Is College Worth It?

There has been a lot of discussion lately with respect to the value of attaining a college education and more pointedly, is the return on investment (ROI) worth it? One argument I often hear is that you don’t need a college education to find great success, to attain wealth.

Worth It.pngI would not disagree with that. Of course it is possible. One only need to look at two oft cited examples: Bill Gates and Mark Zuckerberg. However, how many Bill Gates and Mark Zuckerbergs are out there?

I don’t believe anyone is making the case that an individual cannot attain wealth without being highly educated or perhaps more specifically, having advanced education. However, for the population as a whole, there is a high correlation between education and income, and income is a significant factor in attaining wealth. You can find any number of studies which support that idea. Although 12 years old, I believe this report from the US Census Bureau, and this graphic from the College Board (with 2009 data from the Census Bureau) nicely illustrate lifetime earnings, based on education level.

The Rising Cost of Not Going to College | Pew Research Center

I don’t believe it is a stretch to say that for the population as a whole (we’re not talking about individuals), those that have more education tend to have better jobs which pay more and offer benefits. Moreover, those with greater education are more likely to be financially savvy and be comfortable with investing, whether it be in the stock market, in real estate, etc.

I don’t believe the questions are “should I attend college and will it be a worthwhile return on my investment?” The questions should be, “What should I be studying at college and what is the best way to finance it?”

Don’t Send Your Kids to College | James Altucher

To the first question, I would say parents should sit down with their prospective college students and consider the economy and the job market. While I would not say that someone should not follow a passion, there has to be an honest assessment of the economy and business environment. Do you really want to advise your child to get a degree in a discipline that is being overtaken by other disciplines, is becoming technologically obsolete or is being outsourced?

To the second question, taking out significant loans to pay for an education is not only unnecessary, it is not financially savvy. Previously, I have identified three alternatives parents and/or children should consider:

  • STEMMilitary Service. Individuals can learn a skill/trade while earning decent salary/benefits, use programs like Tuition Assistance (government pays 75% of costs) while on active duty, and the GI Bill once separated from service, all with the added bonus of serving your country. Individuals can earn a college degree (multiple degrees in fact) to pair with their training and real world experience at no expense…other than the service. 
  • College Savings Plan. Forward looking parents should start a college savings plan (e.g. 529) as soon as possible. Unfortunately, too many parents are financially illiterate which negatively impacts their children with regards to matters such as determining how to finance an education. 
  • Community College. There is no requirement, or need, to attend a university all four years. A better option is to spend the first two years at a local community college; staying at home and working at least part-time. Overall it is a great way to spend less money and be more prepared. The first two years are primarily spent just taking core courses (e.g. English) and lower level specialty courses anyway.

Summarized, if I was an adult in a position to counsel a young person with respect to employment, income and wealth, I would advise them to attain a degree (an advanced degree preferably), choose their field of study wisely (I’m thinking STEM – science, technology, engineering & math), learn about personal finance in the process and look beyond the traditional methods for financing their education.

Is college grossly expensive and getting more so all the time? Yep. Even more reason why the approach taken to attending college has to be carefully considered. I don’t believe the answer is to jump on the “college isn’t worth it” bandwagon. In fact, I believe that is a dangerous belief to adopt, particularly as I believe the need for advanced education will be even more pronounced going forward.

What say you SavvyReader, is college still worth it?


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A SavvyInterview – Chris

Chris Costello is the CEO and Co-Founder of blooom. Chris has earned the prestigious CERTIFIED FINANCIAL PLANNER™ designation and has been working with individual clients and building portfolio allocations for almost two decades. He also co-founded another investment advisory firm that currently manages over $500 million for clients.

At blooom, Chris builds the actual models used to generate 401k recommendations; allowing blooom users to tap into advice traditionally only available to investors with a gazillion dollars.

I’m glad he’s decided to sit for a SavvyInterview.

Chris Costello - A Savvy InterviewRetirementSavvy: It’s likely that most readers have not heard of blooom. Can you give us some background?

Chris Costello: blooom was co-founded by a couple of financial advisors who had been managing investment portfolios for wealthy individuals in the midwest for the past 15+ years. We realized that having a large portfolio shouldn’t be a barrier to entry to accessing professional investment management.

So in early 2013, along with Kevin Conard and CTO Randy AufDerHeide, I set out to create an automated web-based solution for managing individual 401k accounts for retirement savers. At that time, and still today, blooom is the only automated robo-advisor managing 401k accounts regardless of where you work, where your 401k is held, or the size of your portfolio.

