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Beyond Saving

Joe Kesler

I’M CONSERVATIVE, but sometimes even I see the need to change. For instance, I belonged to a high-profile service organization for many years. They’re very proud of their tradition of raising money to give a Webster’s dictionary to each fifth grader in our city.

Let’s face it: These days, no self-respecting fifth grader is going to be caught dead with a hardcopy dictionary. Doesn’t everyone know that kids look up everything online? Traditions die hard—even when they no longer make sense.

Which brings me to saving for college. Should we continue to automatically fund 529 college savings accounts? I’m trying to decide whether to put money in 529 plans for my three grandchildren.

Some parents sacrifice their own retirement savings to make sure their kids’ college education is funded. Others might fail to pay off debt because they feel a duty to stash dollars in a 529. But those good intentions could backfire—in part because money in 529 plans can hurt a family’s financial aid eligibility.

If anyone should know the value of a college degree, it’s me. My degree opened the door to a successful banking career. So why am I having doubts about funding 529 accounts for my three grandchildren? It isn’t that we can’t afford it. Unless financial catastrophe strikes, we should be able to help with college costs. Still, I’m wondering whether saving for college should remain a priority—for five reasons.

First, I recently had a heart-to-heart with one of my sons. He said that, if I hadn’t helped pay for college, he doesn’t think he would have gone. He’s ended up with a good job in the technology sector, but his conversations with friends have convinced him that a college education wouldn’t have been good value if he’d had to borrow to pay for it.

Here’s a stunning statistic that backs up this anecdotal evidence: Nearly half of indebted millennials don’t think college was worth it. Why not? The resulting student debt takes years to pay off and hampers their ability to build wealth.

Second, there are fantastic job opportunities available from exceptional companies—with no college degree required. For example, Google wants to disrupt higher education with its Google Career Certificates.

Imagine spending six months in Google’s program at a total tuition cost of around $300. If successful, you have everything you need to be hired by Google for a good job. Google has convinced 50 other large companies to join the program. I’m sure there will be more to come.

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Third, instead of college, young adults can take advantage of the growth in real-time learning. Studies indicate we forget some 80% of what we learn over the course of the next 30 days. Meanwhile, many of us have experienced the joy of going to YouTube and learning just what we need to solve a problem.

I have a good friend who runs a successful online business. He has a master’s degree in business, but he’s told me that whatever he learned in college is too old to be of any use. He learns what he needs each day in real time. The world changes way too fast for universities to offer anything relevant to him.

Fourth, COVID-era learning has revealed the stodginess and inflexibility of the current education system. One blogger, Mr. Money Mustache, shared his decision to allow his son to drop out of high school and instead learn at home. Others have also discovered that bland, repetitive teacher-led instruction can be replaced by extremely high-quality instruction using videos and other online resources. It’s hard to imagine a self-educated student, like Mr. Money Mustache’s son, being satisfied with the traditional four-year curriculum that universities currently offer.

Finally, there’s a shortage of workers for high-paying blue-collar jobs. Not everyone is cut out for the corporate world. We still need plumbers and electricians. The popularity of Mike Rowe, host of TV’s Dirty Jobs, is a sign that the old “you’ve got to get a college degree” mantra is starting to erode.

I want to be clear: I’m not suggesting everyone quit funding 529 plans. If your children are going to be doctors, a Google certificate won’t cut it and having dollars in a 529 plan is probably an excellent idea. Still, the world of education is changing fast—and perhaps a well-funded college account isn’t the key to getting ahead.

Joe Kesler is the author of Smart Money with Purpose and the founder of a website with the same name, which is where a version of this article first appeared. He spent 40 years in community banking, assisting small businesses and consumers. Joe served as chief executive of banks in Illinois and Montana. He currently lives with his wife in Missoula, Montana, spending his time writing on personal finance, serving on two bank boards and hiking in the Rocky Mountains. Check out Joe’s previous articles.

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Chris Sciora
Chris Sciora
26 days ago

I wouldn’t have believed you could still purchase hard copy dictionaries. The kids probably shelve it next to the local yellow pages along with their older siblings CD collection.

529 Plans get far too much attention. They typically provide mediocre returns along with restrictions on distributions (although at least the plans acknowledge that funds might *never* be used for education and eventually end up in the student’s hands regardless).

Along with the statistic about Millennials largely dismissing ROI from a college degree it’s worth noting that barely half of college students ever get a degree at all. And that’s over six years, not the traditional four years that all of us remember back in the day. Technical certificates, trade school, community college, internships and online businesses are all legitimate – and far less expensive – alternatives to a traditional university degree.

I don’t even fully believe the stat about lifetime earnings that always gets trotted out about this time. Those studies never seem to factor in the six years of delayed earnings plus additional time to find employment vs. an electrician or welder who can start earning & saving by age 20.

The questions to ask before borrowing huge amounts for college are the ones the schools never want to answer. What additional value are you now providing to justify the huge inflation in college tuitions over the past twenty years? Would you provide loans to an 18YO student without requiring 3rd party co-signers? Why are school loans the only personal debt exempted from personal bankruptcy?

If the schools and feds are so adamant about the future value proposition to students with degrees, they should have no problem making those loans directly to the student without guarantors. Good luck in trying to make that happen. That tells me everything I need to know about how the schools themselves view the likely outcome of their overpriced classes.

SCao
SCao
27 days ago

I like Ben Franklin’s quote about “An investment in knowledge pays the best interest”. People always like to point out some folks acheive huge success even dropping out of college (e.g., Bill Gates, Steve Jobs, etc.), however, how many are there like that? I think gifting the newer generation the opportunity for higher education is a wonderful thing to do, if financially able to. 529 Plan is more than just college, as it is also good for K-12 and graduate school.

medhat
medhat
1 month ago

I actually have a different take than what I perceive to be the majority of comments to this great article. But first a question: how many of the commenters (or for that matter, Humble Dollar subscribers), do NOT have a college (or advanced, for that matter) degree? I’d venture very, very few (<5% is my guess). Do I agree that much of what constitutes day to day job responsibilities are not skills learned in a college education? Maybe. But I think for the overwhelming majority of managerial-level positions the bar to entry/consideration is a college degree, for better or worse. Further, for competitive jobs in most fields (I work in the tech/consulting industry) it’s not enough to have a college degree. It’s an extremely high level of consistent performance, plus extracurriculars, at more or less highly-selective universities that land new graduates at my firm, and I’ve found overwhelmingly our new hires excel at critical thought and analytical skills that seem to me a byproduct of their higher education. Even for me, my hire at the firm wasn’t for my undergraduate and first graduate degree, but instead my MBA that I when back for mid-career (just out of an intellectual interest). I think the aggregate studies bear this out, that the long-term financial benefits of having a college degree greatly outpace those with without.

Chris Sciora
Chris Sciora
26 days ago
Reply to  medhat

How many of the commenters (or for that matter, Humble Dollar subscribers) had a telephone line in their home as a child who now use mobile phones instead? Times change.

The tech industry is one of the best places to illustrate the differences in getting hired today vs. 25 years ago. If you’re a coder, you can earn a Computer Science degree or equivalent and probably get a decent job with less effort than most fields. I have one myself along with an Electrical Engineering degree.

However, if/when either of my daughters decide to pursue a programming career, I will suggest the following: use any of the dozens of freely or inexpensive online course to learn, contribute actively to a handful of popular open source projects, maintain projects on GitHub, take P/T jobs on Upwork, Fiverr, etc., launch some kind of paid website service, participate in coding sprints and maintain a personal website / blog / YouTube channel explaining your background and skills in detail.

None of the steps outlined above were even possible just twenty years ago. Such people are rarely available for hire because they’re busy taking advantage of all the opportunities that pop up organically because they’ve already demonstrated tremendous programming proficiency. Posting resumes to a job board and waiting around hoping for an interview seems a foolish waste of time by comparison.

Scrooge_McDuck88
Scrooge_McDuck88
1 month ago

I think the erosion of college mystic with millennials is that many of them want to be Independent contractors in the gig economy. They have begun to recognize that independence is more about marketable “skills” than degrees. I know several young guys and gals who taught themselves “online marketing, video editing, graphic design” who now bill themselves out by the hour and by short term contract at around $75 to $100 an hour. No one asks where you went to college, it’s “show me your work, portfolio… etc”

parkslope
parkslope
1 month ago

One of my sons has found his degree from an elite graphic design school invaluable (his biggest clients are HBO and Disney). Finding a graphic design job with a salary and benefits in NYC is cutthroat. The average freelance design makes $55,000 and has no benefit compensation.

Roboticus Aquarius
Roboticus Aquarius
1 month ago

Tradition is not the worship of ashes, but the preservation of fire.

