Generally speaking, I consider myself “Stock Market Positive”. I believe investing in companies on the stock exchange is generally a good concept. But I am refusing to get the recommended 529 Educational Savings Plan for my son.
I have made more money through various stock market/real estate investments (passively), than my 15 years in the work-force. My ”Mama Capitalist” page details the whole story.
If we have the same type of passive income economy where investing in things can make a person more money than a working, it would be better to keep funds available for investing in things rather than education. Right? The 529 Plan signals we are headed in this same direction. It means that it does not make sense to tie up sums of money exclusively for education, regardless of tax incentives.
The math does not look right.
Today, the average working American does not have disposable income to invest in the stock market. Or purchase goods (without using a credit card) that are sold by companies on the stock exchange. As a result, I am not as confident in the stock market scheme as I used to be. I know too much about it now.
My specific grievance with the 529 Plan is much more complicated though. What does it say about our system when the ideal way to save enough money for a child’s education is to siphon it away to Wall Street?
It says to me that American workers are not likely to see income raises competitive to stock market annual returns — for another 20-30 years. Have we not yet learned from the last 30 years of the draw-backs of such a situation?
It also means that the cost of education will continue to reach new heights, becoming increasingly inaccessible to those without stock portfolios or a willingness to take on the weight of debt.
The 529 Plan is reflecting back to us America’s the effects of our society’s twisted and singular monetary arrangement. Do we want to teach our children that American’s earn more when we work hard? Or that the best way to make money is the easy way – on Wall Street?
Here is my strategy for paying my son’s education.
Currently, I have a utility (AEP) dividend reinvestment plan. I plan to let it continue to grow as my son grows. I will “gift” him money “tax free” (today’s rules) during his first two years in college into a safe account. Because what if he does not go? The 529 funds would still be taxable.
If he gets a good job and opts out of school, I would still consider gifting money for him to have a down payment on a house. This situation gives him various financial options, unlike the 529 Plan.
But there is a caveat, I will gift him only the value of one half annual salary of his chosen profession. Say he wants to go to school to be an engineer and could expect to earn 70K after the first 3 years. I’ll will come up with $35K payable only during the LAST two years of school (after two years of transferring the funds “mostly” tax free). For the first two it’s his responsibility — via loans and scholarships. Too many kids take school for granted because they are not responsible for it financially. I don’t want my son to think there is unlimited loot somewhere. He needs to show me he is serious about school before I fork it over. I want to show him that a work ethic provides nice returns – not just a dividend reinvestment plan!