RS: If you were introduced to a stranger who only had a couple of minutes to spare, how would you describe the service(s) offered by blooom and the benefits they can expect?

CC: Very simply, I would just ask them “do you have a 401k through your employer?” If they do (there are 90 million people in the US today that have a 401k, 403b or TSP) I would then ask them “are you confident that your 401k is invested properly?” Roughly 80 of the 90 million do not feel confident about their how their 401k is invested. At that point, I would just simply let them know that “blooom fixes the investment allocation for you.”

RS: What is the fee structure?

CC: $1 per month for account balances under $20,000 and $15 per month if the account is $20,000 or greater. No other fees from blooom. None.

RS: Which cohort – Baby Boomers, GenXers or Millennials – is more likely to gravitate toward the services provided by blooom? blooom Logo

CC: We currently have clients that range in age from 22-67, but the vast majority of our clients are older Millennials and GenXers.

RS: What options are available for clients to view and manage their account?

CC: Today there are literally thousands of self-help, online calculators and online advice offerings to assist with managing your account. But blooom believes that people don’t need another fancy online tool or self-help manual – people need a professional tool to do it for them – regardless of their account size. So blooom manages the account FOR our clients. We place the trades in their 401k, we rebalance it for them, we adjust the risk profile of the account FOR our clients. Think DIFY not DIY

RS: Do you have a favorite money/finance related quote?

CC: “You can’t change the world with another financial calculator. People need something a lot better.” – Chris Costello, Co-Founder & CEO of blooom.


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Living Frugally: Be a Smart Pet Owner

FrugalUncleSamWhile you are certain to incur additional expenses as a pet owner – every day ownership and the occasional visits to the vet can be expensive – owning a pet does not have to be cost prohibitive.

There are many actions you can take to be frugal pet owners, yet ensure your non-human family members remain healthy and happy.

The first thing to consider is how a pet finds its way to your home. As with most things, the cost can range from $0 – hundreds of dollars.

The SavvyJames household is home to two dogs. Our first, and oldest dog Riley, came to our home by way of our local animal shelter. The low-cost of $25 covered the cost of shots and neutering. We received our second dog, Zuki, from the relative of a co-worker for free. However, as with Riley, we incurred a cost of ~ $25 for all of the initial shots and neutering.

Among your first tasks as a new pet owner is to choose a vet. Even in smaller cities like our own, there are multiple vet clinics to choose from. Do a little comparison shopping of the costs for common services among the different clinics. Also, talk to family, friends, and co-workers with pets to get their feedback on the vet clinics they are familiar with.

Another early task is to consider pet insurance. While it is an added expense, there are several persuasive reasons why it might be a good idea. It should not come as a surprise that many pets will become sick or injured during the time they are a member of your family. As with other forms of insurance, pet insurance can provide a type of security that allows owners to make health care decisions based on medical necessity, rather than what their budget allows.

Zuki & RileyIf you do decide pet insurance might be right for you, is a good place to start comparing rates. Typically, insurance premiums are paid monthly or annually, the latter often offered at a slight discount. The cost varies depending on factors such as type of animal, age, breed and place of residence, the extent of coverage, the size of the deductible, and the percent reimbursed.

As your establishing a relationship with your vet, ask for a multiple animal discount. Just as some insurance companies offer discounts for multiple types of policies, some vet clinics offer discounts for multiple pets.

For regular services such as the expression of anal glands and nail trimming, Mrs. SavvyJames takes Riley and Zuki to our local pet store – PetSmart – where the services are less expensive than the vet clinic.

As with shopping for the humans in your family, it makes sense to shop at discount stores – WalMart in our case – for common pet supplies such as food, treats, and cat litter. As you might imagine, the mark-up at most vet clinics is pretty substantial.

And you SavvyPetOwner, how do you minimize the cost of living with your non-human family member?

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Boomers – The Selfish Generation?

The WorkforceThere is no doubt that the tight labor market has produced a battleground where many older workers are reluctant to cede work territory to younger workers. These older workers, the Baby Boomers, aged 51 – 69, are holding on – like a G.I. Joe with a kung fu grip (do they still sell those?) – to their jobs longer than ever. What does this mean for younger workers?

Many Gen Xers – those born between 1965 and 1980, my generation – often find themselves stuck in middle management as they wait for upper management and leadership positions to open up. The cohort following Gen Xers, Millennials (aka Gen Y), may have it even worse as they are struggling to just get their feet in the door … decent jobs are scarce. Many have decided to stay in college longer and go to graduate school, racking up more debt, in an effort to improve their employment opportunities and wage prospects in future years.

