He's become that guest who overstays his welcome. He's stuck on the couch and is making everybody miserable, but no one seems to be able to do anything about it.
No, we're not talking about a family member. We're calling out Old Man Winter here and now. Ah, but this is an economics blog, you say. Correct! But the weather has become the story over these past several months.
Just when you hoped the U.S. economy was gaining traction, all kinds of statistics have been spinning their numerical wheels. Picture a highway in the South where they don't have equipment or road salt to deal with ice and snow. Hear those tires spinning? That's what the economy has been up against.
A flurry of data
Economists assessing the weather effect will have these reports to sift through this week:
- The Commerce Department releases January personal income and spending figures (Monday).
- The Institute for Supply Management reports on February manufacturing activity (Monday).
- Car manufacturers release February sales figures (Monday).
- The Institute for Supply Management reports on February services activity (Wednesday).
- The Federal Reserve's Beige Book economic survey is due (Wednesday).
- The Labor Department releases February employment figures (Friday).
College Financing 101
What are a family’s options for saving for college? Is it ever too late to get started? Take our crash course.
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From Bankrate.com, This is "Your Money ThisWeek."
We connect the dots between what's happening in the worldand your wallet.
I'm Mark Hamrick reporting from Washington.
Saving and paying for college: Consider this our versionof College Finance 101.
Whether you're the parent of a toddler, anticipatingcollege down the road, or having begun the application process, what do youneed to know?We're going to help youwith that, thanks to guest Gary Carpenter with College Planning Services inSyracuse, N.Y.
Bankrate's Doug Whiteman has some advice when it comes toproviding health care for college students.
And as always, we take a look back at this week inbusiness history.
All of that and more coming up on "Your Money, ThisWeek."
I can tell you first-hand, after covering financialissues as a journalist for decades and with our son just wrapping up hiscollege education this spring, even I've felt a bit overwhelmed at times tryingto navigate this financial world.
Between the sometimes high expenses, and the complicatedpaperwork (or online forms involved), it can make your head swim.
All the more reason to check in with Gary Carpenter. He'sa certified public accountant and owner of College Planning Services.I asked Gary: How does he explain to parents howand where they should begin?
Gary Carpenter:Well, first of all we talkmainly about what the family has done so far to prepare for college. And thatis the basis where you can start to see what has to be done going forward. Andquite frankly, quite a few times you walk into the situation and the family hasdone little, if anything, to prepare for college. And to make things even morecomplicated, they are probably talking to you in the junior/senior time-frame.And that really limits some of the things you can do.
But it does give youa chance, at least, to advise the family in what direction they should follow,what institutions they might want to look at -- and when I say that, not aspecific college per se, but are they going to be looking at a publicinstitution or a private one? And this is going to go back to the finances,what the families have set aside, if anything, again, for college.
Mark Hamrick: SoGary, somebody is talking to you about a child that is headed to college in ayear or two -- that is almost akin to a worst-case scenario from a planningperspective, isn’t it?
Gary Carpenter: That is correct. And unfortunately I have to tell you maybe I would say 95percent of my clients are in that type of situation.
Mark Hamrick: Wow.Well, let us talk about best practices and then maybe revert to worst-casescenarios as we proceed. Let's say that someone really wants to do thisabsolutely right. And obviously, we are talking about people who have a varietyof means at their disposal. There are people who are working and barely makingit but want to still put some money aside. Then obviously, there are somepeople that have plenty of money, relatively speaking, somewhere in between letus say. Where should someone begin to save for college for a child, thinking thatthat eventuality is maybe 17, 18 years down the line? And, at best, they havethe benefit of compounding at their disposal.
Gary Carpenter: Right, and I think that is the best-case scenario, where you have someone thatjust has a newborn and they are thinking about college already and it is nottoo early to start at that time. And you want to start to identify -- about howmuch money are we going to need here? And what can I realistically set aside?And again, I am always very cautious here. I just work in the college planningarea but I also advise families remember retirement is a very important part ofthis and you do not want to have your retirement suffer because of education.But that set aside, they are working on their retirement, I think they need tostart to set funds aside whether it be in personal savings accounts or mutualfunds or 529 plans. They need to start to put some money set aside.
I think they also need to have a discussion with themselves,too, about realistically will there be any help from the outside? And what Imean by that are any of the grandparents going to be able or willing to contributetowards that education? Because more and more grandparents today are steppingforward to help their grandchildren get through college. And it is somethingyou want to take into consideration if you are doing planning into the future.And one additional note here: You also want to identify as best you can andearly on is, are you going to qualify for financial aid or are you going toqualify for merit aid? And merit is really based on academics, special talents,things like that, and not tied to the family’s income, where need-based aid isgoing to be tied to the family’s income. And if they are going to qualify forneed-based aid then they want to be careful what types of savings programs theygo into.
