Investing in a college savings plan_ What you need to know


For many families, paying for college is a significant investment, but there are ways to start saving now. Ross Mac, a financial expert, describes some of the most popular college savings options.

Script for the video

By AKIKO FUJITA This week, the Supreme Court will rule on many crucial cases, so all eyes will be on them. The court's decision regarding President Biden's student loan program, which aims to forgive up to $20,000 in loans for each borrower, is anticipated by millions of Americans.

In the twenty-first century, the price of college has more than doubled. A bachelor's degree could cost more than $500,000 when all fees, interest, and lost income are taken into account. At least, that is what the Education Data Initiative claims.

So how should you begin to think about conserving money for the expense as an investor? Ross Mac, a content developer and financial specialist in economics, is here with some advice. Ross, when you consider the ambiguity surrounding student loan repayments, this is really sort of the final piece.

Even the president has expressed doubt about the likelihood that the court will find in his favor. What do you believe will have the most immediate effect if student loan forgiveness is actually allowed or the Supreme Court rules against it?

A. ROSS MAC Well, first off, I always try to stress that I can only control what I can control in order to err on the side of caution. I believe that consumers will be much healthier in the event that the Supreme Court does decide in its favour. In terms of income that they will be able to keep, I believe that people will have a lot more money than they would have if they had to pay off student debts.

SEANA SMITH (I) Ross, Perhaps those who do have some extra cash do not have to worry about college loans. They might be considering how to best position themselves moving forward. Then, be aware of the time when creating generational wealth is your main emphasis. The first suggestion you have is a 529 if you want to put yourself in a situation where your children, hopefully, won't need to take out school loans. How does it function? Why is it reasonable?

A. ROSS MAC I adore that query. I constantly advise folks, "Let's try to focus on giving our kids the experiences we didn't have rather than the, you know, frugal things we did have," and that's the problem. In other words, instead of trying to offer them the newest Jordans, let's teach them what we already know. So why not give our kids the chance to learn about investment, in my opinion? But two, also have the capacity and choice to complete their college degrees without taking out any student debt. And, as you mentioned, we're talking about almost half a million dollars in the next 18 years or so for when my kids are getting ready to go to college. So let's start saving money today and be really deliberate, is how I'm thinking about it.

To put it another way, I want you to think of a 529 as a tax-advantaged college savings plan where you can start saving money right now and it will grow essentially tax-free. Therefore, as long as you're spending that money for legitimate educational costs, whether that's tuition, lodging and board, books, or whatever else, you're good to go.

By AKIKO FUJITA 18 years is a pretty long period of time, Ross. Many parents are asking themselves, "When do I start setting that money aside?" as they look at this. What say you?

A. ROSS MAC Therefore, I would conclude that sooner rather than later is preferable. Compound interest is something that you have on your side when you give this some serious thought, right?

The great Einstein once said, "He who understands compound insist" (sorry, couldn't resist). Compound interest is earned by those who understand it. Whoever doesn't pays for it. Therefore, compound interest gives your money the opportunity to begin earning interest, which is then reinvested. Therefore, it is preferable to act quickly. I, therefore, have a number of accounts for my kids. One is a 529, from which I'm beginning to deduct money with each cheque and each month, correct?

It all comes down to consistency, as well as having a custodial account.

A custodial account, in my opinion, is still another fantastic item that gives your kids a terrific learning opportunity because, first of all, you get to actually educate them on how to become owners of some of the best or most successful enterprises that they actually utilize.

Every day, my daughter visits YouTube. She wants to watch Ms. Rachel, to be more precise. Guess what, though? Do you understand that I want you to also be YouTube's owner? Okay, let's take over Google. Let's just say that it goes without saying that she will age. Whether it's Meta, Chipotle, or McDonald's, she'll want to own it. Therefore, I believe that having a real custodial account is crucial if you want to start enabling kids to understand how the world functions as well as enabling them to become owners.

SEANA SMITH (I) Ross, you brought up Ms. Rachel; in our home, we too adore Ms. Rachel. However, people are attempting to determine how much cash to reserve or designate for each of these kinds of accounts. I suppose investors and people should think about that when deciding how much to put into a 529 account vs a custodial account.

A. ROSS MAC I adore that query. So, in order to determine how much, you may obviously work backward. To say, "OK, I want to have $200,000 in 20 years," there are various—there are several, you know, practically call it investment aggregators online. The amount? And you mention what your average expected rate of return is. That will be 10% if we're talking about the S&P 500.

Then this is what I want to do, on average. Naturally, you can go backward. Since everyone will have a different financial situation, I won't suggest "at a minimum," but you should at least get started. But I believe the objective is, to begin with, perhaps, $50 or $100 every month. You'll also be able to step it up and say, "OK, I want to raise it from 100 to 150 or 200," etc. when you start to generate more money. And in my opinion, that is the proper procedure. But the budget is where it all begins, right?

I believe that once we comprehend and devise better methods to comprehend what our outflows are, we will be able to state unequivocally, "Okay, let's make saving and investing a priority." Let's agree on it as well. Now, in addition to the monthly payments we must make for our mortgage, vehicle loan, insurance, and other obligations, we also have to fund our 529 accounts. Let's settle the finances in our custody. Let's contribute to our own retirement accounts.

So my perspective is, Let's make it all into a bill. However, you start off with, say, $50 or $100. And if your income grows, you might start raising the size of your allocation.

By AKIKO FUJITA Ross, I'm interested in hearing about the investment discussion you have had with your children. I know this topic has been discussed in many homes since I've seen parents say things like, "Look, you pick the name you like so kids can understand that investment thesis better." How do you start that discussion? Just wondering how things have gone with your child.

Ross Mac: Well, I believe that anything that we use on a daily basis binds us to it. So it's excellent to start the dialogue with my kids right away if I have an Apple phone, an iPhone, am using a Mac, an iMac, or have AirPods. Hello, listen. Apple owns this.

If we frequently stop at McDonald's to eat and drive, it's fantastic to let them know that they can genuinely own this business. As a result, for me, the conversation and obviously, as you can see from my material, my children are 2 and 1. Therefore, it's still quite early. But even so, I enjoy conversing because, well, guess what happens when we start discussing particular Disney Channel programs that my kid watches? Disney is yours.

And so I believe that understanding that, look, guys, as a world, we are all customers of something, whether it be a service or actual business, is quite important. However, if it's a public corporation, you have the option to also be an owner. So, if your pals, yes, if the friends of your children go to McDonald's or Chipotle or wear Nike, guess what? Actually, you could have that.

Now that your child is gazing around and declaring ownership, they are also thanking their buddies. We appreciate your business today.

By AKIKO FUJITA Ross Mac, thanks for the insights as usual. We appreciate you being here with us today.

A. ROSS MAC I greatly appreciate it. If I could mention one thing, it would be that on July 9th I will be hosting a Mac-economics Wealth Summit in Chicago. And this conversation is what it's all about, right? The goal is for the community to genuinely educate people on how to more effectively combat wealth, am I right? I believe that these discussions ought to start right away.

Amazing folks will be attending. We'll discuss life insurance, retirement planning, and ways to make sure your children may graduate debt-free, er, and tax-free. Therefore, the Mac-economic Wealth Summit on July 9th in Chicago is going to be incredible.

AKIKO FUJITA: I need to purchase the plug-in. Rob, many thanks for that.

A. ROSS MAC I'm grateful.