Saturday, February 26, 2011

Does Your College Student Need a Car?

Here's something to think about before the next kid or the first kid goes off to college. Someone I know is all bent out of shape over a child needing a new car while a freshman. Unless the child is commuting from home to college each day, even owning a car while in college is an unnecessary expense. No, it’s a luxury. There is virtually nothing for which a college student needs a car. Commuting from an off-campus apartment to college each day does not require a personally owned vehicle. It requires two legs. Or bus fare, if the off-campus apartment isn’t within walking distance (dumb idea, that; students should live very near the college library).

We are raising a generation of spoiled little princelings, I fear, who get trapped early into the mistaken belief that they “have to” have a car even when their job for four or more years is simply to attend classes and do their course work. Aside from the privilege issue is the unhappy truth that we’re not doing our teenagers any favors by enuring them to the idea that a car is a must. A few years later, out in the adult world, the cost of car ownership can be prohibitive to a young person who only has a McJob for support, or who has a “real” job but only a starter salary. Or who cannot find a job at all. A car is something to which a young person might aspire, but the several thousand dollars a year it costs to own one (even not counting gas) is a burden that many of them are not able to carry on their own. If they accept parental aid to own a car, they prolong their childhood dependency, something neither parents nor children ideally should do.

My college had plenty of rich kids whose parents were well able to give them cars, even luxury cars. But the college had a rule of no cars until one had lasted through the freshman year. This was a sensible method of encouraging new students to fully enter into campus life and bond with other students rather than run away from the college experience to go shopping or whatever. A car is an isolator, and our current generation of pampered youngsters doesn’t need more isolators. Many of them never even shared a bedroom with a sibling in childhood, and they enter college ill-equipped to deal with a roommate. College students have plenty to think about and explore. They don’t need the additional burden of worrying if their car needs oil or is about to be towed.

If you’re teetering on the edge about whether your teenager needs a car at college, let the kid try the first year without one. It’s a bracing experience; it teaches responsibility, ingenuity, cooperation, and even learning how to cope with public transit to arrive at class on time, all skills that will be helpful in adult life. Also, if you’ve signed on to pay your child’s college expenses, a hiatus in paying for a car will be a welcome relief as well as financially sensible. In later college years, once your child masters being a student, having a car might enable him or her to intern or do part-time work, but neither are recommended for the first year. Try this. See how it goes.

Tuesday, February 22, 2011

Seven Tax Tips for 2010 Tax Filings

1. The AMT patch and the Educator Expense deduction are in---again.

2. The deduction of up to $500 of your real estate taxes ($1,000 if married filing jointly) on a standard deduction return is out.

3. Not all Energy Star appliances qualify for a credit. Washers and driers don’t.

4. The IRS is not sending tax packets out anymore, and libraries aren’t carrying tax forms. You’ll have to pull them off the Internet.

5. If you e-file, depending on who does it for you, you can get your federal refund in less than a week. Not a loan. A fee-free refund.

6. If you pay medical expenses for a parent, even if that parent is not your dependent and does not live with you, you can deduct those expenses along with your own itemized medical expenses.

7. If you break into your 401 k or IRA and use the money (or its equivalent, since money is fungible) to pay medical expenses, you won’t have to pay an early withdrawal penalty, but your tax preparer must know how to fill out a special form to get you excepted from it.

Is College Debt All Bad?

Plenty of people talk about why college debt is bad, but thinking of higher education as a mere matter of dollars and cents, as Michelle Singletary seems to, is a mistake.

Here’s the single most important reason to go into student debt: to get into the very best school in your field if you want to become eminent in your chosen career.

Not only will you have exposure, often directly, with the outstanding achievers, both professors, visiting speakers, and fellow students, but you will have the opportunity to be on the cutting edge of developments within it. The people you get to know at that kind of college are likely to be the people you want and need to know later. The alumni of an outstanding school will become your personal old boy network. Your classmates will become the next generation of important people in the field. Some of them will become your friends, some your rivals, and others will be part of a network that will help you make career moves far in the future.

This is not a universal situation. At lots of schools, and in most fields of study, neither the professors nor the alumni nor your fellow students are likely to be significant to your future career success. Classmates might be potential friends or mates, but statistically, they seldom are potential colleagues. The reason for this is that most people who go to college do not end up making a career out of their college major (also, huge numbers change their majors), and even if they do, they do not reach for the top in their field. Only a very small minority do. There’s a huge difference between having a successful career as a scientist and being the scientist who is appointed by the president to run NIH, for instance. As for graduate school, which used to be for the elite, these days just about everybody gets a masters, so even there you are not necessarily hanging out with the future movers and shakers of your field. Most people you meet in an average college will not be important to your professional future.

