Reading Makes Cents Eligibility and Rules
By Nicole Chiello
As adults, we all know how important money is to everyday life. Having skills to balance your bank account is something that will benefit you forever and will ultimately strengthen your quality of life, no matter how much money you have. Whether we have an abundance of it, or not much of it at all, we have to think about it numerous times a day. If you really think about it, money is probably one of the things that an adult has to think about the most often – paying bills, buying food, gas, etc., everything that you do as adult, even something that is actually free, costs some form of money.
According to Forbes magazine, adults don’t know nearly as much about balancing money as they should, and much of the reason is because schools don’t teach enough about it. As parents and caregivers, however, there is a lot we can do to teach children about money early.
Click here to watch our segment of The Modern Parent where we presented this article about teaching children about finances.
As early as preschool, children understand what money is. According to the University of Cambridge, a child’s money habits form by age 7. The earlier a child understands that you can’t always get what you want, when you want it, and you need to save, the easier it will be when these children are in college and beyond. Starting to teach children early about the value of a dollar will help the next generation with their spending. Thinking about our credit card debt, foreclosed homes, and massive student loan debt from this generation, it’s important to start teaching kids early.
1.) The concept of, “you can’t always get what you want.” It’s important to start early when it comes to buying for children. Let children know when you are shopping that today is not going to be a day they receive a gift, and they will have to wait. Helping children understand early that every time they walk into a store, they will not necessarily receive a present is important for them as they get older.
2.) Allow your child to help you with choices at the market. As they get a little older, allow them to help you make choices. Give them 5 dollars and ask them what fruit or vegetables you should get for the family. Explain to them that you might be able to buy something on sale and get more of it, or something not on sale and get less. If children can help you and come to these money decisions with you, they will better grasp it when they have to do it on their own.
3.) Start with an allowance early. The idea of an allowance is an important concept for children as they grow – if you are doing it the right way. Give your child a list of things they can do, and if they do it, they will get a certain amount of money. If they don’t do it, they will not receive it – much like adults. If we don’t do the work, we won’t get our money.
4.) As they get older, start them with banking ideas early. Many college students get thrown into the credit card, student loan and bank account world all at once. Work on things one at a time. Open a bank account early in high school and balance it with them. Talk to them about how they should only be using a credit card if they can pay off the balance at the end of the month and show them why. Show them the financial reasons behind college options – how the more expensive school will be more harmful in the long run.
5.) Allow children to make small mistakes. It might be the easy thing to explain to your child why a purchase isn’t worth it – but let them make it and see it for themselves. Then help them learn from it. You might know that the purchase is ridiculous, or cheap, or too expensive -and you know they will regret it. Letting them regret it, however, teaches them not to make the same type of purchase again.
Nicole Chiello is an Education Specialist at The Children’s Workshop. The Children’s Workshop has locations in Bourne and South Dennis. Nicole received a BA in Elementary Education and Psychology from URI. Nicole has been with the team for four years. Before being a director, she was a school-age coordinator, as well as a substitute for the Public Schools. Her favorite thing about working with children is the guarantee that every day is different! Visit us at wwww.childrensworkshop.com .
With the costs of a college education rising every year, the keys to funding your child's education are to plan early and invest shrewdly. However, there are steps you can take if you get a late start. Moreover, there are a number of effective techniques for increasing financial aid opportunities and reducing taxes.
Savings And Investment Strategies
According to the College board, over the most recent decade, the largest one-year increases in average published tuition and fees at public four-year colleges and universities were 11% beyond inflation in 2003-04, and 9.3% beyond inflation in 2009-10. The inflation-adjusted increase was under 1% in 2008-09, and is 4.5% in 2011-12. However, proper planning can lessen the financial squeeze considerably, especially if you start when your child is young. It should also be noted that in 2010-11 the average amount of aid for a full-time undergraduate student was about $12,455, including more than $6,500 in grants that don’t have to be repaid.
Here are some guidelines--geared to parents whose children are no older than elementary school age--for funding your child's education.
Start Saving Early
We cannot emphasize enough that getting an early start is basic to funding your child's education. The earlier you start, the more you'll benefit from the compounding of interest.
Planning Aid: For an estimate of the amount of money you would have at the time your child enters college if you begin saving now, see the Financial Calculator: College Savings Calculator.
When should you start saving? This depends on how much you think your children's education will cost. The best way is to start saving before they are born. The sooner you begin, the less money you will have to put away each year.
Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year
for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until the child is six years old, you'll have to save almost double that amount every year for twelve years.
Another advantage of starting early is that you'll have more flexibility when it comes to the type of investment you'll use. You'll be able to put at least part of your money in equities, which, although riskier in the short-run, are better able to outpace inflation than other investments after time.
Find Out How Much You'll Need To Save
How much will your child's education cost? It depends on whether your child attends a private or state school. In the 2010-2011 school year, the total expenses--tuition, fees, board, personal expenses, and books and supplies--for the average private college are about $35,636 per year and about $15,213 per year for the average public college. However, these amounts are averages: the tuition, fees, and board for some private colleges can cost more than $55,000 per year, whereas the costs for a state school can be kept under $10,000 per year.
