More Math Fun
First of all a word to parents: Parents, I highly recommend college for your children. A college education is a great way to boost your child’s future earning potential. I also highly recommend the cheapest, closest, most affordable college education you can find for your child. Why spend money that you don’t have when the whole idea is to create a way for your children to get money that they don’t have so that you don’t have to spend more of the money that you didn’t have in the first place? What you’ll discover is that a college education = a college education. And since most Americans don’t have a college degree (only 30.4% do) any college degree is a wonderful thing to have.
So, how do we save for it?
Well, a few years ago I would have said buy United States Savings Bonds! Money that I put into U.S. Bonds when my children were little doubled and even tripled by the time they reached college age. But in 2006 Congress voted to reduce the interest rate on bonds from 6 percent annually to .04 percent. That’s only a reduction from 6 to 4 so that’s not bad right? But there’s that sad little percentage point again so actually that’s a 93 percent reduction in interest on U.S. Savings bonds and 93 percent is like…well…everything! So forget bonds.
I’d say put your money in a savings account but remember that for every 10 thousand dollars you save this year, next year you’ll have 10 thousand dollars and… 3 gallons of gas. So, forget savings accounts.
How about a nice mutual fund or stock portfolio? Well, mutual fund agents used to guarantee 8 to 12 percent average interest over the life of your fund but of course that was a market based guarantee which was not actually a guarantee of any kind as they’d always remind you when you were signing up for the fund. Plus they always use those fun math words like average and interest which they are pretty sure you weren’t paying much attention to in math class. And when they say no guaranteed interest boy they sure don’t kid around! No guarantee, no 12 percent. No interest, period. When they say no guarantee these days what they really mean is, “We’ll take your money. Thank you very much.” And they will and they did. The stock market (just like you suspected) really is for people with 14 billion dollars, who really don’t need all that money and who really do have 100 years to not care whether it’s here today, gone tomorrow and back again. So forget the stock market.
What about 401ks? Stock Market again! See above. Plus you get a 10 percent penalty and taxed another 20 percent if you use it before you are 59 and ½. Hopefully your kids are gone by then because you’re going to need that money. Trust me! (And what’s the ½ for? Just to fuck with us?) Plus think about this. If you start your fund at age 22 then you’re telling your fund manager to hold onto your money for 37and 1/2 years without guaranteeing you any interest and without even a guarantee that you’ll get it all back but you’re pretty much guaranteed not to be able to touch it without a whopping big penalty for doing so. Imagine if someone asked you to hold onto a pile of money for 37 years and you knew they wouldn’t be coming back for it for 37 years. What might you do with it?…just food for thought…
So, how do we save for college? The mattress! Yep, you heard me Every dollar in gets you 1 dollar out plus when you consider adding all of the spare change that falls out of your pocket and lands under the bed your mattress has a higher average annual yield then most government securities! So parents of America, To the Mattresses I say! To the Mattresses!