My Brilliant Financial Advice

I subscribe to LDS Living Magazine's e-newsletters, and every month or so (I think) they have financial advice from that fantastic money guru Dave Ramsey. All the email will show is the question (Dear Dave style), then you click on the link to go to their site and read the answer.

I love reading his advice. He's practical, down-to-earth, and no-nonsense about money. He rocks.

The most recent email had this question:

Dear Dave,
We have five kids under the age of five. We'd like for all of them to be able to go to college, but we're not sure how much it will cost. Our household income in about $90,000 a year, and we have no debt except for our home. What's the best route to go with our college savings plan?
Laura

My first thought was: "Encourage them to get a great education, do well in high school, and get scholarships."

That's our plan anyway. I have two fundamental beliefs about college when it comes to my kids. One: you're going. Two: you're paying for it.

Okay, I don't sound that harsh when I lay it out for my kids, but that's the truth of the matter, and I'd feel the same way even if it were possible for Brian and I to put our three kids through college (it isn't possible, in case you're wondering). That cold, hard financial fact makes it easy for me to tell my kids they're responsible for putting themselves through school without sounding like a big meanie. I believe college is something you earn. Period. It's both a responsibility and an opportunity, and earning it is the best way to make a young mind appreciate what they're being given.

My kids know I had to do it too. I chose to go to a small, private, liberal arts college. Tuition was around $23,000 a year. By the time I graduated, my student loans totalled around $20,000. Scholarships and grants paid for the rest. Three years of college for free just because I decided to learn what I was being taught in high school. Not a bad deal.

You don't have to be brilliant or a straight A student for that to work - or I couldn't have done it myself. You only have to be dedicated and work hard. A supportive mommy doesn't hurt anything either.

So while I have no plans to put money away for my children's college education, I invest plenty by way of encouragement, instruction, and making sure they get a good education at their school. The rest is up to them.

I have complete confidence that they'll be able to pull it off.

If you think I'm off my rocker and want to know what the Fantabulous Dave has to say about it, here's his advice:


Dear Laura,

Whew! Boy, you guys have got a house full and your hands full! You've also got a nice income, and that's going to help a lot. Right now, the most you can put into an Educational Savings Account (ESA) is $2,000 per year. If you did this annually for each kid, you have a little over $100,000 per child when it comes time to send them off to college. Pretty sweet, isn't it? That will buy a good education at just about any state school.

For the first $2,000, an ESA has more flexibility than a 529 plan. They're very similar in how they act, but with an ESA you're in total control of the investment. You can move it around, and put it into almost any mutual fund. If you use the ESA or a 529 for anything other than college you'll get hit with a 15 percent penalty, plus the tax rate, so start brainwashing the kids now; it's for college only!

Dave