The Bogle Center is pleased to present the 21st episode of Bogleheads® Live. Our guest for our episode is Ron Lieber. Ron Lieber is an American journalist for The New York Times, where he writes the "Your Money" column. He is the recipient of three Gerald Loeb awards for his writing in the column. He previously wrote the "Green Thumb" column for the Wall Street Journal.
Ron is the author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, which was an instant New York Times and Wall Street Journal bestseller when it was released in 2015. “The Price You Pay for College: An Entirely New Roadmap for the Biggest Financial Decision Your Family Will Ever Make,” was published by HarperCollins in January, 2021 and was also a NYT bestseller in its first week. The paperback version is out today.
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Thank you for joining us for the 21st Bogleheads® Live, my name is Jon Luskin and I'm your host. Our guest for today is Ron Lieber.
Let's start by talking about the Bogleheads, a community of investors who believe in keeping it simple, following a small number of tried and true investing principles.
This episode of Bogleheads® Live as all episodes is brought to you by the John C. Bogle Center for Financial Literacy, a 501(c)(3) non-profit organization dedicated to helping people make better financial decisions. Visit our newly redesigned website @boglecenter.net to find valuable information and to make a tax-deductible donation.
The annual Bogleheads Conference is on October 12th through 14th in the Chicago area. Speakers include previous guests of Bogleheads®, including Rick Ferri, host of the Bogleheads On Investing podcast. Christine Benz, Director of Personal Finance at Morningstar, Mike Piper of Oblivious Investor fame, Dr. Jim Dahle aka The White Coat Investor, yours truly, and much more. There are just a few seats remaining. You can register at boglecenter.net/2022conference.
Next week our guest is Dan Otter discussing 403(b) retirement plans. The week after that Mike Piper of The Oblivious Investor returns to discuss estate planning. And the week after that we'll have Derek Tharp discussing taking money out of your portfolio in retirement.
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Before we get started on today's show a disclaimer: This is for informational and entertainment purposes only it should not be relied upon as a basis for investment tax or other financial planning decisions.
Let's get started on today's show with Ron Lieber.
Ron Lieber is the author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, which was an instant New York Times and Wall Street Journal bestseller when it was released in 2015.
His next book, The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make, was published in January of last year and was also a New York Times bestseller in its first week. The paperback version is out today.
Ron, thank you for joining us on Bogleheads® Live today.
The Price You Pay for College was a fascinating read, the whole concept of merit aid and how to navigate that system was mind-blowing. What do Bogleheads need to know about merit aid and financial aid for those folks who haven't read your book?
Ron: First of all, thank you for having me. It's an honor to be in front of this group. This is probably among the most informed group of listeners that one could ask for, and I appreciate one of many things that we share, which is a sort of predisposition or predilection for beating the system or not letting the system beat you and doing it efficiently and with an above average amount of intelligence so that the entities that we are dealing with experience a below average amount of profitability. So, it's an honor to be here.
Financial aid is incredibly complicated. As good as you may be at keeping your emotions in check and pursuing low-cost investing, it does not necessarily mean that you're going to walk into the pain and choosing and borrowing for college situation with all of the information that you need. This is the thing I hear repeatedly. All sorts of people think they know what they needed to know from 30 years ago, they are otherwise successful in other vocational and even consumer avenues of their life. And they come through the process with their first or only kid and they get to the end and they're like, “oh my gosh, I did not even know what I did not know. And I wish I had started learning earlier.”
To start with, there are two kinds of financial aid now, not just one. When people my age, I'm 50, were applying to college, I experienced the need-based financial aid system, where the amount of money that you may get from a school after you fill out this dreaded FAFSA form or the CSS profile form it's going to depend on mostly on what you earn, but maybe partly on what you have, in particular, in the way of home equity. That is how they're going to judge you and figure out how much of a grant, if any, the school may bestow on you.
Merit aid, which developed on a kind of parallel track with need-based aid, starting in earnest really in the 1990s, is much more about what you've done, what the teenager has done. And in general, but not always the way that you get merit aid is by having really good grades, really good test scores if you submit them, really great extracurricular activities, or something else particular about yourself, that is of value to that particular institution in that particular year.
