As millions head back to school, this is a good time for advisors to connect with their clients. It’s a good time to connect with their clients’ children. It’s a good time to review financial plans.
Yes, it’s a good time to discuss 529 investments, but it’s a teachable moment as well, to build bridges to multiple generations.
Helping children, from an early age, to learn about budgeting and to understand how much things cost — think of all those new clothes and supplies needed for each new school year — will help them navigate the world through college and beyond.
There are also changes to take note of, such as the now-lower interest rates on federally subsidized student loans, and strategies that advisors and their clients need to brush up on.
Consider a TD Ameritrade survey of those ages 13 to 22, dubbed Generation Z (don’t ask us what comes next), that found that about half said their biggest concern was paying for college. That’s a 10 percentage-point bump from 2012. Still, nearly two-thirds say a college education is essential for success.
There are tools you can suggest to your clients for keeping track of their most precious asset — their children — and ways to help your clients save money in the back-to-school shopping season and beyond.
Take a look at the following pages for information and suggestions that can help your clients and strengthen your relationship with them.
1. Student Loans
The cost of college can be a drag on any financial plan. Fortunately, recent action by Congress offers good news for those paying for school with loans. Undergraduates will get the most benefit from the law, which sets the interest rate at 3.4% for the coming school year. That’s a cut of 50% from last year. In the future, the interest rate will be tied to the market and will be capped.
Despite the decrease, the Congressional Budget Office estimates the federal government will make $50 billion on student loans this year. U.S. News & World Report explained how some critics decry the profit, saying it adds to the burden on students to pay for tuition, which has spiraled upward for decades.
One other overlooked way to pay for a child's education: get a job at a college or university. Most schools will cover the cost of an employee's child's tuition (and the employee, for that matter), regardless of the position the employee holds. In addition, many have reciprocity arrangements with other colleges and universities, so the employee's child may be able to attend another school for free. However, "free" means tuition — the largesse does not extend to room and board or fees.
2. Watching the Pocketbook
Parents of children from kindergarten through college deal with the annual back-to-school buying craze. The sales are advertised even as the last semester seems to have barely ended (a PriceGrabber survey says a third of shoppers said they’d start stocking up in July). Sales at stores like Staples trumpet ways to soften the hit to the pocketbook.
PriceGrabber’s survey found that the most popular way (50% of respondents) to save was hit the discount stores. Fabulous & Frugal offers a tip for keeping the clothing budget down: swap with other parents in the same boat. One tip that you might offer clients to save is to go though closets to see what can be used for the new school year. Well under half (37%) of the respondents in PriceGrabber’s survey said they planned to do so.
Now, if your clients had a very good year financially, they could spring for a little extra to make their children stand out. How about replacing that faithful, yellow, Ticonderoga No. 2 with the Perfect Pencil from Faber-Castell? The price of “perfection?” Just $425. But it is self-sharpening.
3. Finance 101
Handling money is an important skill, and the CFP Board's consumer advocate, Eleanor Blayney, advises parents to start teaching their children early the basics of making a budget, keeping credit-card and other spending within reasonable limits and other essentials. Instilling best practices early just might save a lot of angst later on.
Advising your clients to help their kids master these skills can help cement a bond that goes beyond mere discussions of investment strategy.
4. Protecting the Most Precious Asset
Identity theft is a concern for adults worried about having their credit cards and bank accounts raided by hackers. But Javelin Strategy and Research notes that even the youngest students can fall prey to the problem, although it usually is undetected until the children are older.
Javelin’s tips for avoiding becoming a victim include: carry Social Security cards and passports only when necessary; if asked for your child’s Social Security number, ask why it’s needed, if there is any other info that can be offered instead and how the data will be secured; ask how schools store and discard sensitive information before providing any; teach kids proper password security techniques.
The start of the school year means making sure the student in your client’s life has the latest tablet, laptop and smartphone. It’s good to make sure last year’s gear is still up to snuff.
And here’s a fun little gadget just for teachers. Cheating scandals are nothing new, but the amount of data available at a every student’s fingertips is truly awe inspiring. What’s a teacher to do when at every desk lurks a smartphone with the potential to wreak havoc on the bell curve? Berkeley Varitronics Systems says it has the answer in a pocket-size unit that can detect cell phones in use. The $500 PocketHound is every teacher’s dream.
It’s one thing to find a way to pay for those supplies and gadgets while your kids are making the transition from elementary school to high school graduate, but it’s another to scrounge up the cash for college tuition. The key, of course, is saving. And you’d better start early. Legg Mason offered some tips to get you on the right track. They include: determining cost of college when your child will attend (including housing, books, incidentals); determine what percentage of college they wish to fund; set savings targets and re-evaluate them as time goes by; choose a savings vehicle.
Legg Mason advises that a 529 plan has advantages over others, including on taxes, estate planning, control of the account and flexibility. Morningstar notes that in some states money put in a 529 plan can be withdrawn almost immediately, meaning you can gain tax advantages even if you need the cash right away for the upcoming semester.
7. College Health Care
The cost of doctor’s visits is nothing to sneeze at, and kids going off to college need to be armed with the right information in case they fall ill or are injured. Making sure they know where to find help covered by their parents’ health plan is essential. If a student needs to fund his own health care, most campuses offer clinics, although costs to use them are rising and some are even closing as requirements of the Affordable Care Act kick in.
8. It’s Never Too Early to Plan
Your clients are thrilled beyond belief: Their child has graduated from college. The financial obstacles (hopefully) have been surmounted, though many recent grads without wealthy parents will be carrying heavy debt load, and a recent survey showed that a large percentage of those grads worry about their ability to repay their debt.
But there’s more work to do. There’s always more work to do, isn’t there? The new grad needs to start planning for, well, life. It’s never too early to take advantage of a 401(k). Kiplinger's offers some tips to get off on the right foot:
- Make sure they know of the tax breaks
- Go over the rules provided by the company regarding enrollment, matching contributions and other essential guidelines
- Teach them how to evaluate which funds are best for their investments, taking into consideration investment and administration fees
- Determine whether extra money can be invested in a Roth IRA
- They should know there are ways to access money in 401(k)s early, but there are penalties
- New workers need to realize that when changing employers, a 401(k) account can be rolled over. Consolidation makes it easier to keep track of investments over the years.
Check out these related stories on ThinkAdvisor: