Investing for my kids

[SAJ-99]

Disagree, but it doesn't really matter, I don't think anyone can really "know" how to fix this problem.

It was just an idea, not saying it was great. There are now companies that will fund your education for a percentage of your earnings over a specific period. If a kid wants to know what the market price of the education is they can find out. It's a market-based solution. Interesting to think about.

 

[Deleted member 28227]

It was just an idea, not saying it was great. There are now companies that will fund your education for a percentage of your earnings over a specific period. If a kid wants to know what the market price of the education is they can find out. It's a market-based solution. Interesting to think about.

Undergrad? I have had several friends get their MBAs paid for after committing to a specific contract period of time.

The interesting thing to me is the whole conversation that college has to "pay" for itself, which doesn't exist at all for high school. We all just take for granted that all Americans are going to go k-12 for free. I've yet to hear someone say, "well how is playing with blocks gonna yield a return" to a parent of a 5 year old. I don't understand why college is different in the hypothetical, reality sure, but conceptually...

 

[buckbull]

Interesting thread for sure, just filled out the FAFSA with my son 2 weeks ago. It will be interesting to see what loans he will be expected to get and what I will have to come up with.

 

[Deleted member 28227]

There are a lot of flaws with the higher education system in the US. Walk on just about any campus and you’ll find poorly compensated instructors, and a ton of shiny new buildings, and more under construction. This is financed by accelerating tuition costs. We dole out twice as many 4-year degrees as there are jobs to fill them. Institutions are competing for federal loan dollars by creating the sexiest-looking campus loaded with things that appeal to the eyes of 17-year-olds, who are then told to sign on the dotted line in what is likely one of the most impactful decisions of their life. Kids can even get extra $ for living expenses, and it’s liberally spent because it doesn’t feel real. Parents feel bad because they can’t pay for the massively over-inflated tuition and let the line be signed. Money is not invested by institutions in components that translate into good careers for graduates. Millions of students are deeply in debt and don’t or can’t complete their degree. Marriage and home-buying are delayed due to huge loan balances, and the young adult has no escape. American taxpayers are on the hook for defaulted loans, on the order of $155 billion. Then with COVID it’s a crisis when we can’t feed the monster we created with in-person instruction.

So how did we get here? Not too long ago you went to college if you could pay for it. Lenders didn’t issue unsecured loans to students because the likelihood of being repaid was too slim.

But then we didn’t want students from poor families to miss out on getting a higher education. A valid point, except we really fumbled the execution of creating opportunities for this subset of the population.

A dramatic overhaul:
1. Issue government grants instead of loans to students whose parents who can’t pay for their kids’ higher education.
2. The grants are only valid for expenses that translate directly to necessary job skills for industries currently in need of domestic workers.
3. Raise the age of signing for a non-government backed unsecured loan to 25, and allow the debt to be forgiven in bankruptcy.

Basically, some legal protections for kids so they can’t ruin their future financial lives, take the mostly useless universities off of unsecured loan welfare, create educational opportunities of value for families that couldn’t otherwise afford them, and allow the industry to self-correct in favoring efficient, industry-relevant education programs.

A little je ne sais quoi missing, but yeah I mostly agree that would be a good pragmatic approach.

The education system is very diverse so one size fits all approaches are tough. Community colleges --> Harvard lots in between. Still doesn't really deal with the question of valuing education as a society.

 

[Nick87]

That is a crappy alternative. Go to school

Learn a trade.

 

[SAJ-99]

Undergrad? I have had several friends get their MBAs paid for after committing to a specific contract period of time.

The interesting thing to me is the whole conversation that college has to "pay" for itself, which doesn't exist at all for high school. We all just take for granted that all Americans are going to go k-12 for free. I've yet to hear someone say, "well how is playing with blocks gonna yield a return" to a parent of a 5 year old. I don't understand why college is different in the hypothetical, reality sure, but conceptually...

yes. Some colleges have Income Share Agreements (ISA) and there are companies (private equity funds) that will do the same, as an investment. I can't explain the difference in narrative between the two, but maybe it is part of the problem. Paying for something through taxes (especially RE taxes paid out of an escrow) seems like it is free, while paying for college ed is a straight check. Maybe a secondary education should be mandatory - college, trade school, anything useful - and it should be government funded But then we will hear the screams of "socialism".