And if you're wondering, how is it that I can know these things? Well, it's not in the school's interest necessarily to broadcast exactly what they're looking for or how big of a discount they might give you and your child in any given year, which makes all of this complicated. But it's also necessary to know that these schools are out there, who tends to give how much on average and to whom, because some really great schools are super generous and then some really great schools don't give merit aid at all.
But it begins with a sort of basic understanding of how things work and why they work the way they do. And then you can advance to how to suss out what might be right for your family and your kid.
Jon: I think about my own experience in graduate school, I got into the more expensive school, and then I also got into the no-name school with that no-name school offering me a grant, and with it being just so much more price competitive, I chose the no-name school graduating debt-free.
Ron: I would just add a couple of elements that I suggest that most people consider it because one of the first things that's important to do is to figure out why college? What is the point of the exercise? What is the definition of success and how much is enough? What is your 18-year-old actually trying to accomplish?
To me, it can be one of three things and the three pieces of the pie can be entirely different sizes and it depends on the kid. You go to college for the learning to have your mind grown and your mind blown, that's number one. Number two, you go to college for the kinship to find your people. The peers who will sweep you up and carry you through life. And also, the grown-up teachers and mentors and influencers who will drag you into a better version of yourself within four years. And then number three, you go to college for the credential, a meaningful piece of sheepskin, or digital copy thereof, that might help you vault a couple of leaps up the social class ladder, or get you into rooms that your own parents or privilege or background might not otherwise allow you to get into. Why are you going? It's not a rhetorical question.
And then the second part, which is very much a sort of money and feelings question is, are you hyper-aware of the emotions that could lead you astray here? Number one, is fear of falling down the social class ladder, feeling like you need to spend as much as possible to erect a concrete floor through which your kid cannot possibly crash. That is often how people end up with a spending problem when it comes to undergraduate education and in particular, a borrowing problem. So fear, number one, fear can get in the way of sound financial decision-making.
Guilt, number two, my parents did it for me, I must do it for my kid. My parents or parents did not do it for me, and therefore I am a failure if I can't write a $350,000 check for each kid. I haven't done enough to fix the generational problems that have persisted in my mind and that I suffered from as a teenager. I really strongly encourage people to get off their guilt trip. The situation in this industry is much different than it was a generation ago. You have almost certainly done the best that you can and you should give yourself a break.
And finally, the third emotion that gets in the way of sound decision-making here is snobbery and elitism. Private is better than public. Ivy walls are better than concrete dorms, looks are more important than content and meaning. Just be careful here. I get that there are a handful of really enticing employers of 22-year-olds and graduate schools and law schools and medical schools in particular, that are super snobby about who they hire and where they hire from. And so I get that can matter to a 17-year-old aspiring investment banker, but just remember that kids change their minds all the time. And that most of the world is not like that. And that's spending $325,000 to try and boost your odds of the 17 employers out there hiring your kid at the age of 22, who happen to be snobs and elitists feels to me like a pretty sizable bet that can go awry for you financially.
Jon: A lot of great wisdom there. This is a complex decision for families both in financial complexity and in emotional complexity.
Let's jump to a question from Twitter. This one is from username Dominant Portfolio who writes:
“Can you suggest a good resource regarding financial planning-specific scholarship opportunities?”
Ron: I'm actually going to address that question by not dismissing its importance, but suggesting a different approach, a different way of thinking and framing this. Every year or two, if you log into your old Yahoo email account or just happen to be looking at Google news after you've done some searches in the last few months relating to college, you'll run into some story about some teenagers, somewhere that applied to 700 outside scholarships and got 32 of them and ended up with $47,000 or something like that.
These things happen. There are a lot of pretty scammy college scholarship search sites out there. But there are some that offer a reasonable amount of value if you're willing to put in tens or hundreds of hours pursuing hundreds of scholarships, some of which may pay as little as $250 or $500. Sure. That can work.