The Scourge of Student Debt [RetirementSavvy]

The bottom line is that Boomers are remaining in the workforce longer, Gen Xers are stuck in the middle and Millennials struggle mightily to find decent employment. The financial impacts to Gen Xers and Millennials are pretty straight forward. Fewer promotions for Gen Xers and reduced employment opportunities – and mounting student debt – for Millennials means reduced opportunities and available funds to contribute to retirement accounts for both cohorts. So the question is, “will Baby Boomers ever leave the workforce, freeing up jobs and promotions for younger workers?”

Unfortunately for Gen Xers and Millennials, I believe the answer is a resounding ‘No!’ Based on my reading of news stories and reports, conversations with friends in different industries, and observations in my own workspace, I attribute the reluctance of most Boomers to leave the workforce to one of two reasons.

First, there are a fair number of Boomers, with good jobs, who are in their prime earning years, making more money than ever. Their attitude is, “why leave?” Many are working less hard than in their earlier years and making a lot more money. They are fully aware that they longer they hang around, the more they negatively impact the ability of younger workers to get into the workforce and snag promotions. However, tweaking the words of Dylan Thomas, they simply don’t want to go gently into that good retirement.

How to Find Your First Ever Job [Money Bulldog]

The second reason, and I suspect the primary reason for most, is that they simply did not properly prepare for retirement; they don’t have any other choice but to remain in the workforce. Many Boomers often state that they wouldn’t know what to do in retirement and/or they really love their job. While that is certainly true in some cases, I believe that is true only for a very small minority. Simply put, too many can’t afford to quit the 9 to 5.

So what is a Gen Xer or Millennial to do? That’s a conversation for another day. Stay savvy, my friends.

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Is it Ever too Late to Start Investing?

The short answer is no. It is never too late to start investing, particularly if you have access to a defined contribution plan, such as a 401(k), through your employer. These types of plans offer at least one distinct benefit and one potential benefit. First, the money you contribute to a defined contribution plan is done so on a pre-tax basis, meaning your annual tax liability is reduced. Second, if your employer provides matching contributions, that is free money. Why would anyone pass up free money?

Is it Ever too LateHowever, I would offer a couple of caveats to the idea that it is never too late to invest. First, hopefully people do not confuse it doesn’t matter when you start to invest with it is never too late to invest. To be certain, it absolutely matters when you start to invest; when you begin to put your money to use. As illustrated in the story of twins Ronald and Robert, time is a huge factor with respect to building a retirement portfolio and achieving wealth.

Summarized, one twin – Ronald – invested $1,000 a year for seven years, left the resultant gains in place, but decided to stop investing new money for the next 25 years. His total contributions: $7,000. Conversely, his brother, Robert, did not invest any money during the seven years that Ronald did; however, he did start contributing to his retirement accounts at the same time his brother stopped, deciding to faithfully contribute $1,000 annually for the next 25 years. His total contributions: $25,000.

Because of the power of compound interest, partnered with time, Ronald’s nest-egg exceeded Robert’s nest-egg even though he contributed $18,000 less. Do not  underestimate the power of time and compound interest!

Second is the issue of asset allocation. Traditionally, as people approach retirement they make adjustments to the composition of their portfolio. The movement out of stocks, which are more risky, to cash and bonds, Asset Classeswhich are less risky, is often done because people’s tolerance for risk decreases as they age, and to protect a portfolio’s value in retirement.

One guide that some use is to subtract their age from 100. That number is the percent of their portfolio that should be in stocks. As an example, a 25 year-old might maintain 75% of his or her money in stocks – with the remainder in cash and bonds – while a 65 year-old would only maintain 35% in stocks – again, with the remainder in cash and bonds.

I Don’t Plan to Retire [RetirementSavvy]

The danger in starting later is that there may be a desire to make up for lost time by maintaining a higher percentage of the portfolio in stocks at later ages. The worst thing that could happen is to invest too aggressively and lose a significant portion of a portfolio while closing in on retirement, the last 3 – 5 years, or soon after going into retirement.

Is it ever too late to start investing? No it isn’t. However, let there be no doubt that the best bet is to start investing as soon as possible and not put yourself in a position where you feel a desire to invest too aggressively toward the end of your working life. Leverage the power of compound interest early and develop a solid withdrawal plan as you close in on retirement.

How about you SavvyReader, have you started investing and do you have a retirement portfolio in place? If not, what are you waiting for?


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