– Mahler

I’m in agreement with you that there need to be multiple routes to career success. The current educational structure has value, but is rather restrictive. I’ve known a fair number of very intelligent people that struggled to cope with the institutions available to them.

If we want to harness the full productive capacity of our nation, the financial and even structural hurdles represented by major US colleges are unquestionably both an asset to many and an impediment to many. The latter are an astoundingly fertile untapped resource.

Colleges reward our ability to methodically push ahead despite all obstacles and to think critically, which is a fine thing in and of itself – but by it’s nature it tries to push us all onto similar paths – similar ways of learning, similar concepts viewed in similar ways – and it’s a worthwhile goal to be able to provide alternatives.

Joe Kesler
Joe Kesler
1 month ago

Well said! Thank you.

Mark Grady
Mark Grady
1 month ago

One point that seems to be overlooked in this discussion is that distributions from a 529 account do not need to be spent on getting a college degree. Trade schools and other qualified programs also qualify for tax free distributions as well as supplies and living expenses if these programs are considered full time..

R Quinn
R Quinn
1 month ago
Reply to  Mark Grady

Good point.

R Quinn
R Quinn
1 month ago

Excellent points which I often think about as well. I’m convinced that what I learned of value in school was all before college. So much so I recall the names of teachers from 5th grade up through high school who had the greatest impact on me and that was a l o n g t i m e ago.

I can think of nothing from college that added to my ability to do my job over a fifty year career and yet, I would not have had the jobs I did without that degree as meaningless as it was.

We too fund 529 plans for eleven grandchildren. We will keep doing it, because unless there is a change in thinking as there needs to be, that degree will be “necessary”.

What many students don’t understand is that a college degree and where you received it matters only getting that first job. Thereafter it’s all up to them and the value they provide an employer. I’ve seen people with Masters and PhDs from highly rated schools who couldn’t find their way out of a paper bag.

For certain the structure of higher education in the US needs to be rethought. And yet, we seem to be going in the opposite direction with “free college for all” which creates the perception that somehow a degree is a magic key to success.

I just had plumbing work done … at $285 per hour. Find me graduates with a liberal arts degree that command close to that.

Roboticus Aquarius
Roboticus Aquarius
1 month ago
Reply to  R Quinn

Interesting perspective about the value of college, and I partially agree.

The basics I needed I had in high school.

College did teach new concepts that would be helpful in the professional world, but also provided a much deeper awareness of how our society is formed and interacts. It also allowed me to draw connections of my own, and link information in ways that the curriculum ignored. In particular, I found statistics to be incredibly enlightening and applicable across a wide swathe of jobs and everyday life.

I really enjoyed the ability to explore a wide range of topics in college, and much of that learning has enriched my professional as well as my personal life in one way or another. I also think I may have gotten more from college than some did (and less than others… for all that I’ve just said, I also realize that I left a lot of low-hanging fruit on the branches…)

parkslope
parkslope
1 month ago
Reply to  R Quinn

What many students do understand is that their first job can have a major effect on their ability to land subsequent jobs. For example, Wall Street firms hire from a select number of schools for entry positions and limit their external hires for higher-level jobs to those with experience in other Wall Street firms. Elite surgeons work at hospitals whose residency programs consist almost entirely of graduates of elite medical schools. In turn, graduates of elite residency programs are much more likely to be hired by the best hospitals.

During my 25 years as a college professor, I encountered numerous students who I felt were wasting their time and money pursuing a college degree. However, I also taught countless other students who used their degrees to good advantage, including many who tried out multiple majors before choosing a career.

The fact that many people with advanced degrees are incompetent in no way should be taken to imply that an advanced isn’t worthwhile.

While it is true that plumbing can provide one with a comfortable living, entry level plumbers average $35,000, and the average liberal arts grad starts at $40,000. The earnings advantage of art graduates grows considerably over time.

Last edited 1 month ago by parkslope
Joe Kesler
Joe Kesler
1 month ago
Reply to  parkslope

I think there is some common ground here. If my grandkids are aspiring to be surgeons, I’m in agreement with you.

However, the long held faith that people my age had in a college degree to succeed in life is rapidly eroding. I don’t have the solution, but I like the disruption going on. The Millennial generation is rightfully questioning the old assumptions about the value of spending so much time and money in college when other paths to success are springing up.