 

[SAJ-99]

Learn a trade.

Sure, an option. It still isn't a cure all. I would bet that someone graduating trade school as a diesel mechanic may be out of a job in 20-30yrs because the diesel engine goes the way of the horse and buggy.

 

[Deleted member 28227]

yes. Some colleges have Income Share Agreements (ISA) and there are companies (private equity funds) that will do the same, as an investment. I can't explain the difference in narrative between the two, but maybe it is part of the problem. Paying for something through taxes (especially RE taxes paid out of an escrow) seems like it is free, while paying for college ed is a straight check. Maybe a secondary education should be mandatory - college, trade school, anything useful - and it should be government funded But then we will hear the screams of "socialism".

It’s a whole pickle for sure, and the narratives just get ridiculous, lazy/evil/socialist etc.

 

[Wildabeest]

I was recently going through some papers from my parents’ house and came across a bunch of old school records. There was a tuition bill from my first semester (1984) at a major state university. $781. I don’t think that would even cover my daughter’s parking pass now.

 

[Deleted member 28227]

Learn a trade.

A Doctor is just a very highly paid tradesman. So is a lawyer.

I was recently going through some papers from my parents’ house and came across a bunch of old school records. There was a tuition bill from my first semester (1984) at a major state university. $781. I don’t think that would even cover my daughter’s parking pass now.

$781 doesn’t cover monthly interest on a 4 year education.

 

[Nick87]

A Doctor is just a very highly paid tradesman. So is a lawyer.



$781 doesn’t cover monthly interest on a 4 year education.

So are quite a few occupations. Some dont start you off in a ton of debt like you were referring to is all I was getting at.

 

[Nick87]

Sure, an option. It still isn't a cure all. I would bet that someone graduating trade school as a diesel mechanic may be out of a job in 20-30yrs because the diesel engine goes the way of the horse and buggy.

Yah probably wont be a need for any kind of skilled labor in the future. Wasn't referring to as a cure all just that your options aren't A. Go into debt with college or B. Be a shelf stocker

 

[npaden]

My wife did a good job with our son gathering up birthday gifts, spare change, etc and had him take it to the bank once a year to put in a savings account.

By the time he was 10 it had grown to a decent amount and we started talking about investing. The interest was so low on his savings account I don’t think it even earned 10 cents in the last couple years.

At 11 we decided he needed to move it out of the savings account. We decided not to move 100% of it but at least invest a decent amount. We set up a custodial account at Fidelity where I have some investments and buy some stocks.

We discussed a long term investment strategy and I had him pick out some companies to research. His first choice was Lego. Closely held, not traded on any exchange. His next pick was Mojang, the company that creates Minecraft. Again, closely held, not traded on any exchange. Third pick was Toys-r-us, again, closely held private equity. Turns out that was a good thing as they went bankrupt not that long after.

Finally he picked Apple and we could actually buy that stock. In February of 2018 he moved $800 into the custodial brokerage account and he purchased a whopping 5 shares at $155ish per share.

Needless to say he has done WAY better with his Apple stock than he would have if he had left it in the savings account.

This year when COVID hit we talked about it being a buying opportunity and diversifying and we went through some of the same discussions again and he ended up selling 2 shares of Apple that by then had grown to $400+ per share and moving some more money from the savings account along with some money he had earned to buy a single share of Google.

A few months later and he came into a little more money and his first thought was buying another stock. We went through the discussions again and this time he chose Walmart so he bought a whopping 2 shares of that.

Now he has enjoyed a very nice run with his Apple stock that solves a lot of poor choices before they ever happen, but he has taken about $1,500 and turned it into almost $4,000 in 2 1/2 years.

We don’t really have a specific investment goal with this account, maybe a car fund, maybe a down payment on a house, but it for sure has peaked his interest in investing.

