The Cost of An Education – Episode 067

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[00:00] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, best-selling author, Kim D.H. Butler, and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, and once again, we have our best-selling financial author and co-host, Kim Butler, with us today. Welcome, Kim. Hello, Todd. Happy to be talking today. I always look forward to the conversations that we get to share with our listeners on the podcast. Super. Well, today we’re going to be talking about student loan debt or the cost of an education, I guess so, more so even than just the debt itself.

[00:51] So many of our kids today seem like they’re starting out behind. We’d like to at least provide some tools to help you start out even, if not possibly ahead. What do you think of that? Absolutely. This started because our blog writer, Kate Phillips, found an article on the web that we can source on the links in the podcast about some parents that were in their mid to late 60s that had co-signed on student loans for their child. And now in what was supposed to be their retirement years, never mind the fact that we don’t think people should retire, in their retirement years, they were saddled with this debt. And so not only did the students start out behind, but you have people in their 60s and 70s that are co-signing student loans, and they’re starting out behind.

[01:47] And this is a big challenge for our society right now. Well, and it’s almost automatic, I believe, at least it was with my kids anyway, that the parents are expected to either pay or sign in most cases, you know, really kind of take some extreme things for a student to be able to prove that they’re independent. So I think, you know, at least in the colleges that I’ve dealt with, parent signing is almost expected. Have you experienced the same thing? Absolutely. It’s just a given. And the kids at that point are already approved for the school. They’re already mentally and sometimes even physically headed there. And it’s this, oh, just here, sign this, and then you can attend and we’ll pay for your room and your board and your education.

[02:37] You know, it is an interesting shift in our society because right now there are so many entrepreneurial opportunities as well as other opportunities that really do not require a college degree. And yet we’re still in a mode in our society that a college degree is that right of passage into adulthood. And so it’s a challenge to have families figure out what is truly best for their children. And of course, it’s different for every child. You may have one kid that’s totally suited to school and should absolutely go and it’s worth taking on debt to get them there. And then you may have another kid that just really isn’t suited to the typical school structure and should be off doing some other type of apprenticeship or opportunity

[03:21] that exists outside of the college realm. Absolutely. And would completely agree with that. And, you know, the numbers that we’re talking about here are not small numbers either. I wish I had the exact or the average cost of a college education these days, but I would say that fifteen to twenty thousand would have to be average annual cost, wouldn’t you? Yeah, especially in the private colleges. And of course, some of those are up in the fifty, sixty thousand dollar range. And then you have the community colleges that are more in the seven or eight thousand dollar range. So when you add that up, so times four years at a minimum, as we know, many kids, it’s times five years. And then the common next step is to just jump right into a master’s degree or some

[04:13] advanced degree. You’re looking at an awful lot of money. And what’s interesting and so often forgotten about is it’s not just the actual money. So let’s say that your kid is twenty five thousand dollars and they get through in four years. It’s not just the hundred thousand dollars, whether you paid it or they took it out and is alone. It’s the opportunity cost of that hundred thousand. So let’s say that you as the parent paid it. Well, you’re in your say, let’s just say you’re 50 years old when you pay that. So now you’re going to live another 50 years. People easily living past 100 these days. So you have a hundred thousand dollars times. Let’s say you could get a 10 percent investment on that money for 50 years.

[05:00] That is the opportunity cost of that college degree. And on the flip side, you can say, OK, well, now I have an educated kid that’s supposedly going to earn more money. There’s lots of statistics to say college graduates earn more money. And yes, absolutely, some of them do, but some of them don’t. They go on to be stay at home moms, which is a wonderful profession, but doesn’t earn any income. Or they go live in a third world country and create good over there. Or they do something else that really isn’t generating the income. So are worse yet. They decide they need a different education process again. Yes, yes, yes. But you really have to look at not only the cost, but the opportunity cost. And that’s something that we teach in our seven principles of

[05:45] prosperity and measuring its principle number three, measuring the cost and the opportunity cost of things is something that you always want to do. And so you want to be really careful when you’re spending money for education, whether it’s your money or federal government’s money for a school program that you’re then in debt for. What was your statement at the beginning that causes you to start out behind? Yes, how we were just really, I guess it’s kind of stressful to think about the generation that’s coming up now that so many of them will have not only invested money, but think of the opportunity cost of the years spent on potentially a degree that’s not necessarily in a field that’s in demand, that’s employable, or that’s in a field that

[06:38] is within alignment with themselves, with what they really feel like they’re called to do. And I think that’s probably going to be some interesting things that we’ve seen. We’ve seen some entrepreneurial groups out of California that are actually investing in children now, where, you know, they’ll meet with your child and they will agree to pay all of the financial expenses to start their career in exchange for a percentage of their income after they’re employed. So I think we’re going to see some creative ways coming out that maybe can create some win-win, because I just don’t think handing everybody a student loan and sending them down the road and saying, okay, you know, it’s okay, just, you know, go into debt, spend five years of

[07:30] your life, and then figure it out as you go along. I think maybe there’s a better approach to that, that the sheer economics of it is going to force some changes. Absolutely. There’s a book that I want to share picking up on your comment about not only is it the money and its opportunity cost, but it’s time and its opportunity cost. So you have a kid that’s going to commit four to six years of their life to this college structure. That time could be spent doing other things. And there’s a study in this book called The Education of Millionaires. So don’t get stuck on the millionaires. Listen to the subtitle of this book. Everything You Don’t Learn in College About How to Be Successful. It’s by Michael Ellsberg, E-L-L-S-B-E-R-G, The Education of Millionaires

