the money. This is a great protection, as it keeps overzealous children from “cashing in” on their college savings.

How Do I Do It?
My investments go through College Savings Iowa. This offers me a number of specific benefits.

First, as an Iowa resident, my contributions to my children’s plans are deductible from state income taxes. Largely because of these contributions, we received a refund on our state taxes this year, while we had to pay in a small amount on our federal taxes.

Second, College Savings Iowa uses Vanguard to manage their investments, and Vanguard is a company I already trust with my retirement savings and other investments. The plan offers quite a few stellar investment choices – I’m currently using the “aggressive” target investing plan for both of my children, which is a low-cost collection of index funds that strive to earn large returns.

Third, the plan is tied in directly with Upromise. Once I signed up with this program, a small percentage of our credit card usage goes straight into those 529 accounts. It’s usually a small amount each month, but this money is essentially an additional free contribution to my children’s college savings plans.

How Do I Sign Up?
First, you need to decide which plan to use. Most states offer their own 529 plans, but they all vary quite a bit. You should start by seriously considering the plan in your own state, because many state plans offer income tax breaks for state residents – you can find your own state’s plan by Googling your state’s name and 529.

If your own state doesn’t offer a plan or only offers a plan you don’t like (such as a 529 that only allows prepayment of tuition to universities you don’t like), look at plans available in other states. Liz Pulliam Weston at MSN MoneyCentral has identified five great state plans, for starters.

Once you’ve signed up, you’ll set up an automatic investment plan that draws whatever amount you specify each week or month from your checking account and puts it away for your children’s education (or your grandchildren’s education … or your own). It’s quite easy, and it’s a great way to get started with college savings.

Luckily, I found three mentors while there that turned things around for me, showing me what I needed to do to succeed, providing me with advice when I needed it, and pushing and prodding me to move forward.

My first mentor was a professor who was also my academic advisor. He took a distinct interest in me (likely because I seemed so lost, but at least I was somewhat aware of it) and helped me find my first job (in a public computer lab) and then, later, my second job (in a research lab). Over the years (even after I graduated), we kept in such close touch that I wound up being one of the speakers at his retirement ceremony. He took me under his wing as an aimless college student and gave me direction and motivation.

My second mentor was a system support specialist that was charged with “overseeing” the computer lab where I worked. We mutually helped each other out several times and, eventually, he not only introduced me to my third mentor, but he provided a lot of the motivation I needed to launch a writing career. I still swap messages with him all the time. He helped me refine my direction, find the right place to continue to grow, and provided continuous advice along the way.

My third mentor was a professor who was my direct boss for six years. He would assign me projects that were vaguely defined and would require me to really push myself and find new skills, and he dropped just enough carrots along the way to keep me growing. He encouraged me to add a second major (computer science) to complement my first (biology). As I neared graduation, he actually created a full-time position for me in his lab that lasted for two years, then he helped me transition that experience directly into a federal job. He opened the door to my career.

At the same time, though, I interacted with a lot of professors, advisors, and others who didn’t seem to click with me at all. They provided very little help along the way. Often, it was clear that they were just telling me things to get me out of their way. Sadly, I found that most college students tend to wind up with a negative perspective of professors and advisors in general because of these experiences.

How does one separate the wheat from the chaff? How can a college student find a good mentor that can help him or her on the path to a good career – and avoid the ones that provide little or no help? Here’s the game plan for doing just that.

Know what you’re passionate about. No mentor in the world can help you if you don’t bring some of your own passion to the table. If you’re not enthusiastic about anything that overlaps a potential mentor’s enthusiasm, you’ll almost never click in any significant way.

So, find what you’re passionate about. Get started on this as early as you can, so that you can use this information to select a major that best matches what fuels your fire.

Find people at the school who share your passion. The best way to start is to look for extracurricular activities that relate to that interest – and I use extracurricular in the broadest sense of the term. Join clubs. Go to public lectures. Attend every optional program and session that you can that relates to your interest.

