Financial planners: College an investment in the future

March 19, 2009

Financial planners: College an investment in the future

www.mycentraljersey.com

By MARK SPIVEY
Staff Writer 

Jim Kinney is not just an expert in the field of financial planning for parents seeking to fund their children's college education. He's also a case study.

The Hillsborough resident and founder of the Bridgewater-based Financial Pathways, LLC, is also father to four children — ages 11, 13, 16 and 18.

"This is one subject," Kinney said, "I could write a whole book on."

Kinney, who this weekend will deliver a keynote speech at a college planning fair in Warren — his topic is the "Ten Biggest Financial Mistakes Parents Make When Planning for College" — echoed advice voiced by experts throughout the MyCentralJersey.com coverage area in saying that saving should be viewed as an investment, not a cost.

"From a cold financial perspective, I look at college as simply being an investment in the future earning potential of a child," Kinney said. "If I pay $300,000 to send my child to an Ivy League education or medical school and he becomes a brain surgeon who makes $1 million a year, then that investment certainly was worth the money."

PLANNING AHEAD

While a broad consensus exists on the importance of saving for college, the methods in which that can be done are varied. Still, among dozens of college savings plans vying for supremacy, many financial planners agree that one of the most popular, the 529, also ranks among the most effective. Such plans are tax-advantaged investment options operated by a state or educational institution, named after Section 529 of the Internal Revenue Code, the establishment of which created them in 1996.

The 529's flexibility is a huge selling point, according to Mark Kantrowitz, publisher of the nationally renowned FinAid Web site and director of advanced projects for FastWeb, a college scholarship search engine. Established by Kantrowitz in 1994 as a free public service, FinAid markets itself as the nation's most comprehensive source of student financial aid information, advice and tools; FastWeb offers a comprehensive database that helps college-bound students apply for 1.3 million scholarships worth more than $3 billion.

"With the market having as much turmoil as it's had over the past year, that may make some families worried about investing in the stock market, but most 529 plans have a wide selection of aggressive and conservative options," Kantrowitz explained. "I still believe that 529 college savings plans are the best options out there."

A key feature of such plans, according to Kantrowitz, is that parents have the option to change investment allocations once a year — and twice in 2009, he added, owing to an exception offered by the federal government. A critical element in managing a 529 is knowing when and how to take advantage of that option, Kantrowitz added, advocating an aggressive plan for young children and a conservative approach for teenagers.

"The idea here is if the child is just about to enroll in college, you don't want to risk the money," Kantrowitz said. " . . . but when the child has many years left before they need to use the money, they'll have more time to recover if things go wrong."

But most important to managing a 529, he added, is understanding how critical its existence is to a child's future. Quoting data from the U.S. Census Bureau, Kantrowitz said college graduates have been shown to earn an average of $1.2 million more than high school graduates over a career. According to FinAid, citing U.S. Bureau of Labor Statistics, the tuition component of the Consumer Price Index increased by 8 percent per year, on average, from 1979 to 2001 — meaning children born today likely will face college costs that are three to four times higher than current costs by the time they graduate.

"Right now, someone who has a newborn, they need to start investing right away; their greatest asset is time," Kantrowitz said.

OPEN OPTIONS

With that being said, some local financial planners agreed that in the current economic climate, temporarily suspending college savings contributions should not necessarily be avoided at all costs.

Curtis Krietzberg, a private wealth adviser of the Edison-based Krietzberg Financial Group, a firm he opened with his brother, said fundamental needs should take precedent in dire circumstances such as extended unemployment.

"College is really important, but the needs of the family — eating, sleeping, taking care of core fundamentals — have to come first," Krietzberg said. "Especially if the kids are young kids, it's OK for parents to take a couple months off if they just can't handle it."

Kinney said a good measuring stick as to when it might be time to hold off contributing is if doing so affects families' other financial practices.

"I would say not to be afraid of taking a break from maintaining (payments) if you are at risk of running through your savings, or needing to take on additional debt, or making withdrawals from your retirement plans," he said.

Still, both men agreed that if parents can make contributions, they should — and if they stop, a commitment needs to be made to continue as soon as possible.

"I just think it's important to save monthly, even if it's a small amount," Krietzberg said. "If you're used to putting away $150 monthly and one parent gets laid off, maybe that goes down to $20 a month. It keeps the habit up."

Peter J. Passalacqua, founder and CEO of the Somerville-based Frontier Financial Planning and Capital Management, said an especially critical notion for young parents to keep in mind is to avoid getting discouraged by the rocky economy.

"My philosophy is to simply make a contribution," Passalacqua said. "And don't get discouraged; we want you to take that overall number with a grain of salt."

One final factor parents sometimes fail to consider, Kinney added, is whether their children really want to attend college. If not, he told parents, do them and yourselves a favor — let them decide.

"The worst investment of all is to pay $50,000 for the first year of school and have them flunk out," he said. "I see that all the time."

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