Grandparents Kicking In For College

| May 9, 2014 | 0 Comments | Email This Post Email This Post


Regina Louise helps people plan and pay for college.  She spoke to Bloomer Boomer and here is the transcript.

Andy Asher: So is it possible this year that kids won’t be seeing as many Playstations and X-Boxes under the Christmas tree, instead, just an envelope from the grandparents. Well that could be the case if the current trend spills over the holiday gift-giving, because according to a recent research, grandparents are increasingly getting more involved in their grandchildrens’ education expenses. In fact, a research by TIAA-CREF, 40% of Americans who sought financial advice in 2013, wondered to know more about education-related topics such as saving for education – that’s up 10% from 2012. As part of that, the Fortune 100 financial services organization is offering an opportunity to win $100,000 college savings plan. To talk about that is Regina Louise – she is a consumer trend expert and host of USA Today’s money quick-tips. And I first thank you, Regina, for taking the time and, that’s an interesting trend – grandparents kicking in more for college?

Regina Louise: It is, and really, thanks Andy. I think it’s to their credit. Grandparents have the wisdom of age. They have watched college education play out over multiple generations and I think they have a real appreciation and a practical pragmatic approach to understanding that, for this upcoming generation, it really is a different scene when you consider the average college graduate now graduating with $26,000  in debt and that they marry a college graduate $50,000+ and that, which has down the road ramifications, because you are not building equity in that house, and that could affect multiple generations. So I think that they are looking for a way to help us they can. They’re also faced with an entirely different paradigm as we the first generation who will, frankly, enchantedly not do better than their parents. And so, it all switched up on everyone including grandparents and I think that they’ll be the leaders that they naturally and inherently are and taking the lead where it can and as they can.

Andy: So they’re seeing this and I guess the other part or the many different factors, but perhaps, if they might, at this point on their life, have a bit better discretionary income perhaps than their children or what are you seeing in that regard?

Regina: Yeah, they may and may not, as they certainly will yield the tax benefits that 529 Plan, which are tax advantage, have and you can open them for multiple grandchildren depending on the state that you live in that can benefit you on in an annual basis, and of course there’s the benefit of compound interest over time, so if you take, by way of example, let’s say, you were to open up a 529 Plan for grandchild with a $100 today, 15 years later, assuming 5% if you added $25 a month just on automatic basis, which most people fit with the right systems in place as they do for their spousal payments or car payments, well that’s $7000 at the end of 15 years, and I also think it leads by example. So if you do that, and the parents say, “Hey, it’s great that the grandparents are doing that. It shouldn’t be the only thing that is happening, let’s do it too as parents! Let’s make sure the godparents, if there are any, know how to contribute to that and everyone else who has the means to do it!” That’s when you’re really cooking with gas, as my grandfather likes to say, and you can see the benefit there. They think, “Oh you know I’m not that kind of grandparent, I don’t have $10,000, buy extra 5 homes that I might sell”. And when you tell them, “hey did you know that you could start with as little as $25?” They’re usually pretty surprised by that and frankly relieved because I think it’s something everybody wants to do and know. Intellectually, it makes sense, given all the tax advantages and they just thought they weren’t in the position to do it, but in fact they are.

Andy: And you mentioned a little moment ago about something of a paradigm shift where it was pretty much the parent’s role, at least they can perceived it that the case, but now it’s spread throughout the rest of the family a little more.