What you’ll begin to find is that there is a consistent group of people that attend many of these events. Professors, department heads, graduate students, and strongly motivated undergraduates will be in that group, and what they all have in common is an interest in those shared topics and the energy to reach out to discover more. Somewhere in this group is a great mentor for you.

Get in the mix by asking questions. Standing in the background won’t do the trick. You need to participate in the discussion. In almost every environment, the best way to start is to ask questions. If you don’t know, ask. Listen. Ask some more.

Eventually, you’ll start finding people in this environment that you click well with. You’re getting closer to a great mentor – those people that you’re clicking with are conversational and share your passion. When you begin to identify some potential mentors, ask around about them. Do your own research, too – Google the person and see if you can find information about them.

Ask. The best approach is usually to simply ask if the person you’ve identified as a potential mentor has some time to meet with you and answer some questions. Any potential mentor worth his or her salt will happily agree.

When you meet, simply lay it out there. Talk what you’re passionate about and why you’re passionate about it and simply ask how you can get going with regards to following this passion as a career. What can you be doing now? What can you be doing in the future?

Any number of things can come from a meeting like this. There might be an opportunity for paid work or for volunteer work. The person might be able to point you towards another person or situation that might be more appropriate for you. Other times, the mentor might just be a source of good knowledge.

If you get an opportunity to prove yourself, make the most of it. Do your assigned tasks as well as you possibly can. Ask questions – but hold back on the “stupid” questions and find the answers to those yourself.

You’ll find that, if you’re passionate and quite willing to utilize that passion, a good mentor is continually willing to offer good advice, answer the questions you may have, and often open doors for you, sometimes in unexpected ways.

Good luck!

Clark’s main reason was pretty simple: people can’t receive scholarships or student loans for retirement. Obviously, that’s true: my children will be able to get all kinds of assistance for their college education, while I won’t be able to get any sort of aid for retirement. Not only that, if your child does have to get into debt for college, they’ll have many, many years to earn their way out of it, whereas when the children go off to college, you won’t have too many years to keep saving for retirement.

On paper, the argument does make a lot of sense. On paper.

This equation leaves out an enormous human element. For many people – myself included – retirement isn’t the big ultimate goal. I might like to think about retiring a bit early, but my big motivation in life isn’t related to retirement at all.

My big plans right now involve guiding my children into adulthood with enough life skills and opportunities that they can basically choose to do anything they want – and run with it. In most ways, my financial choices revolve around that motivation. I started 529 accounts for my children before they were even born (starting them with myself as beneficiary, then changing it). I’m already investing in educational opportunities for them.

Yes, I’m saving for retirement. However, I could be saving substantially more for retirement if I were not directing significant money to my children’s future – and I don’t just mean college savings, either. Other opportunities, such as camps that revolve around their interests, international trips, equipment and instruments they might need, and so on are also important – and by planning for them and saving for them now, I reduce the chance that changes in my career will affect the opportunities that my children have.

Clark’s advice is correct on paper, but it leaves out one of the biggest aspects of personal finance: setting your own goals. Most of my goals revolve around my children – thus, my savings and investment choices revolve around what paints the best future for them.

The lesson here is not every “rule” of personal finance applies to every situation. Instead, you should figure out what your own goals are and then seek out advice on how to make those goals actually happen.

Good luck!

One of the first major articles I wrote on The Simple Dollar was a ten-part series that amounted to my personal financial biography – if you’re interested, it starts here. Reflecting back on a lifetime of financial mistakes, I always come back to the idea that my college years were when things really went off the rails for me. Those first years of financial independence, where I had no idea what I was doing with money and no sensible guidance to help me out, caused me to develop a lot of atrocious money habits. While I covered a few of them in the biography, I felt that I only really scratched the surface when it came to the mistakes that I made.

Here, then, are the seven biggest financial mis-steps of my college career. I sincerely hope that you don’t make the same ones.