With zero commissions and no fees it makes small balances in brokerage funds very doable for anyone. Always take risk into play, we discussed risk many times and he did see some fluctuations earlier this year that he wasn’t super excited about.

He recommended Tesla to me about halfway through its run up and I never did get there, but I did buy Apple after he did and that has been a very good thing for my portfolio for sure.

It has been fun talking about investing with him and for sure it is a good thing to learn about.

My 2 cents. Nathan

 

[Wildabeest]

That entire experience with you will be worth more to him than the raw returns on those investments ever will. Well done Dad!

 

[Irrelevant]

Classic Dad move:
My parents didn't allow me to "gamble" with my money. So instead my Dad and I started with a hypothetical 1,000,000 dollars when I was in 6th grade, set up spreadsheets to track our funds. We each invested as we saw fit, and tracked them through the year, no buying or selling allowed, just one pick and you're set for the year. I picked several all tech (microsoft, amazon, because I was pretty into computers then. He invested in Walmart, bonds, something else low risk, GE or something like that. At the end of the year I'd almost tripled my money and he made a nice 7%.
Helluva lesson Dad.

 

[Wildabeest]

Classic Dad move:
My parents didn't allow me to "gamble" with my money. So instead my Dad and I started with a hypothetical 1,000,000 dollars when I was in 6th grade, set up spreadsheets to track our funds. We each invested as we saw fit, and tracked them through the year, no buying or selling allowed, just one pick and you're set for the year. I picked several all tech (microsoft, amazon, because I was pretty into computers then. He invested in Walmart, bonds, something else low risk, GE or something like that. At the end of the year I'd almost tripled my money and he made a nice 7%.
Helluva lesson Dad.

Except for GE, none of those companies even existed when I was a kid!

My intro to finance was a bit more basic. I wanted stuff. Parents couldn’t afford stuff. I realized that I had to make my own money to buy stuff. So starting at about 8 yrs old, I was mowing grass, shoveling snow, fixing/customizing other kids bikes, delivering newspapers, babysitting, ... Anything to have financial independence.

It was a constant challenge once I had kids of my own because unlike my parents (and because of my parents), I could afford to buy them stuff. But at the same time, I didn’t want to deny them the opportunity to build a similar work ethic and desire for financial independence. They had it easier, but still had to have jobs throughout high school and college, pay a lot of their own expenses and work for things they wanted. Hopefully they will thank me for it someday.

 

[homers]

Costs for college education (tuition, fees, room and board, books) have been out of control for some time. Annual increases % far above inflation, usually above % increase of health care. I wish someone (politician) would get to the root cause and come up with a solution to make it more reasonable. Paying off student debt is not the answer, a journalist should ask the politician who wants to pay off student debt "why is college so expensive?"

 

[SAJ-99]

should ask the politician who wants to pay off student debt "why is college so expensive?"

Ask a politician? LOL.
The reason is supply and demand. For the last 40yrs we have told kids they need to go to college. The economy moved from ag-based to services, resulting in Metro-area growth. Most of the new jobs required some higher level of skill than a HS education provided. The number of universities stayed pretty static, so we saw the beginning of for-profit and online colleges. It is the same reason there are not enough plumbers and electricians. I see "Get your degree in 18 months" ads and just laugh.

 

[RobG]

Montana State University is working to reduce student debt by educating the students about how their choices affect the amount they owe. What a novel idea!

MSU student loan debt actually drops $1,200

Finally, some good news about student loan debt.

www.bozemandailychronicle.com

 

[HSi-ESi]

The 529's have been mentioned before - and we have those for all of our kids.

Some local Credit Union's will also offer CD's. We did that for both our kids. Not the greatest return - but much better than a savings account.

My grandparents created one for me when I was little. I ended up not needing it for college - but used it in part of a down payment for my first house. I did have a loan from the same CU once (using the CD as collateral) to purchase my first vehicle. It gave me flexibility and helped me navigate early adulthood. Plus, every house purchase/move I make is partially funded through the grandparents (at least I like the thought of that).