Regina: Yeah, I think it’s a family affair that’s not too less. I would never been to imply parents off the hook or has anyone, including grandparents, feel like, “hey, you need to step up” – that sends all the wrong messages. But I think what people are looking for is a vehicle to contribute as they are able to. So, take gift-giving as an example. I said to my brother and sister just within the past couple of weeks that doesn’t have 4 children. I said, “Hey, this Christmas, should we do something a little bit different? How about contributing to – who’s got a 529 Plan set up?  Should we just give, you know, you can buy, in my mind, very adorable-looking 529 gift certificates for $25, $50, $75 instead?”, and they both, almost instantly saying “Genius! Let’s do that instead!” I mean there’s not that many families and I think some families are gonna cringe on – “We want to give an Xbox game, I don’t want to give him another sweater” I want to constructively contribute to the things that really matter and you see that across the board in the economy right now – car sales are up faster, with the average vehicle being in the road for 11 years, that was in the subsidy. But people aren’t driving them to the mall to buy a pearl, because that’s considered as a luxury. Interest in 529 Plan, way up, contribution, up, with grandparents now making 10% of contribution to 529 Plans. And I don’t think that’s necessarily – yes, in some cases they have more dispensable income, but without question, they want to be smart about how they use it and by almost any objective measure, although everyone should get financial advice. It’s a pretty smart plan.

Andy: So that paradigm that we referred to also probably goes down to the children who may not see that Xbox under that tree but an envelope, so that’s a different attitude or different way of looking at receiving gifts.

Regina: Yeah, but here, I actually think that that has tremendous benefit, and I know that, you know, I have 3 children of my own, I get the shock and all of “what’s under the tree” or whichever holidays you’re celebrating or when you’re celebrating birthdays, etc., is children who, and this is where the TIAA-CREF research is very interesting what they’ve gathered, who have 529 accounts are 7x more likely to go to college. And I don’t think that’s just socio-economic, I think it’s the “if you are around and I’m all the time interacting with families who are truly stressed by the burden of month-to-month finances and paying for college.” Don’t think for a second your kids don’t feel that and I think grandparents just really know that the kids know. So the fact that they have a 529 Plan, if they know that and they know that that means is there, I don’t think they’ll take it for granted, but it really does reduce that overall stress levels on families. And when you look at empirical evidence like the “7x greater rate of going to college” mean, I personally don’t need more evidence than that to know that it’s worthwhile. So, I think that it has both very clear about medical benefits and tax benefits, but also a psychological impact within the household that says, “Hey, we recognize the call of the goal. It’s our family goal that we all agree upon. We think it’s a tremendous value. We want to make sure that we are able to do this if you do your part and you have a plan in place.” And that last part is where 529 Plan comes in.

Andy: It makes you wonder if we may start seeing a shift in the priorities as to what’s important, maybe the material things a little bit less so than they have been in the past under these current economic situations.

Regina: I think you’re seeing that in some category since you look at, for instance, a thrift shop and kids being more resourceful, you see it changing in fashion. 10 years ago was all about designer – head to toe. Now, if it’s a premium on the companies who are playing in the space, but now you might have a designer watch or just the right phone that is not Apple or the right that everyone might want. But everything else, meh, hand-med-downs, got it from good will, doesn’t really matter. So you do see it showing up on various places and I think that – I worry about the news prior to where people are questioning the value in our life of college education, understanding that tuition has inflated exponentially and I think there needs to be a grip to that. But, when push comes to shove in a tough economic environment, it’s even tougher if you don’t have a degree. So I’d love to see families get a handle on this, feel like they’re making the best decisions they can make and the most informed decisions. There’s a ton of resources online, but hopefully this helps simplifies things and it only takes one person in the family to socialize that, whether it be the brother or sister in paying half of these 529 gift certificates instead, or someone giving it as a baby shower gift and then having other people say, “hey, aunt Sue and uncle Jim, how did you do that?” That tends to be and that’s what AARP and TIAA-CREF are trying to do is really socialize the concept, make it more approachable so it isn’t this – it’s a horrible name, isn’t this? 529, IRS Tax Code thing that I have to be super-wealthy to do ‘cause as soon as you say that, I’m out and that’s not me, and it’d be great to see if more people take advantage of that.

Andy: Well you’re very motivating and I have a 5-year old grandson and another one on the way, so just hearing what you’re saying is a motivating factor.