Planning Aid: To find and select the best colleges for your child from a database of over 3,200 two-and four-year colleges, see College Search.
Don't forget to add the costs of graduate or professional school to the amount your child will need.
Planning Aid: If you're trying to estimate future costs, you can estimate that school costs will grow by about two percentage points above the inflation rate. To be on the safe side, we suggest you assume costs will grow by at least 7% per year. For the most recent increases, refer to 2011 Trends in College Pricing.
Choose Your Investments
As with any investment, you should choose those that will provide you with a good return and that meet your level of risk tolerance. The ones you choose should depend on when you start your savings plan-the mix of investments if you
start when your child is a toddler should be different from those used if you start when your child is age 12.
Related Financial Guide: For a general overview of investing principles, please see the Financial Guide on our website: www.dellapostacpa.com :INVESTMENT BASICS: What You Should Know.
The following are often recommended as investments suitable for education funds:
Series EE Bonds are extremely safe investments. For tax treatment of redemption proceeds used for college, please see the Financial Guide: HIGHER EDUCATION COSTS: How To Get The Best Tax Treatment.
U.S. Government Bonds are also safe investments that offer a relatively higher return. If you use zero-coupon bonds, you can time the receipt of the proceeds to fall in the year when you need the money. A drawback of such bonds is that a sale before their maturity date could result in a loss on the investment. Further, the accrued interest is taxable even though you don't receive it until maturity.
CDs are safe, but usually provide a lower return than the rate of inflation. The interest is taxable.
Municipal Bonds, if they are highly rated, can provide an acceptable return from the tax-free interest if you're in the higher income tax brackets. Zero-coupon municipals can be timed to fall due when you need the funds and are useful if you begin saving later in the child's life.
Tip: Be sure to convert the tax-free return quoted by sellers of such bonds into an equivalent taxable return. Otherwise, the quoted return may be misleading. The formula for converting tax-free returns into taxable returns is as follows: Divide the tax-free return by 1.00 minus your top tax rate to determine the taxable-return equivalent. For example, if the return on municipal bonds is 5% and you are in the 30% tax bracket, the equivalent taxable return is 7.1% (5% divided by 70%).
Stocks contained in an appropriate mutual fund or portfolio can provide you with a higher yield at an acceptable risk level. Stock mutual funds can provide superior returns over the long term. Income and balanced funds can meet the investment needs of those who begin saving when the child is older.
Deferred Annuities provide you with tax deferral, but the yield may not be acceptable because of the relatively high cost of these investments. Further, amounts withdrawn before you reach age 59-1/2 may be subject to a 10% premature withdrawal penalty.
Related Financial Guide: For further information on investing in annuities, please see the Financial Guide: ANNUITIES: How They Work And When You Should Use Them.
If you have any further questions, please give our office a call: 508-540-3683 or email us at email@example.com
Saving with 529 Qualified Tuition Plans Section 529 plans, also known as Qualified Tuition Programs, are the best choice for many families.
Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations:
1.) The Prepaid Education Arrangement. You essentially buy future education at today's costs, by buying education credits or certificates. This is the older type of program, and it tends to limit the student's choice of schools within the state.
2.) Education Savings Accounts. You contribute to an account earmarked for future higher education.
Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state's program may impose.
You may open a Section 529 plan in any state. But when buying prepaid tuition credits (less popular than savings accounts), you often need to apply the credits to a specific college or group of colleges.
Unlike certain other tax-favored higher education programs, such as the Hope and Lifetime Learning Credits, federal tax law doesn't limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. (Individual state programs could be narrower.)
The key parties to the program are the Designated Beneficiary, the student-to-be, and the Account Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.
There are no income limits on who may be an account owner. There's only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. (Some state programs don't allow the same person to be both beneficiary and account owner.)
Gary M. DellaPosta is a CPA located in Falmouth. He has been in practice for over 30 years. Stay tuned next week to read about tax implications regarding 529 plans.
College tuition and fees are on the rise. Shockingly, the cost for 4-year private schools now tops $36,000 per year on average.
But the investment is well worth it. According to the U.S. Census Bureau, individuals with a bachelor's degree earn more than double those with just a high school diploma.
The two most popular college savings programs are 529 plans and Coverdell Education Savings Accounts. Whichever you choose, be sure to start when your child is young. The sooner you begin, the less money you will have to put away each year.
Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for twelve years.
Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child's college education savings plan.
How Much Will College Cost? Based on the survey completed for the 2010 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2010-11 was:
$16,140 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.1% from 2009-10 findings.
$36,993 per year for 4-year private colleges and universities.
This is an increase of 4.3% from 2009-10 findings.
It should be noted that, on average, full-time students receive $16,000 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $6,100/yr for public 4-year institutions, and $3,400/yr for public 2-year institutions.
Gary M. DellaPosta is a CPA located in Falmouth. He has been in practice for over 30 years. Stay tuned next week to read about 529 Qualified Tuition Plans.
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