But what can work in a lot less time is figuring out how to target schools that are good or great that offer generous merit aid, to get into a whole bunch of them, and then to appeal your award, either playing comparable schools off of one another, or just by legitimately going in the front door and asking for a bigger discount, perhaps based on some incredible things that your kid may have done in the months since you submitted the application.
And I regularly counsel, friends, family, and people who've managed to get a hold of my cell phone number, on exactly how to make an appeal in March or April, and exactly what to say. And more often than not, I get a call or an email thanking me for an hour or a day or a week later saying, “I did exactly what you said and we got $8,000 more, $12,000, $47,000 more over four years just by taking 30 to 60 minutes to write a well-considered note to the school that my child is most hoping to go to.”
That to me feels like time well spent. I'm not sure that spending tens or hundreds of hours applying to dozens or hundreds of scholarships is necessarily time well spent given that the returns may well be equal on both of those strategies.
Jon: Quite the return on investment for that time. That is phenomenal.
Let's jump to a question from Bogleheads® Forum. From username retired@50, who writes:
“I wonder if Mr. Lieber has any thoughts or recommendations for those children who aren't college-bound due to the high cost of education. Has his reporting exposed him to any internship programs or other educational avenues that are faster and more affordable than the traditional four-year college experience.”
Ron: The answer to that question is basically, no. I have not done a lot of reporting in that area.
But we have written, and I have learned from time to time about other programs. Now that's just going to depend on whether your kid is trying to quickly move into a white-collar industry or quickly move into a blue-collar industry. And so much is going to depend on the industry.
The most obvious answer, particularly for people pursuing white-collar careers right out of high school, is to think about technology. There are the coding academies that have had some success in getting people straight into technology jobs, working as a developer.
And then there are tech or tech adjacent companies like Google and IBM, those are two of the biggest names, that have put together somewhat limited, but well, publicized programs that allow people who do not have bachelor's degrees, sometimes 18-year-olds and sometimes older people, to find their way into some very specialized training that is designed to turn somebody of above average intelligence coming in right off the street with no bachelor's degree, into somebody who can do a mid-level white collar job at those companies and when they're done, they earn $70,000, $80,000, $90,000, $100,000, $110,000 a year. So this is a thing that can work for people.
The blue-collar industries are very much industry-specific. Sometimes these are unionized industries. In which case you can find your way to the union. And sometimes you can learn about apprentice programs there.
Your community college may well be an excellent resource because often local employers in need of people with specific skills will partner with those community colleges to develop customized programs that spit out 19- or 20-year-olds who are ready to slide right into a technically focused manufacturing job or some other role that requires a bit of specialized training.
So you can look around that way industry by industry in your general geographic area.
Jon: You certainly touch on that in the book about the section on to your colleges. You provide some great insight on doing that two to four-year transfer. One note that I highlighted making sure that those courses that you're taking do transfer from the two-year school to the four-year school.
And then another really interesting point that you mentioned in the book is the myth of that six-figure welder. That myth going, “Hey, you don't necessarily have to go to college because you can be a welder and make six figures.” As you point out in the book, that occupation is going to be rare and it's also going to be quite dangerous. Most welders don't make that six-figure salary.
Ron: Yeah, that's true. And I should offer some credit here to the author Paul Tough. An excerpt from his most recent book was in the Atlantic magazine online. He went into great detail about six figure welding jobs and how rare those actually are and how much more often than not that job and others like it may not get you into the six figures or maybe won't until you're 30 years into your career, or have figured out how to start your own welding shop or welding company.
Jon: This one is from username, Er999 from the Bogleheads® Forum who writes:
“For expensive private colleges, what do you expect the rate of increase in cost to be over the next decade? Do you expect the increase to be more than the rate of inflation?
I am in the income range of $200,000 to $250,000. And I understand that it's considered rich enough to pay the entire $70,000 to $80,000 a yearly cost at these schools. And I was wondering what number you use for planning purposes if I want an option other than my in-state school.”
Ron: I try to stay out of the prediction business, but I can offer some insight into what has happened historically. And the story there is actually not always what people think it is. And also much depends on precisely the kind of school, private school or private college or university that we're talking about. Now, historically, the list price has gone up in the last 10, 20, 30 years at a rate higher than inflation, particularly in the last 10 or 15 years, the list price as inflation has been lower, has gone up one or two percentage points higher per year.