1. Going in the door without a clue.
When I went to college, I not only had no idea what I wanted to study, but I had absolutely no idea what the experience would be like. The end result? I wasted a lot of time in classes that I didn’t really need. I spent time blindly involved in activities and social events that never really clicked with me. I built at least three distinctly different groups of friends during my college years – and watched them all dissolve in a blink. I failed to really get involved with anything interesting until very near the end of my college years.

What I should have done More than anything, I wish I had spent my junior and senior year in high school doing some real soul searching to figure out what I wanted to do with my life. I also wish I had asked everyone I knew that had attended college for advice on the experience just so I knew what things people consistently found valuable. I didn’t do either of these things.

2. Extending my stay for two extra years.
After four years, I had actually managed to complete a degree within the years covered by my scholarship. Sounds like a perfect time to start a second one, huh? I spent two more years in school – paying out of pocket via student loans – earning a second degree.

What I should have done Again, if I had properly explored my interests early on, I would have had a much better idea as to what I should have studied in college. Similarly, I should have ignored any and all advice relating to what major you should or shouldn’t have if you want to earn a good income. Earning a good income relies much more on building diverse and marketable skills, not what you majored in – what’s actually important is that you completed a degree and learned some generally useful skills along the way.

3. Failing to take advantage of all of the non-classroom opportunities.
I spent much of my extracurricular time in college wasting time. I played piles of video games, hung out with a lot of people that I barely saw again after college, watched piles of awful movies, and thoroughly explored the outer boundaries of wasting time. While “downtime” is a healthy thing in reasonable amounts, I certainly burned through more than my fair share of it.

What I should have done I don’t entirely regret all of the time I spent involved in such frivolous activities – some total leisure time is good for everyone’s mind. However, I should have spent at least some of that time involved in activities that were simultaneously fun and also enriching in some fashion, such as seeking out interesting organizations to participate in or getting involved with volunteer projects or actually building some connections and friendships with people on some version of my own career path. I didn’t do any of that, and it was a profound misuse of my time and also of my financial investment in school.

4. Signing up for a credit card – then using it with reckless abandon.
During my second year of college, I signed up for a credit card at one of those little booths that credit card companies like to stick up on college campuses. I don’t remember exactly why I signed up – it probably seemed like a good idea at the moment and I likely got a free t-shirt out of the deal. The real problem came later – I decided to start using it a little. And, rather quickly, a little turned into a lot. By the time I left school, I had thousands in built-up credit card debt.

What I should have done Signing up for the card wouldn’t have been a huge mistake if I had a plan in place for using it. I should have simply used the card to pay for textbooks each semester, then lived off of my stipend and the money I made from a part-time job. That way, I could have built up my credit in a positive fashion and not left college with a bunch of needless consumer debt that required me to keep writing fat payment checks for years.

5. Not taking my classes with enough seriousness.
For the first few years of my college career – actually, for all the years except for my last one – I believed I could coast through things using the awful study habits I had built up during my high school years. In other words, I believed that I didn’t have to study for tests and that I could handle assignments by doing them the night before. Both assumptions were absolutely ridiculous – and my GPA suffered greatly for it. My final year’s GPA was almost a full point higher than my cumulative one – and my final year was the only one that I used healthy study and assignment habits. That GPA turned out to be a barrier against getting into graduate school in my area of interest – and it also didn’t help with my initial job hunt.

What I should have done I knew from the start that my study habits were awful, but I was able to squeak by with those habits. Instead of just squeaking by, I should have put serious effort into picking up solid habits from the start – and there were certainly opportunities for it. Simply using better classroom and study habits would have substantially raised my GPA – and likely substantially raised my short term post-college earnings and opportunities.

6. Not figuring out how to manage my money right off the bat.
For my first four years in college, I used a check cashing service to cash my paychecks from my part-time job, and I used money orders to pay bills. Seriously. I would dock myself 4% for the check cashing fee, then I’d dock myself almost another dollar for each “check” I would write. Even when I finally got a free checking account at a local bank (with free checks!), I didn’t even try to keep the account balanced at all. Instead, I mostly just relied on memory and whatever balance the ATM told me I had in the account. The end result? Lots of ATM fees and more than a few overdraft fees during those heady college days.