Mark Hamrick: So youwant to shield their qualifications a little bit there. In other words,optimize where the money is so that it does not disqualify them for aid, right?
Gary Carpenter: That is right. I mean, let us say if we have a family that is going to qualifyfor aid, we would not want to save money in the child’s name. We would want tomake sure it was in the parents’ names. And you have a family that is not goingto qualify for aid, then maybe you want to put some money in the child’s namefor possible tax reasons. Another item is 529 plans. If you are going toqualify for aid, you may not want to put money into a 529 plan, where if youare not going to qualify for aid, that is definitely going to be one of thevehicles you are going to want to look at as you start to prepare for college.
Mark Hamrick: Yes, Iwanted to ask you about the 529 because for a couple of decades now it hasoften been touted as perhaps an optimum vehicle. But you are saying it is notreally for everybody.
Gary Carpenter: Not for everyone. Again, everyone has a different situation. You have to tailorit to what the family situation has.
Mark Hamrick: What isthe benefit of the 529, for those who it does work for?
Gary Carpenter: Well, the benefits are is that funds are set aside in a fund and the earningsare tax-free while the child is going or preparing to go to college. Once theyget into college, you can take disbursements out of that fund, and as long asthey are used for qualified higher education expenses those earnings come outtax-free. So it is a way to set money aside and have the earnings, if used forcollege, non-taxed. One of the drawbacks are is if the funds do come out andyou do not use them for qualified higher education expenses then the earningsportion is going to be penalized at 10 percent and those earnings are going tocome into your ordinary -- into your income tax return and taxed at ordinaryrates.
Mark Hamrick: So themoney is sort of treated as if, hey, that was a good idea, but unfortunately itis not going to work in the way you had thought initially.
Mark Hamrick: Gary,let us move on down the timeline a little bit now and let us say we are gettingcloser to sending Junior or the daughter on to college. One of the processesthat parents find themselves working with as they are getting closer to that isfilling out this sort of universal financial aid application, better known asthe FAFSA, the Free Application for Federal Student Aid. How important is that?
Gary Carpenter: It is probably one of the most importantdocuments a family can fill out. And it does not matter whether you are goingto receive need-based aid or not. And why I say that is it is one of thequalifications for getting a federal Stafford loan as a student.
Now this loan is offered to every single student in Americawho completes the FAFSA form and attends college. It is going to be in thestudent’s name and it does not have to be repaid until after they get out ofschool. And also it is going to have the lowest interest rate out there as faras student loans are considered.
The other thing is if there is need, this is a good placewhere the colleges can gather the information to determine what the needs ofthat family is and come back with some type of financial aid package. Andfinally, colleges look at this information. They are constantly mining the datathat is on these forms. Bringing it in, they evaluate their classes as to howthey are going to structure them. So it is an important document. And althoughfamilies say, "I make too much money" -- that is not the case. Theyneed to file that form.
Mark Hamrick: Gary,very often I have heard it stated that people should approach, as parents, letus say, the issue of how much they are willing to pay for college almost like anew car purchase in their dealings with the school. How realistic is that andwhat advice could you give?
Gary Carpenter: I think it is more realistic than ever before because when you are looking atcolleges today, it can be upwards of $60,000 for some of the private colleges,and state institutions can be in the area of $25,000 a year. These aresubstantial sums of money. And I think it needs to start to evaluate, "Whatis my child going to get out of this education from this particular institution?"Now if they go to a $60,000 a year school and the student excels there andcomes out in four years, that is fine. But if they could have gotten the sameeducation from another private school where the price might be somewhere in thearea of $40,000 and had the same results, then I am hard-pressed to see why wewould be going to the more expensive private school.
And people will say, well, you are going to come out, youare going to have connections, you are going to have relationships from some ofthese elite schools. That is true. But again, the school does not make thestudent. The student makes the school. And it is going to fall back on thatstudent as to how successful they are once they come out of school.
Mark Hamrick: Garyyou talk about some of the price points there, so to speak. And of coursecommunity colleges can be relatively less expensive than those options but wewill not go into that for now. But I do want to talk about the issue ofinflation of the cost of college education. We have seen a tremendous increaseover the past several decades. Is it your sense that that can continue and thatit is essentially sustainable? Or does it have to stop?
Gary Carpenter: Well, I said five years ago I thought it could not continue to go as it was.And at that time we were pushing close to $50,000 a year. Now we are in excessof $60,000 a year. I find it hard that they'd continue to increase the pricesthat they do. But again you have to realize there is very limitedaccountability. There is no transparency in these costs that are sustained bythe colleges and how they price. Unfortunately I think you are going to seeprices continue to rise. I would hope it is not the rate they had in the past.We had rates that were going up 4-6 percent a year when inflation was a half apercent to a percent and a half. I would like to see the cost of college, if itis going to continue to increase, come back down to what the inflation rate is.