[08:22] by Michael Ellsberg, and again, the subtitle, Everything You Don’t Learn in College About How to Be Successful. He talks about how valuable that four to six year period is in earning capacity. So there are some children that should actually start working then and work up, you know, again, maybe an apprenticeship or some of these special programs like you’re talking about, where those kids are going to literally be four to six years ahead of their peers because they got to work during that time, learn about themselves during that time, create opportunity and income during that time. So opportunity cost applies not only to money, but it applies to time. And I think there’s a lot, I know my daughter is finishing up her

[09:04] master’s degree she’s on at UCLA right now. And, you know, the thing that’s amazing her is, is that, you know, at the end of the master’s degree period, you still have to learn your job before you start, even having that seven years worth of education does not fully prepare you. So there’s still a training period involved. And I think a lot of kids are disappointed. I know she certainly thought that by, you know, putting this much education upfront, that it was going to at least allow her to start in the middle, and in some sense it does, but really you start at the beginning, learning your job on your job, don’t you? Absolutely. And on the job training, internships, that kind of thing, super valuable to

[09:54] take forward into the world, as opposed to this starting behind with debt or heavy, heavy opportunity costs for the parents, if the child isn’t going to take on the debt themselves. And as we’ve spoken before on this show, we’re big advocators of skin in the game. The child absolutely needs to take some of that on. And it’s not an easy call. I know in our family, we’ve got both kids got scholarships on our two youngers and yet one got a bigger scholarship. So there’s still quite a bit of cost. And, okay, maybe there’s not debt, but there’s still opportunity cost. And then the two older chose not to go to school at all. And now we’re in their mid twenties with that quote head start on work, but it’s very clear that they’re still searching.

[10:44] And so I want to share one of the tools that we like to use when kids are searching. Like, what do I do? You know, where do I find this all important job that I can actually love my work? And that’s the Colby profile. K-O-L-B as in boy E. It’s an uncommon one, although it’s used all over the world. Colby.com best 50 bucks. You can spend highly, highly recommend it. It’d be an awesome Christmas present for anybody really. That’s in that. What do I do when I grow up? And, you know, people are not only asking that question when they’re 20 years old, sometimes they’re 50 and 60 and 70 years old asking that. What do I do when I grow up question? Super. And I think that’s the main thing we want to get across here is we

[11:28] are not in any way anti-education. But what we’re saying is, is that, you know, you now have a hundred year lifespan to work with. You still have to properly try to invest the minutes and the dollars of that lifetime. And we’re trying to provide as many tools as we can to make it make sense and dollars for the parents, as well as the children. And in most of the cases, it makes more sense for the parents to focus more on their own finances than it does in providing that paying for the education for the children. Would you agree with that? Absolutely. Because the kids going to find a way and at a much, much younger age with much more flexibility has capability. And so without a doubt, we have counseled clients in their 40s,

[12:23] 50s and 60s to steer away from the heavy, heavy focus on paying for their kids’ education. Some families can absolutely handle it and continue to save, but many of them really shouldn’t be doing anything or very little towards the education realm. And that does force the kid to be creative and the families too. And that’s an okay thing. Absolutely. And again, I want to just so we have it on the record here, get your opinion about the prepaid college funds and things of those natures. Absolutely. I am not a fan of them. They go against the fifth principle of prosperity, which is to control. When you give money to the prepaid college funds, even the 529 plan arenas, you are giving up control and the government and, or the state

[13:11] or the college is taking it over. And those, the investments that are available inside those accounts are not super effective. And then what if you have a kid that really does have an entrepreneurial opportunity and needs the money to go pursue that as opposed to go to the school? It’s just not a good focus. And this was true long ago of the old uniform gift to minors accounts and the types of things that people used at that stage of our society’s working out of this quote college education. People used to save in uniform gifts to minors accounts. Same deal. You lose control. That is the child’s money at age 18. And that’s not a good thing to go towards. So we would much rather that you just save money period and not

[13:54] lock it up in a retirement plan or an education plan, because when it’s locked up, then you can’t go do other things with it. Nor can you get $1 to do lots of jobs. It’s so much better to free your savings to where it could actually help educate somebody and provide for your retirement. Not just one thing. And I think if you can look forward in time in nearly all cases, you will find that your children would probably prefer that they paid for their own education and you did not end up living with them. Yeah. Well said. The sandwich generation arrives. All right. Well, super Kim, before we wrap up any other messages to our listeners? Well, we are super excited. We’re going to have very shortly a audio book available of the

[14:44] brand new live your life insurance booklet, which has an added chapter and some additional things in it. So stay tuned for a spot to go track that down. Super. Well, this is No BS Money Guy, Todd Strobel on behalf of the Prosperity Podcast, reminding everybody that, you know, to just take a minute. And if everybody is doing something automatically, it’s probably not something you ought to be doing or at least ought to question it. If we can get that message across, we’ve done our job today. Thanks so much, Kim Butler, and we’ll talk to y’all later. Thank you for listening to the Prosperity Podcast to take control of your money and have it work for you. Visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.