What I should have done I should have signed up for that free checking account on the first day of school. If I were doing things all over again, I’d sign up for something like ING’s Electric Orange so I could do most of my checking account business purely online and have any paychecks directly deposited there. That way, I would avoid almost all of the stupid fees I paid, have access to all of the information about my account all at once, and also earn some interest on that balance.

7. Living large off of my stipend and student loans.
During my first four years of school, I actually had a surplus of scholarships that enabled me to receive a small living stipend while I attended school. Yet I managed to spend all of that, all of the money I earned from my part-time work, and built up some credit card debt as well. During my final two years, I took out the largest student loans I could so that I could continue to have that “stipend” money and keep living that lifestyle.

What I should have done I should have actually attempted to live the cheap college student lifestyle. There was always tons of free entertainment available around campus, and plenty of free food if you attended group meetings. I didn’t really need all of the electronics I bought, either – most of them were scarcely used at all. Instead, my focus should have been on trying to build up some savings my first four years so that my student loans would have been lower my final two years – or, even better, that saved money could have been a good start on my post-graduation life had I been able to actually graduate in four years.

What did these mistakes add up to? When I left college, I had over $30,000 in student loan debt (unnecessary), two degrees (one of which I didn’t really use at all), several thousand in credit card debt (totally unnecessary), a subpar GPA (easily avoidable), and only a few good connections and friendships that lasted into post-college life (although the few I had turned out to be very good ones). In many ways, I’m still paying for those mistakes, many years after graduation.

Don’t let it happen to you.

We grow up. Many of us get married. Some of us have children. And when that happens, everything changes. You realize that you’re responsible for the positive upbringing of a child, and you can’t simply wing it any more. You have to plan for the future now, because your child can’t simply make it on his or her own if you can no longer provide.

I went through this very process myself as a young adult. When I was single, I didn’t really worry about the future much at all – if I were to suddenly drop dead, it wouldn’t really have much of an impact on the rest of the world. When I got married, I occasionally thought about how my passing would affect my wife, but again, it was not something that ever seemed pressing.

When I had children, though, everything changed. As I held my children in my arms and witnessed how defenseless they were, I quickly began to realize that I needed to plan for their future – and protect them in the event of the unthinkable.

This is a resolution that many new parents make. Their heart is in the right place – they sense that they need to protect their kids – but actually taking the steps to ensure protection can be harder than it seems. Thus, like many resolutions, this one falls to the wayside along the road paved with good intentions.

Don’t let it happen. Here are some direct actions you can take to protect your family’s future right now.

Life insurance A simple term life insurance policy for yourself (and for your spouse) to cover your child-rearing years can go a long way towards ensuring the financial stability of your children during their childhood. For younger adults (such as those with young children), term policy rates are pretty inexpensive – don’t hesitate to shop around.

How much should I get? There is no set recipe to follow in terms of amount, but it’s probably good to have a policy worth at least enough to pay off all household debts plus provide at least a couple years’ worth of your income to the family.

Long term disability and care insurance Many people overlook these types of insurance, but much like life insurance, they’re very low cost for a young adult and they provide protection for your children against an unthinkable situation. Much like life insurance, shop around for both kinds of policies and know what they cover.

Your will This is often something that’s done in conjunction with one’s spouse. The major decision that most people have to make with regards to their children is who you wish to assign guardianship to in the event of both of you passing.

Don’t take this decision lightly. Spend some time considering the options available to you, and don’t be surprised if you come to an unexpected conclusion in the end. You may find that as you consider the situation more deeply, the factors of highest importance to you in choosing a guardian actually change, and that may actually change who you would choose to be a guardian for your child.

The actual process of creating a will is simple and only takes a brief session with a lawyer (I tend not to trust do-it-yourself will packages). Even if you’ve not considered the question above, call now and make an appointment with a lawyer you trust. That way, the date is set in stone and you’re sure to go through with it.