Mark Hamrick: Well,that is a good point to end up on there, Gary. That is a wish we can all, ifnot a prayer, because we do need to have people in our society educated at areasonable cost. Thank you for helping us to navigate this sometimeschallenging financial road. It is a lot of great information there, Gary.
Gary Carpenter: My pleasure. Have a good day now.
Mark Hamrick: Thank you -- you, too. Gary Carpenter, withCollege Planning Services in Syracuse, New York.
Be sure to check out Bankrate.com for more on the ABCs ofcollege financial planning. Navigate to the right side of the page, where itsays "Financial Planning". Under that tab, you'll find "CollegeFinance," including some terrific online calculators.
The world of health care is another one where people needhelp navigating the landscape these days. So when you combine that area with astudent going off to college, well, we had to turn to Bankrate's Doug Whitemanfor some practical advice.
Computer? Check.Mini-fridge? Check. Here's one more that should be high on the list ofcollege-student essentials: health insurance. I'm Doug Whiteman with yourBankrate.com Personal Finance Minute.
Students haveseveral options for taking care of emergencies and other health needs whilethey're in school. Many colleges offer their own health plans, and the costsare grouped with other student expenses such as tuition, so student loans canassist with the premiums. Or, thanks to the Affordable Care Act, a college kidcould just stay covered on mom or dad's health insurance until the age of 26.But the family must check to see if the insurance company's network includesdoctors near campus. The health care law also makes it possible for students tobuy their own subsidized policy, or get a lower-cost, high-deductible"catastrophic" plan, or even qualify for Medicaid in states that areexpanding the program.
For more onhealth insurance options for college students, visit Bankrate.com. I'm DougWhiteman.
Finally, our look at this week in business history ….
On March 6, 1926, Alan Greenspan was born. He served asChairman of the Federal Reserve from 1987 to 2006. With his birthday, he turns87.
Happy birthday Chairman Greenspan. Even though you nolonger hold the office, you get the "honorary" title. A bit likebeing president.
You've been listening to "Your Money, This Week."
If you enjoyed the podcast please check us out on iTunesand rate and subscribe to the program.
We're hoping you can help us get the word out. Also checkout our other podcast, "Special Report," featuring breaking news andspecial features.
For more on this and other personal finance issues, visitBankrate.com. And you can follow us on Twitter @bankrate and I'm at@hamrickisms.
Thanks to producer Lucas Wysocki for his work in thestudio and to Doug Whiteman.
I’m Mark Hamrick. From all of us here at Bankrate, here'shoping you have a great week.
Another chilly jobs report?
Let's review: Employment reports for December and January both revealed slower-than-expected job creation. At the same time, the combination of modest hiring and declining numbers of people looking for work helped to pull the unemployment rate down to 6.6 percent in January.
It appears likely that the job market hasn't yet broken free of winter's grip. As a result, the best guess is that employers added fewer than 200,000 jobs in February.
It could be baseball season before we get a jobs report that isn't distorted by weather. "I really think it is going to be some time before we get a really good read," says Scott Brown, chief economist for Raymond James & Associates.
The government last week issued a downward revision for growth in the final three months of last year, in part because of slower consumer spending. The new fourth-quarter gross domestic product estimate is put at 2.4 percent, down from the previous reading of 3.2 percent.
Now that we've flipped the calendar over to March, growth appears to be running below 2 percent in the current quarter. But is anything more serious than the weather putting the brakes on the economy? Most people don't seem to think so.
"It looks like 1.5 percent, with harsh winter weather shaving about a half percent off the top," says Diane Swonk, Mesirow Financial's chief economist. As for other culprits contributing to the slowdown in growth, Swonk cites a reduction in business inventories and last year's expiration of tax breaks encouraging equipment purchases. That means there's less incentive for such purchases now.
The Fed's perspective
The Federal Reserve's regional economic roundup is due this week. When Chair Janet Yellen spoke to a Senate panel last week, she referred to "adverse weather conditions" as at least partly responsible for the recent series of soft economic reports, including jobs readings.
The Fed's Beige Book will be mined for further clues on the question of what's going on with the economy. The survey of the Fed's regional banks serves as a reference for the central bank's next policy-setting session in mid-March.
Experts look for the Fed to continue reducing its asset purchases, unless more ominous economic signs appear. "I think the Fed is still basing policy on where it expects the economy to be six to 12 months from now. That outlook really has not changed much with all the noise we have had from the weather," says Brown.
In other words, the Fed likely expects that the unwelcome guest, Old Man Winter, will head out the door before long. For the sake of economic momentum, as well as for those of us eager for better weather, it can't happen soon enough.
This week in business history
On March 6, 1926, Alan Greenspan was born. He served as chairman of the Federal Reserve from 1987 to 2006, first appointed by President Ronald Reagan. With his birthday, Greenspan turns 87.
Follow me on Twitter: @hamrickisms.