All that change makes it tough on grandparents like me to decide whether to keep funding 529 plans. I’ve got about fifteen years before my first one would go to college and I think the landscape will be quite different with great choices outside of a 4 year degree.

Thanks for the comment.

parkslope
parkslope
1 month ago
Reply to  Joe Kesler

I enjoyed your article and agree that many young folks would be better off not going to college. However, your recommendation to only fund 529 plans for children who want to pursue professional degrees is complicated by the fact that many young folks change their career choices several times (my father decided to become a physician when he was hospitalized while in college).

I would also note that money from 529 plans can be used to pay for online courses, textbooks and computers, and that the list of acceptable alternatives is likely to grow. Also, beneficiaries of 529s can be changed and the 10% penalty on earnings not spent on qualified expenses may be an acceptable risk if you think the beneficiary is likely to attend college.

Joe Kesler
Joe Kesler
1 month ago
Reply to  parkslope

Good points. I think we should push to give 529 accounts the widest possible use as the landscape is sure to change to allow more options.

I’d also vote for less of a penalty if the beneficiary of a 529 decides to go the opposite way of your father and drop out of college. A famous example is Steve Jobs who saw he was crushing his parents with the expenses of funding his college education which he didn’t see as worth it and dropped out. My point is that it’s hard for us to know what we will do in 15 years, harder to plan for kids and grandchildren who may not share our aspirations or appreciate our sacrifice. Ask the rule makers to give us maximum flexibility seems a point most could agree on.

R Quinn
R Quinn
1 month ago
Reply to  parkslope

There are many jobs that when posted for hiring state that a degree is required, but in fact, that would be hard to substantiate outside of a profession. That in turn creates the perception of a degree leading to an earnings advantage. A bit of a self fulfilling circle. Whatever the situation may be, it’s time to rethink higher education and skill education. Compared with Europeans Americans waste too much time getting educated IMO.

R Quinn
R Quinn
1 month ago
Reply to  parkslope

Would you agree that the earnings advantage has much to do with the individual and not much with a degree earned 5,10,15 years previously?

Joe Kesler
Joe Kesler
1 month ago
Reply to  R Quinn

I agree with you Richard. I managed quite a few people who rose to managerial positions without a college degree. They may have worked harder because they had something to prove. I assume I was like most CEO’s, I never cared who had a degree and who didn’t. Just if the job was getting done.

In today’s fast paced world it seems less relevant what you learned where, compared to how quickly you can learn what’s needed as things change.

If the choice is between a non-college grad who has earned a recent certification of a skill in demand, versus a college grad who hasn’t stayed current, I think most of us will value the employee who has the skill we need right now.

Perhaps a better example is a sales position. I had many employees who had very high emotional intelligence who could connect with customers and hit sales goals without a degree. College pedigree has no relevance in that environment.

My sense is the current college age folks are talking to their debt laden friends, or seeing their parents defer retirement goals so they can go to college, and asking if there is a better way.

Thanks for all the good comments!

parkslope
parkslope
1 month ago
Reply to  R Quinn

We agree that much of what is taught in college is useless and that for most jobs a college degree serves mainly as a way of screening for those who are higher in intelligence and who have the discipline to complete their degrees. Unfortunately, as long as this remains the case, a college degree will be a prerequisite for a successful career (albeit with exceptions).

That said, college can be a valuable learning experience and there are many disciplines in which students do gain knowledge that is necessary for entry-level jobs.

I also agree that rethinking higher education is critical and am glad to see that a re-examination is being fostered by the rapid growth of online programs and employer training programs.

Luckless Pedestrian
Luckless Pedestrian
1 month ago
Reply to  parkslope

Your comments on the subject are spot-on, parkslope. As someone who is also a former college professor, my take is that there are two types of person who should attend a four-year college: the type who has the interest and aptitude to pursue a STEM field, and the type that is genuinely excited at the prospect of reading, say, Moby Dick, or writing a 25-page term paper on the origins of the French Revolution. If a kid isn’t one of those two types, he/she would do well to consider a different path.

Mik Cajon
Mik Cajon
1 month ago

And teach your children to have a strong work ethic …you can’t fix lazy.

Last edited 1 month ago by Mik Cajon
Joey
Joey
1 month ago
Reply to  Mik Cajon

This is the second time in the past few days that you have unhelpfully commented “you cant fix lazy” in an article. That’s…kind of lazy.

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