College education planning Another important element for parents to consider is their child’s college education. Do you intend to pay for all of it, just contribute a portion of the cost, or have the child pay for the cost? Different parents have different philosophies when it comes to this crucial decision, but if you decide to help, you should start as early as possible.

How? The most straightforward route – and one that has solid tax benefits, too – is to open up a 529 college savings plan for your child. 529 plans allow all interest earned to be tax free if it’s used for educational costs, and often the contributions are tax-deductible on one’s state income tax. Use Google to identify the plans available in your state. Most plans offer a customized investment vehicle that starts off aggressively when the child is young, then scales back to more conservative investments as the child grows older and approaches college age.

The big dilemma will be choosing how much to contribute. I recommend setting up an automatic contribution plan where you contribute a small, reasonable amount each month. This way, once you’ve set up the plan, you really don’t have to actively think about it too much – it just slowly builds up for your child over time.

After taking a serious re-evaluation of my life over the last year, I finally realized what I should be doing with it. I want to be a nurse. I attended college several years ago, but I majored in English Lit and didn’t finish my degree. How can I plan for this financially?

Going back to school is a pretty common goal that people have. In fact, my mother-in-law went back to nursing school when she was in her forties because, after many years working in a research lab, she realized she had a calling and a gift to interact with and help people.

Along those same lines, I have actually considered going back to school to work on a degree in political science, as I’m moving more and more towards being involved in local and state politics. I’m mostly interested in such a degree to help me build upon the connections I’m already making in the local community and get a firm grounding in how politics work.

If you’ve come around to the idea of going back to school in order to reboot your career (or extend it), here are the steps I’d take along the way.

First, do the personal investigation to find out if this new career you want is really right for you. Talk to people that are already in the career that interests you and simply tell them your story. Ask what their actual workdays are like. Ask about the education that was required for them to get their job.

If you’re heading towards a completely new career track (as I would be if I followed up on the political idea), it’s a good idea to contact multiple people at various points along the career track to get some input. For example, for a political person, you might want to talk to campaign staff, state legislators (and their staff), members of local boards, and so on.

If you can, dabble in this track in your spare time. Do volunteer work, or get involved in organizations where you can meet people who are involved in this career track.

You may find out from this alone that the career path isn’t for you. I know, for example, that I’ve mentored at least one writer who decided that the day-in day-out research and creative efforts were too much for him.

Don’t do this lightly. The decision to leave your current career and find a new one is a serious leap and likely a very expensive one. Don’t simply jump from one career that doesn’t excite you into another one. Find out as much as you can from the outside first, until you’re highly confident that this new career is the right one for you.

Next, critically evaluate the educational needs of that career track. What sort of schooling or degree do you actually need to get your foot in the door. For example, with nursing, a degree is essentially required in order to practice professionally, but with politics, a degree is far from required to get involved – it’s merely a way of building a strong base of understanding.

The way to do this is through research and also through asking your contacts what education is required. Look at job listings and find out the minimum requirements for the types of jobs you would apply to at the start of the career path. What do you need that you don’t already have?

Once you’re sure you want to follow this new path and you know what you need to do, then start worrying about the costs of education. Start evaluating institutions that are available to you and get a realistic cost estimate.

Depending on the amounts, you should start saving cash in a 529 plan set up to match the target date that you expect to start attending school. If the date is close, the cash will be invested largely in very safe investments (cash, bonds, etc.), but if you know that school is a long time off, the money will go into more risky investments with a larger upside (stocks, real estate, etc.).

There is one thing that’s more important than anything else along the way, though.

You have to get started. Now.

If you have a dream burning inside of you, don’t just let it sit there and idle. At the very least, take that first step. Find out more about what it actually entails. Find out what that career would actually be like. Then, take that information, do some serious soul searching, and figure out for yourself if it’s right for you.

If you let your dreams just sit idling on the runway of life, eventually those dreams will run out of gas and never take flight. Take that first step right now. Do some research about that dream career and find someone to talk to about it. Even if you realize it’s not for you, you’ll never regret having taken that first step.