Regina: Oh, how wonderful! I’m so glad and I’m thankful for the opportunity and, honestly, for all you’re doing on your website. And one thing I would encourage you, Andy, is that you gotta go for this and certainly, as the one watching and listening is that the current contest that AARP and TIAA-CREF had is called “Big Dreams Start Small” that takes 3 minutes – you should do this with your 5-year old, a picture and a caption just why they have big dreams and I’m going to win which is a heck of a jumpstart at $100,000 contribution for a 529 Plan.

Andy: That’s great. Now you won’t have a – certainly an interesting title, maybe you can talk a little bit about that. You’re a consumer trend expert and you are a host of USA Today’s money quick tips, so tell us a little about what your specialty is, that seems like to be a unique one.

Regina: Well, it’s actually so terrific in that I am really lucky to cover trends which I’m fascinated by and then I comment on the economic data and the behavioral economics that are driving it, you know, why are people buying trucks but not driving them to the mall? Why is consumer spending down even if we have a simple wife? Halloween spending down currently. You know interesting thing like Halloween spending being down is actually tends to be a positive sign, cause in really tough times since we saw from 2008 to 2011, Halloween spending was mysteriously up, so I go on to networks like CBS or MSNBC, which I’m on every weekend, and try to explain why. Turns out, in really tough times, people feel like “I can go all out on Halloween, cause I know I’m going to have to skimp for Christmas and that’s more expensive!” And so, spending on Halloween is actually a horrible precursor for holiday spending and the inverse might prove this year to be different. So I love studying these trends and trying to figure out what they mean. Often, families are very smart and through our conversation, grandparents are the smartest of the bunch, right. They have the benefit of wisdom and what they’re doing day-to-day behaviorally is really informative and usually there’s a pretty significant, if you find the connectors economic trend right behind that, so I try to deal with the people who reach that right and helps people get personal advantage.

Andy: So Regina, as we wind down here, what tips might you have for grandparents who want to get started on some kind of a college financing plan for their grandchildren?

Regina: Well I think the key thing is get started if you — you know, today is your best day when you’re talking about something that reflects compound interest. So starting a 529 can be done on more than many cases and there’s often a 1-800 phone number right at the top of the screen. AARP is a great starting point, so, and they’ll usually ask you some a series of questions and then give you a recommendation. Vary every, you know, states have different 529 plans or maybe some inherent benefits to going to your state plan from a state tax benefits and in some cases, that’s not true, which is the case if you live in Connecticut, you can opt in through the California plan. But the overall concept of taking advantage of things that are tax-deferred or if you put things out for education expenses and importantly, education expenses doesn’t just mean tuition. It’s books, it’s a percentage of expenses and anyone who has had a child go off to college knows what the tuition is, it’s a big chunk, but it’s not only the chunk. And the other thing is, oftentimes, people hold out for scholarships. They fail, I don’t wanna jeopardize that, maybe we’ll get financial aid. Well, aid usually means loans and they have to be paid back and the responsibility and the burden that comes with that. And on the scholarship plan, almost no one gets a full ride. You know, even if you got a lead athlete there, one entry away from not getting that, so it’s a pretty tricky thing to bank on. Grandparents often worry well – “what if they are not to go to college and drop out?” The 529 plans are different; you can defer them to a different child and so people do that a lot of time. And the nice thing is once you do start it and let people know they can contribute to your 529 plan and be inspired to start their own, and, if grandparents want to have a separate plan from parents, there’s no limit to the number of 529 plan a child could have though. You don’t have to be entirely collaborative about this process. You can support the same child through different channels. And sometimes that works best, depending on your relationship with your adult children, you may say, “hey, we’re going to do a 529, we know you’ve got one too”, the same child benefits from both.

Andy: Well great, that sounds like a very flexible plan and that’s outstanding. Regina, this has really been great and I appreciate your time.

Regina: Okay, well thank you Andy, me too.

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Category: Grandkid News

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