4 important points to consider with Gen X clients

Your clients rely on you for advice. Part of your job is continually putting the problem in front of them. It’s not going away and could get worse if your Gen X clients live in an urban area and private school is a better choice than the public school system. Tuition might begin in kindergarten. If you avoid addressing the issue, a competitor could easily point it out as a failure on your part. How could you have missed such an obvious need?

You gain significant benefits from addressing it now. Money invested in the stock market has historically done very well when the time horizon is long. Establishing college savings plans for infants gives almost a 20-year time horizon. You can benefit because it’s extremely likely that new assets will arrive.

College Savings Plans sound simple, but the details can be complicated. Lets start with the basics. Children are likely taxed at a lower rate than their grown parents because they have no income. These accounts provide an opportunity for money to grow faster if the tax rate is lower. 

The parent is putting money aside with the intention of spending it on their child’s education. According to US News and World Report, the cost of a four-year college education in 2030 will likely top $205,000. If your client has saved it all by then, that’s great. If not, their child might need financial aid. The school expects parents to do their share. Often, college savings plans are considered as “parent assets” by schools and financial institutions. This makes the case for grandparents stepping in and setting up accounts, too.

Your Gen Xer has baby boomer parents and Silent Generation grandparents. Higher education worked for them. It’s extremely likely they support their alumni association, perhaps contributing to scholarships organized by their graduating class. Doesn’t charity begin at home? It might be worthwhile to investigate grandparent “ownership” of the account instead of attaching the Gen Xer’s name. 

Those 50 to 70-year-old Boomers might be concerned about estate taxes. Their 70 to 90-year-old parents are likely facing the same issue. Under current tax laws they can give about $14,000 a year to as many people as they want. They might own low cost basis stock. They might be paying taxes in a high bracket. Establishing college savings plans provides a framework for them to help their children and grandchildren during their lifetimes. Meanwhile, aunts, uncles and relatives might voice their intentions to help. This provides a collection point for those birthday and holiday checks.

Where does insurance fit in?

As their advisor, this is familiar territory. The Gen X parents might or might not be in the picture when their child turns 18. You can insure for this eventuality. Mutual funds are an ideal vehicle for investing. 

Talking about the elephant in the room

How do you start this delicate conversation? Begin with a few gentle questions:

1. What would your children like to do when they grow up?
2. What would you like to see them doing when they get older?
3. Do you see them following you into your business?
4. You know college will be expensive. Have you seen how much recently?
5. Have family members said they want to help? Have you set up accounts?
6. Let’s start by setting up college savings plans.

Do Gen Xers have other problems?

College funding isn’t their only worry. Shortly after college is over, wedding bells might beckon. They need to figure out how to pay for their children’s weddings. Their Gen Y children might turn up on their doorstep as “boomerang children,” expecting to live at home (29 percent do). Their children might need an advanced degree to get onto the career ladder. Fortunately, many of these problems have a financial solution. You are in an ideal position to help.