Even with those kinds of variables, you can still come up with a reasonable college savings plan for your child, even at birth. Here’s exactly how we made the calculations for our own daughter at birth.

First, how much do you want to save?
This is more of a personal question than anything, as different parents have different philosophies and there is no real right or wrong, just different styles.

Some parents believe in a philosophy of no college savings for their child, believing that the lessons learned in paying for one’s own college career are quite valuable. The knock against this is that many students who are put into this position leave college with a tremendous amount of debt.

Other parents believe in a philosophy of paying for all of college – or as much college as possible. Doing this ensures that the child gets into the “real world” with as little burden as possible. Of course, the argument here is that it makes a college education seem much less valuable to the student and has been shown to result in worse grades as well.

Many parents wind up somewhere in the middle, setting a goal of 1/3 or 1/2 of college expenses. For us, we’ve adopted the philosophy of paying for 1/3 of tuition and all textbooks and other educational expenses (like a computer). We want our children to have to work for it, but we also want to take the edge off of their financial burdens.

Action Point #1 Sit down with your spouse and figure out how much of your child’s college education you want to cover. There’s no correct answer for this, only what you feel is right.

Determine a dollar amount
Once you know the percentage of college expenses you want to cover, you’ll need to come up with a target dollar amount. The first step is what college or university would you like your child to attend, realistically? Some families might insist on Ivy League, others might think the local state university is the right choice. For me, I’ll use the school I really wanted to attend (but simply couldn’t afford): MIT.

I discovered that tuition and fees at MIT cost $34,986 for 2007-2008, with a total tuition, room, and board cost of $44,936, but that the average student receives $28,000 in scholarships. That leaves a remaining cost of essentially $17,000 for tuition, room, and board. They also estimate $2,800 for additional college expenses, such as textbooks and supplies and other activities.

Action Point #2 Pick a “target school” and obtain tuition, room, board, fee, and other expense estimates for the most recent year, as well as an estimate of the average scholarship package that a student receives.

Since my wife and I intend to pay 1/3 of the tuition, room, and board and all of the additional college expenses, we would be on the hook for about $8,500 a year in today’s dollars.

But then there’s inflation. It’s reasonable to expect a 6% annual inflation rate for these expenses. Given that, we should expect to come up with about $25,000 a year for our child’s expenses, totaling $100,000 over the four years they’re in school.

Ouch.

Action Point #3 Calculate the portion of the education you intend to pay for, then adjust that amount for the correct number of years of inflation (6% a year is a reasonable calculation).

What’s the plan to reach that amount?
In essence, to follow our plan, we need to save $100,000 over the next eighteen years. Thankfully, we have mechanisms like 529 plans to save for college without having to worry about taxes, but that’s still a mighty goal.

If I assume an 8% annual return on my investment, I need to put away $215 a month from birth to have $100,000 when the child turns 18. If I assume only 7% annual return, I need to save $238 a month.

Of course, I can also assume that I will use other methods to help cover this amount. I might plan to use home equity to pay for some of that amount. There may also be other opportunities for assistance – for example, grandparents may wish to contribute to a 529 as well. You might also decide that you’re aiming unrealistically high with your school selection and choose instead to use a lesser school for your estimates. This may move your estimate downwards.

The key is to figure out how much you need to be saving, starting today.

Action Point #4 Estimate how much you need to be saving per month, then start a savings plan (like a 529) and sock that money away.

One key thing to remember, however, is that if you don’t meet your goal, it’s not necessarily the end of the world. Most likely, if you are making an aggressive plan right now, one that assumes strong accomplishment from your child, your child will choose a different path, one that doesn’t require quite as much outlay from you. Even if they meet or even exceed your expectations, you’ll still be able to help them along their way.

The most important thing is to start as young as possible. If you wait until your children are even eight years old to start saving for that $100,000 goal, you’ll have to save $555 a month to make it with 8% annual returns. If you wait until they’re twelve, you’ll have to save $1,093 a month.

The earlier you start, the easier it will be to help your children with college. If you have young children – or even a child on the way – get started today.