Norms are changing. Every new generation brings about change, and Generation Z and the younger Millennials are reshaping the road traveled once high school is completed. Instead of taking the traditional path that older Millennials largely took, of going to college after secondary school and incurring high student debt, these young adults are taking more varied approaches to building debt-free and successful futures. Since the paradigm is changing, you need to be more flexible in how you save for college and the future for your children. A recent article from Kiplinger, “How to Stay Flexible in Saving for Your Child’s Future,” gives advice on how to be more adaptable in today’s changing college and career world.
A recent TD Ameritrade survey, as cited in the Kiplinger article, found that 1 in 5 young Americans ages 15-21 (Gen Z) and 22-28 (Millennials), may opt out of college. We’ve mentioned this in previous blogs, but one of the underlying reasons for this is that student debt is a major roadblock to life milestones and financial freedom. As the Kiplinger article points out, the TD Ameritrade survey found, “47% [of young Millennials] delayed buying a home because of what they owe, 40% delayed saving for retirement, and 31% delayed moving out of their parents’ home” (Kiplinger).
The avenues to success are changing. Technology and the internet have only become more embedded in our lives and a more accessible and viable way for any to invest in their future. How many people do you know that don’t use the internet in some form or another? Most places you go now offer free Wi-Fi. We’ve noted before that for retirees looking to make extra money, there are various resources online that can be used and can be lucrative. Education is more accessible from anywhere with online courses, and you don’t have to be of the typical college age to take them. Plenty of young people are finding success on social media, through YouTube and Instagram, and then utilizing that success to pursue other ventures, and some of them never graduated high school.
Employer values are changing as well. Ivy League schools still look great on an application, but employers are looking more heavily at how prospective young employees carry and brand themselves, and most importantly, they look at their work experience. Skills have become a more valuable commodity than just getting a degree. Entrepreneurship is growing as well, but its definition is changing. Being an entrepreneur isn’t just about starting your own unique business anymore; many people are identifying as entrepreneurs when they run their own successful business on platforms like Poshmark, a fashion reselling app, or by doing freelance work. According to an article in Forbes, 40% of companies foresee freelance workers becoming a larger and larger part of their workforce.
As we said at the beginning, norms are changing. With that in mind, as you plan to save for your children’s futures, flexibility is key. Saving in 2020 looks a lot different than it did even five years ago, let alone when your 15 or 18-year olds were first born. Whether you are saving for a teenager or starting your family and want to begin saving early, being adaptable means you will be better able to support your children in their futures.
Let’s circle back and look at what tools Kiplinger suggests you use in order to be flexible savers:
529 Plans – Just because times are changing, this doesn’t mean college is irrelevant or that saving for education in a 529 plan isn’t a good idea. In fact, it still is. There are numerous benefits to using these accounts, and you can read up on 529 plans in our blog post here. What deters most parents when it comes to 529s and more so with the change in post-secondary plans, are penalties when making a withdrawal that isn’t qualified for education. Yet, as Kiplinger highlights, these penalties are not as bad as you may think. The penalty may be negligible since federal income tax and a 10% penalty are only imposed on the plan’s growth, so depending on the amount, it may not be as bad as you expect. 529s are not the end all in saving for your child’s future, in fact having a diverse portfolio is quite advantageous.
Other Investments – Setting up an investment with the express purpose of supporting your child’s future lends to complete flexibility in how the money can be used. The funds don’t have to be tied to education, which means their purpose can change as your child’s goals develop and adjust. The flipside being, these investments don’t have the tax benefits your 529 plan does.
Trusts – Trusts are an essential element to every estate plan, but they also make a great tool if you wish to set up separate money for your child. As long as they are set up properly and managed well, they are taxed similar to non-529 plans, but they give you complete control. Trusts are typically a more favorable tool compared to custodial accounts, because you can direct how a trust is to be used and when it can be accessed.
Ultimately, in today’s ever-evolving world and economy, having a diversified approach to saving for your child’s future is just as savvy as having a diverse personal investment portfolio. Working with a financial planner and an experienced estate planning attorney who has an ongoing client care program will set you up for even more success.
At Family Estate Planning Law Group, we understand that times are changing, and your estate plan needs to be adaptable. Our ongoing client care program enables you to update and add to your plan as needed at no additional cost. We are experienced at working with our clients to plan for the various milestones in life, children’s futures, retirement, and more and making sure their estate plans are strategically developed to achieve those goals. We work with you and your other trusted advisors as a team to make sure your loved ones are taken care of and you have peace of mind knowing the plans you create to support your children will work now, in the future, and in your absence.