Baby Ninja decided to stop being a fetus ten months ago when he graced us with his presence last June. The second he breached the birth canal he forced Girl Ninja and I to start thinking about his future. The numbers 5-2-9 were no longer a sequence of three random numbers, but one of many ways Girl Ninja and I could begin saving for Baby Ninja’s future.
Apparently there is a good chance this human of mine could one day decide to go to college. Kinda like his mom and dad decided to do.
It was easy when I went to college. I just asked my parents to pay for part of it. My college to give me scholarship money. And the bank to loan me money. Easy peasy.
But now, here I am, 18 years away from potentially having the roles reversed.
Girl Ninja and I had to ask ourselves a question most parents do…
Should we start saving for college for our children?
A few of the most popular ways to do this are:
Educational savings account- a tax free way to invest money for your child’s future education expenses. Could be used for K-12 as well.
529 Plan- similar to the ESA, has higher contribution limits, and no income phase out
Get Account- Washington’s 529 plan that guarantees your investment will keep pace with tuition increases. Basically you lock in today’s college prices for your child. Imagine if your annual tuition payments today were only $2,000 or so like they were 18 years ago.
I’m sure there are many other options I am not aware of, but I don’t care to research or learn about them for one simple reason.
Girl Ninja and I have decided we aren’t going to save for Baby Ninja’s college. GASP!
That makes us like the worst parents in the world, right?
We came to this conclusion after considering the following things:
I’m a tuition bubble believer.
The tuition increases we’ve seen over the last decade are unsustainable. If tuition continues to inflate 7% or more a year for the next 18 years, college will be so expensive that only the countries richest will be able to afford it. This bubble, like all bubbles, will eventually burst.
I’m not saying Baby Ninja’s tuition wont be more than it is today, but it will either be so expensive it would make no sense for him to go to school. Or, as I expect, the bubble pops at some point during the course of his youth, and future tuition increases are more in line with inflation (3%-4% per year).
The internet is a beautiful thing.
The internet literally makes life cheaper. Amazon forces retailers like Best Buy and Target to be more competitive in their pricing. I also expect the internets ability to provide access to information at little cost to have a dramatic effect on college costs over the next decade or so. Online schooling is still a relatively new thing, but twenty years from now, it will be so normal that brick and mortar universities will be forced to rethink their costs. Why would I go to University of Washington and pay exhorbinant fees, when (insert other college’s name here) is offering online courses for a fraction of the cost.
I expect this will also happen with real estate commissions. You hear that real estate agents. Your days (probably more like years) are numbered. Why should Agent X get a $3,000 paycheck on the sale of a $100,000 property, when Agent Y would make $30,000 on the sale of a $1,000,000 property. The work load is the same in either case. Fee for service will become the industry standard. Unfortunately, it’s gonna take a while before this shift happens.
Americans want their cake and to eat it to.
Much like the Affordable Health Care act has brought health insurance to the majority of Americans. I expect over the course of my lifetime politicians will socialize education. We recently saw Obama state community college should be “as free and universal as high school”. Expect the government to reform education.
What if Baby Ninja doesn’t want to go to college.
Much like withdrawing early from a retirement plan, if your child decides not to go to college, you will be penalized for withdrawing your investments from a 529 plan for things other than education expenses. This isn’t a huge issue for me, but is still a concern.
Baby Ninja can pay for his own darn school.
I graduated college with $28,000 of student loan debt. That was above the national average for my graduation year. While being in debt was not a ton of fun, it taught me to appreciate money more and the importance of managing it. I don’t want Baby Ninja to grow up with a sense of entitlement. Maybe we will have so much money in the future we can pay for four years of Ivy league education for him. Or perhaps we will have a series of unfortunate events that will hinder our ability to help him financially. Either way, I want him to grow up knowing that nothing in this world comes free.
I’m happy to forfeit the college savings plans’ tax breaks.
At the end of the day, I just want options. I feel like the college savings plans are too specific and limited for me to commit a significant amount of money towards them each year. Instead, Girl Ninja and I plan to save for Baby Ninja’s college through general wealth building practices.
As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.
So there you have it. These are the reasons Girl Ninja and I have no sense of urgency in starting to save specifically for Baby Ninja’s college expenses. Will he go to college? Probably. Will we have the financial capacity to help him? Probably. Is the 529 appealing to me? Probably not.
What say you?