If you plan to be a teacher, you don’t need to go to Harvard. If you intend to be an accountant, the same. Most careers can be prepared for quite adequately through the state university system.

High-profile institutions have their share of washouts, of course, but in the fierce competition to get accepted, there tends to be a larger percentage of highly motivated, driven students than there will be in a school for which acceptance standards are looser. The stakes are high and even seventeen-year-olds know it. There are careers for which the networking advantages of attending a high-profile college are so valuable that tuition debt is simply the cost of access, and well worth paying.

Not every teenager is suited to or driven to the kind of career that requires intense networking to achieve a high profile position. There is no point in going to a school where the student will be a fish out of water, either, unless that person has an exceptionally strong, determined personality. Of course it has been done, but when an exceptional child is sent to a school filled with the exceptional, there is a distinct possibility of personal adjustment problems interfering with the work of being a student. Parents should analyze their child's chances of making the most of an expensive prestige college experience. Another factor to consider is the financial stability of the student’s family. If the only way to finance a particular college choice is through punishing loans that the family can barely manage to pay, tremendous pressure is put on everyone. The student is under pressure to follow a predetermined career path and succeed. There may be hostility from siblings not given the same opportunity because the parents are completely tapped out paying for the first child. Unless the student is a perfectly performing robot who never makes a false move, always is lucky to be in a strong economy, and feels the moral responsibility to promptly pay the family back for the sacrifice, the dreams for which the debt is undertaken may not come true. That’s a huge moral load to put in the shoulders of a young adult.

Debt should be an important consideration when choosing a college, but not the only consideration.

Tuesday, February 1, 2011

Are we middle class?

Not really. We only think we are. If we don’t qualify for food stamps or discounted housing, or the poverty credit that our state or city provides, we believe we are middle class. But are we?

If we are insolvent, are we middle class? What is “insolvent,” anyway? It’s the state of negative net worth. Many if not most Americans with a mortgage in its early years are insolvent, because they do not have the funds to pay off that mortgage on the spot. Many more Americans also have car loans that, again, they would find it impossible to pay off instantly.

Then why do we think we are middle class? Hundreds of years ago, in western Europe, there were laws that kept wealthy middle class people from wearing the bright and luxurious clothes worn by the nobility. The middle class was frozen as the middle class, or so it seemed, because they had to wear a uniform, usually black. In America today, with no such laws, the only way to define someone as middle class is through tokens.

Middle-class people aspire to houses, cars, and education, tokens of being middle class today. People who define themselves as middle class are determined to secure the outward show of being middle class even if they don’t have the money to buy it outright. They do it through consistent employment, with allows them to leverage their small net worth to get credit and thus have negative net worth and become insolvent. So they look middle class but they aren't.

Is this a different modus operandi than the working class and the poor use? Yes. They buy for cash because they can’t get credit. To the degree that the working class and the poor have been caught up in middle-class aspirations and tried to get in on the housing and credit booms, we have the subprime mortgage category and the credit cards with immense finance charges, and the payday loan phenomenon. But they are not middle class. Most don’t have or can't keep the tokens of the middle class. Others don't aspire to be middle class. They aspire to be rich, as defined by what they see on television, i.e., a flashy car, jewelry, and fashionable clothes, etc. Not middle class at all.

The true middle class is almost invisible. The solvent middle class is the group that owns homes outright, pays cash for their cars, and has cash saved for their educations. As distinct from the working class or the poor, though, the true middle class can afford nice houses in the suburbs (still the middle class ideal) or discreet town homes. This middle class is what most self-defined middle-class people aspire to be, the group that can afford the tokens. They still live a middle-class life. They just don’t finance it with credit. Or, to put it another way, they aren’t fronting. That’s what the rest of us are doing. Fronting, posing, whatever you call it, even though technically we are insolvent and we are only a few lost paychecks away from having it all collapse on us.

Why bother to define what middle class really is? Because we who self-define as middle class also believe that we must have the tokens of being middle class, and so we go into hock to get them. We believe we are entitled to these tokens, in fact, because a lifetime of fronting, posing, and pretending (while hiding those horrendous credit cards bills and getting repeated home equity loans) has accustomed us to believe we are middle class. But most of us, sadly, are not. If we can lose this mindset that we are middle class and we therefore must have certain possessions, perhaps we can behave with enough fiscal responsibility long enough to actually become middle class for real. Food for thought.