I posted this on my myspace blog, but I figure it is worth posting on here, as well. Besides, I haven't posted in over a month! Geesh...
Though the primary thing I learned from my little ditty at the investment firm this summer is that I am not destined to engage in a securities-related career, I did leave with some pretty valuable information regarding finances. Perhaps the most striking thing that I can’t get off my mind is the personalized college needs analysis we performed for my son. For anyone who is a parent, a student, or planning to become either, I encourage you to read on.
First of all, a personalized college needs analysis is a report designed to illustrate what a person needs to save for attending his/her choice college (or child’s future college). Financial representatives can prepare these for anyone by using software that has the current costs of all international universities. You simply plug in the age of the person you want to plan for, name of a college, the amount you have already saved, and an assumed rate of inflation, and the computer provides the rest.
Now, my son is 2. We have not put back anything towards his college yet (which, I know is sad, but can anyone really afford to do this right now?), mainly because I am still paying for my own college loans. But anyway…At Indiana University in Bloomington, the current tuition is $7,112, with room and board at $6,240. (Though high, this is relatively fair when making a comparison with Harvard, which runs a whopping $32,097 plus nearly $10,000 for room and board). Keep in mind, these fees don’t include texts, supplies, etc.
Over the past several years while I’ve been a student at IU, the fees have increased at 6% every year. It doesn’t sound like much, which is probably why nobody ever shows up to protest at their yearly open forums on hiking the rates. But, just to give you an idea of what that means, the cost per credit hour, has gone up over $50 since 1998. (Approximately an extra $1200 a year for a full-time student.)
When I plugged in an “average” inflationary rate of 5%, the computation indicated that, to start saving for my son to attend Indiana University (an “average” college), I would need to make an initial investment of $33,423—right now—to reach the $119,701 cost it will be for him to attend in 16 years. Or, in simpler terms, I need to start putting back $309 a month, starting this month, to afford his college education. This amount will go up every year if I fail to start investing this NOW. (Just for fun and a good laugh, I did the same computation for Harvard, in which I need to start coughing up $919 a month…) And, the amount of college loans has been capped at around $40,000 for a four-year degree, meaning that even though costs continue to rise, the amount a student can borrow does not. Furthermore, federal college loans may not even exist by the time our kids get into college.
The sad thing is, the average salary for recent college grads has dropped. According to an article in Business Week by economist Michael Mandel (“Pocket of Pain for Young Graduates”), the salary for college graduates has gone down 3.3%, the lowest since 1997. Many graduates are unable to even scrape together a down payment for a home. Government reports show that the median household income has increased 1.1% (big whoop, so have our bills), yet the top 20% (aka, the rich) are making over 50% of ALL income.
These reports indicate several things to me. For one, it reiterates the fact that the rich keep getting richer and the rest of us are, well, pretty much screwed. I hate to look to the future so pessimistically, but as a parent, I can’t help but be concerned about the economic forecast for the sake of my son’s life and goals. College is not for everyone. In fact, the reports show that it may not even pay itself off in the near future. But even McDonald’s has been toying with the idea of requiring their managers to be college grads. Therefore, this report illustrates that the job market is so fierce that, even if my son doesn’t go to college, chances are high that even a job at the lower end of the pay spectrum won’t be feasible to obtain. Whatever makes my son happy is what matters, regardless of whether he’s flippin’ burgers or flippin’ coins, but will he be able to make a living and support a family of his own?
The so-called American dream is becoming a nightmare.
5 comments:
You have that right about the American Dream becoming a nightmare. My daughter started college on August 28th. It is so expensive. I can't believe the cost that we have to pay. Without this education, she would be unable to compete for a good job, so we have to sacrifice. Parents have to start saving while the child is an infant. In your case, I would say because you have loans yourself, set aside 50 dollars a month, if you can or 25 dollars, since your child is 2 anything will help. Have you heard of these E bonds for college that supposely pay good interest if you start early. Education is heading toward only the rich attending, only the priviledge will be able to get what everyone should have access to. Thanks for sharing this information.
Here is what I think, if my children want to go to college, I will help them, but they will have to show me that they want to go by getting good grades and so on. If they do this, I will probably not have to pay as much b/c they will also be getting hopefully some scholarships to go. (dreaming) Anyway, we have decided to put our children through privet schools so since my son started kindergarten a few weeks ago, I am now paying $560 a month plus annual fees to put him through school. We do that b/c the public schools over here are just not cutting it and even though my son was at a kindergarten level, but missed the cut off date, they wouldn't even let him in public schools. He would be absolutely bored if we made him wait another year. My way to deal with thinking of college is, if I can afford the private school right now, and I'm only 26, then I can afford college later on.
I advocate and have ever since my own adulation of actually graduating from college ceased, give your kid the money and have them invest it instead of going to college. then when he is wealthy and 45 years old he can go to college.
i think we are lieng to ourselves and our children that college is an aspect of the american dream. we are also fibbing to ourselves if we think that the veil of higher education actually has anything to do with success.
The reason many of the rich keep getting rich and many of the poor stay where they are is because thewealthy realize that college is not essential and the poor believe it is.
If your child took the $120,000 when they graduated from high school and invested it into real estate and in vibrant companies along with mutual funds at the age of 40 he could retire and then go go college and screw off.
rose-Yes, I did become familiar with the E-bonds after working at an investment firm this summer. They are "supposed" to have good interest, but that is never guaranteed. Bonds are generally the safest bet--we have one for our son already--but they don't provide a high yield.
drywall--Private schools are generally more stable in their rate fluctuations than colleges. These institutions are getting carried away with their yearly rates, in addition to all the other expenses. I know what you mean about public schools; we are already bracing ourselves to put our son into private school. I worked in the public school system around here and whew...that's all I can say about that! My parents counted on me to get scholarships, too, but the competition is so fierce. Even in the top 20% of my class, all I got was about $1000, which didn't even cover textbooks for a year. So sad!
pirate--I always thought the exact same thing when it came to insurance! Wouldn't it make more sense to put away money in an account and let it grow until the time comes when one "needs" it? But, it doesn't really grow that much. When it comes to college, if the yearly inflation rate is 5%, there's virtually no way a regular savings can accrue enough interest to make a difference. ($120,000 in today's world may not amount to much in 18 years.) One would have to be heavily involved in wise investment-making decisions. As far as the college=success thing, well, don't get me wrong--I just want to afford my son the same opportunities for higher learning and knowing that he may be weeded out simply because of money, well...that's what bothers me most!
I wouldn't grow my money in a bank account or any type of savings account. Invest that amount in to opportunities that reveal themselves. Real estate is as good a s start as any.
I am a bit hyprocritical on this myself. I worked my tail off to get my degree and have invested wisely as well. and i am proud of my degree but often think many who pursue a degree are oftgen misguided, disillusioned and in search of something a degree will never provide.
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