Both Charles Schwab and Fidelity Investments are making a play for you to bring your teenage kid in to open a kiddie investment account. There’s even a cute commercial where the kid hands over a stack of cash to the broker, earned from neighborhood jobs.
Cute. But I call “buncombe.” Teenagers are consumption machines. They have no experience with saving and investment and little ability to perceive the merits of those topics. Those days will come, but try asking a 17 year old whether he wants HP Victus Gaming Laptop or to start saving for a house or retirement. Your answer will come back quickly. For a couple years I tried teaching personal finance to high school kids. But I kept things simple. How to read a paystub. How to balance a checkbook (dating myself). The purpose of health insurance and clean credit. I spent 40 years trying to persuade adults to save, with unreliable results. I represented 50 year olds who would tell me “My business is my retirement.” His Blockbuster rental store closed more than a decade ago.
If you have juniors and seniors in high school, you have some real financial planning to undertake. It is called college or it may be some other similar education/training experience. Even culinary school can clock in at $10-50,000. What if your kid says he wants a bachelors in “Gaming Development?” $43,000 a year + room and board.
The good news is that Americans are saving to support this enterprise. Half of parents have created 529 accounts but 71% acknowledge they will need to borrow funds.
While I was still practicing, I felt like clients were in touch with the college experience and could help their kids navigate the process. But remote work and artificial intelligence have conspired to invent an entirely new world of future employment. The first public reaction was that all was lost. AI was going to obliterate the market for young college graduates. As I write this, the business world is seeing cracks in the reliability of “artificial” support. But AI is evolving in ways that are both encouraging and frightening. Even Bill Gates, the father of personal computing, appeared on CNN last night to express concerns. Bing Videos
There is no right answer here. We can probably agree that a high school diploma is not preparing youth for anything more than hourly employment. But the menu of options beyond that is $30-60,000 a year for four years. That’s a lot of someone’s after tax money by any measure. The reality is that a teenager has no real ability to evaluate the options and the costs. But that doesn’t mean they should not be fully immersed in the process of deciding what investment to make. In the end, it is their future that is staked to these collegiate investment decisions.
The other issue involves who is underwriting this. Parents tend to ignore who signs the student loan document. Some leave it to the child. Others guarantee the kid’s debt and then we have households where only one parent does the signing. When things go awry the outcomes include:
A child financially unable to repay
A parent who professes that he or she never intended to help with student debt
One parent who really is unable to pay or contribute.
Student debt is a nasty beast. It’s rarely dischargeable in bankruptcy. If contracted while the parents are married, it’s a marital debt for the court to divide. So Junior goes to college and racks up $150,000 in student loans. Dad said that was Junior’s problem to address and Mom signed guarantees. Junior defaulted and Mom and Dad split. The lender acts on the guaranty and takes a judgment against Mom for the $150K. Mom files for divorce and asks the $150K be divided as a marital debt. Dad goes ballistic because he expressly said Junior was on his own.
We get to court in divorce. Dad makes $150,000 a year; Mom $50,000. There’s $500,000 in marital assets and Mom wants the $150,000 debt to be paid partially by Dad. You can read the equitable distribution factors a dozen times and there is no guidance for what to do. The law is clear that neither parent was responsible for post-secondary education. But, Mom signed the guaranty while the couple was married.
There is no right answer. There is no judicial guidance. Just $150,000 non-dischargeable debt. That’s why education investments merit discussion before the school decisions are made. A college degree could once be marked a “sure thing.” Today, the only certainty is the expense yet the data show that overall it remains an investment with solid returns. But now, you have to choose carefully and have a serious discussion about who is buying (or owing as the case may be.) There is more to learn from this exercise than any visit to a stock broker’s office.