But the thing to remember about this, and we're talking about private colleges specifically here, is that very few people pay the list price, something like 88-89% of students get some kind of a discount. Whether it's the need-based aid that we were talking about at the outset of this conversation, or whether it's merit aid.
There is a lot of discounting that goes on, but if your child is going to be taking a shot at let's call it the 25 or 30 most rejective, private colleges and universities in the country, that is those that rejected the vast majority of students who apply. Because there is such market demand for an admissions ticket into those schools they do not have to offer merit aid as an incentive.
So it is true that people in your shoes who earn $250,000 a year and only have one kid in college, will probably not qualify for need-based aid. And a pretty good subset of those schools the Dukes and the Yales and the Stanfords and whatnot have enough market power that people would actually be willing to pay a whole heck of a lot more than the $75,000 or $80,000 per year that they are currently charging at the list price. And I don't think there's going to be any shortage of parents who would give a couple of fingers or toes to have the opportunity to provide that experience for their kid, not just at $70,000 or $80,000, but at $100,000 per year, which we are going to be at in something like 6, 7, 8 years by my estimation.
And it'll be a big deal when it happens. And at the most rejective schools in the country, 30, 40, 50, 60% of families will be paying it and will be paying for it happily. And so much depends on the type of school that your kid wants to go to. And it could be as small as the difference between, Northwestern, which does not offer merit aid and Grinnell in Iowa, which does. It could be the difference between Cornell University, which does not offer merit aid, but the University of Chicago, which does to a select number of students, because it really likes the good feeling that results on the south side of Chicago at that story campus from successfully buying really great teenagers away from the Ivy League, which is what they use their merit aid dollars for.
So again, much depends on the circumstances, but it's entirely possible that if your kid is applying today to a very good school, that they will be discounting for your kid and for your family on a basis that has nothing to do with your income. And that's what merit aid is.
Jon: Certainly, if I want to look at that past data 6.8% is one figure commonly cited as the inflation cost of college, which is twice what the normal CPI is going to be. But as you mentioned just now, and what you talked about in your book, that is the list price. And that's not going to consider the fact that a lot of folks do get that discount.
I can't help but think about one graduate school professor that I had, who was very excited that his son got into Harvard and was very eager to pay for the privilege. Certainly, those more selective schools don't necessarily have to offer those discounts.
Jon: This is a follow-up from Er999 who writes:
“I have two kids two years apart who will be going to college in about 10 years. Should I expect full pay for each in the years when they are both in college together?”
Ron: So a couple of things about that, and it's a really astute question. What the asker of the question is referring to is that there was some legislation a year or two ago that changed the way that the FAFSA, the Federal Financial Aid Formula works.
Now let's stop for a second and remind ourselves that the FAFSA form is really just a sort of distribution tool that is designed to determine eligibility for federal aid. So what we're talking about there is the work-study program where dollars are available to help colleges pay people to do stuff on campus. The work study program, that’s federal. The federal student loan program is obvious federal and various programs, some of which depend on how much money your family earns or has. That gets to whether your payments will be subsidized during your undergraduate year. We're talking about work study, we're talking about loan. And we're talking about Federal Pell grants, which are for lower-income families.
So that's what FAFSA is designed to distribute. Now, it turns out that a whole bunch of schools use the FAFSA and the FAFSA only to distribute their own institutional aid. So we're talking about the college provided grants, the college provided scholarships, the college provided discounts.
If the change that you describe, which, takes away the benefits in effect the sort of bonus or bigger discount given to families who have two kids in college at once. If that stands, if legislators don't change their mind and there's a lot of pushback on that, if the education department doesn't find a way to interpret it differently, if that stands, it is possible that at the schools that only use FAFSA that you could end up paying full price for both kids if you earn enough money. Yes, that is possible.
