Financial Aid – Student Loans and Their Value to You

You should not go into debt for any item that depreciates in value. For example if you borrow money to buy a new car, the minute you drive that car off on to the road, that car is decreased in value. So in this way you essentially end up owing more on that car than is worth. That is one reason why people tell you to not go into debt.

One of the few items that appreciates or increases in value is the college education. College is an investment and you invest for the long haul. It will usually benefit you in the long run. So borrowing money for your college education can be fruitful. However, it may not prove to be fruitful immediately, and that’s one of the hard thing in this society today of instant gratification. It’s not an immediate return but it is a sound investment and over a period of time your college education it may prove to increase your earning potential that you have over your lifetime.

If you go to a graduate school your earning potential is increased even more. And you might come across studies that will say that college graduate will earn $600,000 to $1,000,000 more than a student who just has a high school diploma.

Let’s talk about other aspects. When families are asked to complete the financial aid application for financial support or government grant application what you need to do is complete the application as fully as possible as it is essentially a snap-shot of your current financial situation — your income, any liabilities that you have and your assets. But we all know that things happen in a family whether it is an economic down turn, or medical expenses brought on by an illness or an unfortunate accident, or a cut in the pay. Anything can change from the time that you have completed the financial aid application.

If you are ever caught in this situation your first priority is to call the financial aid office and inform them about your loss. If you have any further questions about what the procedure is at a certain school, you should not hesitate to call that financial aid office and they will walk you through it.

The Financial Generational Curse

What comes to mind when you hear the words generational wealth? Do you think of the Kennedy’s, the Rockefeller’s, or perhaps the Hilton’s? Aren’t these families we’d love to be a part of, yet somehow winning the largest mega million jackpot seems more likely. We think, “I’d wish I had that kind of money, but that kind you are born into.” If you were thinking along these lines, you would be right!

Generational wealth is a system of financial planning that is structured to remain stable and trickle down through several generations, often increasing as it continues to move down (that sounds weird). It begins with the first generation (typically not wealthy) who creates the wealth, which in turn is put into a system (investments) where the wealth builds upon itself, increasing as time goes on also known as compounding interest (whew, that’s a lot to process).

Okay, so you probably weren’t born into this scenario, and your thinking, what does this have to do with me? The reason for understanding the concept of generational wealth is to see that it is designed to purposefully setup future generations. With that I pose, why can’t we treat our financial education similarly? The more we know, the more we can teach, and the more our future will benefit. Of course this sounds simple in theory, but rarely is it implemented. Purpose and commitment are words we often struggle with. Think about it, on average, how many ideas or thoughts requiring an action pop into your head daily? Now think about how many you actually achieved purposefully.

Once upon a time, saving was important. Whether it was, food, money, materials or other resources, mindsets were trained to save for, “just in case”. There was less focus on consuming, and more emphasis on working with what you had. Fast forward to 2012, there is an over indulgence on consuming and a dramatic decline in saving. The desire for instant gratification is perpetuated through advertisements, media, music, and the classic “keeping up with the Joneses”. If we can’t instantly afford it there are options waiting to “assist”, after all we have to have it now, right? Our options range from, the “Buy Now Pay Later” online shopping option, you can even save a whopping 10% if you sign up for a store credit card today (exciting), and last but not the least, there are more than a few financial institutions that can “assist”, also known as, the loan and the credit card. Well aren’t these options convenient.

I once read that the second half of a man’s life is made up of nothing but the habits he has acquired during the first half. With current society standards, I believe we are raising individuals born into what I call the financial generational curse. The concept of having a generational cursed is characterized as, inheriting something negative as a result of the actions or inaction’s in the previous generation. Our lack of financial literacy is producing a generation of individuals who are uniformed of concepts like, credit, credit scores, and interest rates. Banking terms such as, money market savings, CDs (certificate of deposit), and lines of credit, all sound foreign. The financial habits we currently have are crucial to the habits our children and others around us will have. As important as money is in our everyday lives, it is shocking how many people put their financial education on the list of “things to do when I get rich” (oh that word). What we have to understand is, what we do with a little, we will do the same with more. Meaning, if you can’t save in your current financial situation you’re not going to save in a better one. Actions without purpose are pointless; it will always lead to complacency. What has to change to facilitate purpose in actions is our mentality; how we interpret the things we do. Many financial struggles are self-inflicted (not all, but a great deal), and they can only be corrected when we stop being ignorant and put forth effort.

Let’s reflect: Where did you get your earliest thoughts about money, saving and credit? What thoughts do you currently subscribe to? Are they accurate? How do you know? My favorite question is, “does your current financial situation work for you?” I absolutely love this question because, it is the answer many will give, that is the reason we become delusional to our financial happenings. I say this, because I’ve been there before too. It’s interesting how many of the ideas and attitudes we have about finances can come from people who have never built healthy financial lifestyles themselves. We listen to just about anything we read that sounds good (even my article). We as a society have become lazy, and researching things beyond Google and Facebook is out of the question. Many people will accept the beliefs and words of someone without verifying if they even have the right to teach us? Yes, even your parents!

If I conducted a survey on the things people wish their parents talked to them about, the top results would most likely be sex and credit. For some, we can remember a detailed conversation about these matters, for others maybe nothing at all, but for most we can remember some abstract mentions that our parents positioned as a “conversation”. These “conversations” usually sound like a horrible version of a PSA (public service announcement): “don’t have sex until you’re married”, “credit cards are bad”, and “don’t get into debt”. While the intentions of the “don’t” are positive the lack of details embedded into these demands are just pure directions to a dead-end. This concept I like to call the “do as I say and not as I do”, and as we all know and learned, it doesn’t work! While this is not true for every household, it is true of too many.

We heed the lessons or lack thereof our parents instilled in us. Whether right or wrong, it is often not until we have some experience do we verify the reality of those lessons. People always say “they will learn eventually, we all have to make mistakes”, I say no. That very form of thinking has us where we are right now, a country in excessive debt, with a small percentage of people living in financial freedom (please understand I am not talking about having a certain amount of money, I am referring to having whatever amount you have and utilizing it properly so that you can have freedom). We must learn from the life lessons of others. Famous author Rick Warren wrote, “While it is wise to learn from experience it is wiser to learn from experiences of others.” Imagine if we shaped our mentality around this very statement, how may “set backs” could be avoided. Bad habits are educated into us and bad habits can be educated out! Stay tuned to my upcoming article to discuss the steps to breaking the generational curse by understanding the myths that get you there and keep you there.

Anyone can be average- few will be exceptional- you decide.

Saving For Children’s Education

One of the most common financial goals that couples have is to save money for their children’s education, whether that be at a private school or a tertiary institution. Saving for this purpose is no different than saving for any other goal in life, yet there is a common misperception that funds need to be set aside separately or even in the child’s name for this purpose. That can lead to a lower rate of investment return in some cases.

If you are going to save for your children’s education, then you’re probably looking at saving tens of thousands of dollars and it will take a number of years to get to that target.

That means starting when the child is young – in fact, probably at the preschool age. Anybody with preschoolers most probably has a mortgage. With mortgage interest rates being so high, the best place to put your money is into your mortgage to keep the interest payments down. If, for example, you are paying say 7.0% interest on your mortgage you would need to earn at least 7.0% after tax on an investment to make it worthwhile investing and not paying your mortgage. So pay off your debt as fast as you can, and then remortgage later if your still really want to help your kids. If you have grandchildren that you wish to provide for, the situation may be a little different. You probably won’t have a mortgage and you may wish to make funds available that are clearly earmarked for your grandchildren and clearly specified to be used only for education costs. A good way of achieving these objectives is to set up an education trust. This can be done through a solicitor or trustee company. There will be a fee involved to establish and maintain the trust, but there will be safeguards in place to ensure that the funds are used for the purpose you intend. An education trust can be particularly useful in certain situations, for example, where there is a relationship breakdown between parents and a parent or grandparent wishes to make funds available without the risk of the money being used for a different purpose. An education trust can also be used where funds might be at risk of a possible future claim by business creditors.

There are specialist funds available that offer educational scholarships. The idea is that you contribute a regular amount into the fund and, if your child attends a tertiary institution there is a scholarship payable. Such funds need to be looked at carefully in terms of the likelihood of your child attending a tertiary institution and, in the event they do, the value of the scholarship in relation to the funds invested.

Integrating Financial Education Into The Education System – Part 1

With today’s education system training students out to become financially illiterate employees, many academically smart people lose out when they step into the outside world. This necessitates the need for integrating financial education in the many lessons taught in school. The following 3 below are the ones I believe every student must know.

To prepare well for the future, I’ve always believed that we must know history at our fingertips first. Similarly, for people who want lots of money, they have to study its history well first. Regarding this, signing of the Bretton Woods Agreement in 1944 would be one of the most important events in modern financial history. This is because it caused all national currencies worldwide to be backed by the US dollar which after 1971 became backed by US debt. The importance of this lied in the fact that most economies worldwide are dependent on and modeled after the US and if the US economy shows cracks, it will be soon that these economies will suffer.

In addition, with the US dollar becoming a “currency” after 1971, money must keep moving to assets that appreciate in value as history has shown that all currencies eventually hit zero. One clear example is the Continental, a currency printed to fund the American Revolution. Today, given this flaw, debt must increase in order for economies to grow. This is one of the reasons why bailouts are used whenever there are crises because bailouts increase debt.

However, debt can be a double-edged sword because too much of it is poison to the economy. As a result, with money today being printed for debt, savers become losers as the purchasing power of their money will get devoured by inflation that is accelerated by more debt. Unfortunately, despite this, many still save and this is why they are financially exploited.

The second lesson every student must know would be understanding their financial statement. In financial statements, there are 3 parts and these are income statement, balance sheet and statement of cash flow.

An income statement measures the net income you earn over a period of time and with the inclusion of expenses, you can budget and control your money outflow better. A balance sheet allows you to compare the worth of your assets against liabilities, giving you your net worth. A cash flow statement allows you to determine the amount of passive income you earn over a period of time. Passive income is income you do not work for and it usually resides in lower tax brackets. Knowing these 3 aspects of a financial statement can easily allow a student to be more prudent with their finances, reducing the possibility of financial problems in life.

The third lesson necessary for every student would be the difference between an asset and a liability. In simplified terms, assets put money in your pocket without you working while liabilities draw money out of you even if you work. Knowing this will allow you to make your assets worth more than your liabilities, using cash flow from assets to buy the liabilities you need (e.g. yacht, club memberships, etc). This will certainly help people filter out bad financial advice and concentrate better on achieving their financial goals.

In conclusion, while simple in nature, these 3 lessons can have profound impact on the lives of many if they knew them well early. Nevertheless, it is never too late to learn and I hope readers have gained some understanding about finance with this.