But, there are hundreds of other schools in the country that also rely on a second added financial aid form called the CSS profile. And nothing has changed about the way that the administers and the interpreters of the CSS profile think about two or more kids in college at once. Nothing has necessarily changed and nothing necessarily will change. It is entirely possible that the colleges who use the CSS profile and maybe even those that use FAFSA alone will just come up with different rules than what the law says that the FAFSA form has to consider. It's possible that there will actually be no change at all at the schools that your kids are interested in.
The law is only about FAFSA and that form and the distribution and eligibility for federal aid. It doesn't say anything specifically about what colleges are supposed to do with their own money or on what basis they have to adopt particular formulas to determine eligibility.
Jon: This question comes from username, MCR from Bogleheads® forums who writes:
We are trying to balance helping our children take increasing responsibility for their own finances and financial decisions while also being rational about spending money. For example, we initially told our oldest child (who started grad school a year ago) that she would have to pay for her own mobile phone and auto insurance after the first year of her doctoral program. But as we looked into it further, it was far cheaper for her to stay on our phone and insurance plan than to get her own.
I'd welcome any thoughts Ron has about how to structure helping young adult children make the shift to taking on more financial independence and responsibility, while also being financially smart about it.
Ron: A couple of things. You cannot communicate enough with the young adult or young adults in your orbit about this. First, just by stating intent. Just saying as a parent or an uncle or godparent or a close friend, part of what I'm trying to do here is make sure that you are as smart about this stuff as possible, and as savvy about it as possible. Those are different things. One thing to have the knowledge, it's another thing to know what the right thing to do is at any given moment and how to keep emotions from leading you astray in any number of personal financial endeavors.
Making it clear that you're actually trying to bring them along. You're not trying to cast them off because you don't want to be responsible for them anymore. And I think the second important thing, right before you do specifics is just to solicit ideas from this young person in your orbit.
What do you think is appropriate? What are your financial goals? What do you want to know from me or us? If they're two parents in the picture, are there things that you've seen that you do not wish to emulate, and can we talk about those? And then you can get into the specifics. Maybe this person is living with you, or maybe they're not living with you, but you're supporting them some of the way or maybe they are lucky enough that you're paying their entire graduate school admission, tuition, or expenses, or maybe you are fronting the money as a sort of family loan.
Much is going to depend on those circumstances, but to the extent that you are trying to get them off the payroll, so to speak, you want to have a Frank conversation with them about the fact that that is the goal, ask them what is a reasonable timeframe for this to happen. And how are you going to gradually pull back the support over time on a schedule that's transparent to everybody with safety valves in case things go awry.
I guess I'd start there, right, before getting into too many specifics vis-à-vis how are you going to help them improve their credit score? What if they don't have credit at all? How can you help them there? If you are going to keep them on the cell phone plan, then how are you going to set up a regular reimbursement plan if you want them to pay for the extra amount of money to have them on? They're going to Venmo that to you every day and or every month, and is it going to be automated and right? Expectations need to be set on both sides. And so you cannot communicate enough about this stuff.
Jon: This is a follow-up from username MCR who writes.
I also wonder if we should have (and set) different expectations for how we assist a child who stays on in graduate school versus one who begins to work right after college?
Ron: I think what this question is about is, under what circumstances should we treat different children of ours differently? And is there any rule that says that there needs to be equal or equitable distribution of available parental resources? Normally this is an estate planning question. Are any surviving kids going to get the same thing or are they going to get different things? But what we're talking about here is when everybody's still alive.
And what's also a perfectly reasonable question to ask about undergraduates. If the parents are shelling out $325,000 for one student to go to an undiscounted private college and a $100,000 for another one to go to a flagship public university. Is that equitable?
Do you owe the kid who chose a state school $225,000? Do they get to have a bigger wedding because you didn't spend that money earlier if you're lucky enough to be able to afford to continue to assist them?
These are not questions that I can answer for you. I can only encourage you to discuss them early and often because you can bet that with many, maybe even most, although certainly not all kids, they're going to at least wonder about that. And there may be simmering resentment, or just curiosity, whether it's conscious or subconscious. I'm not a big believer in letting the big money conversations go “unhad”, go unspoken. So it's good that you're asking the question, but I'm not sure I can answer it perfectly for you.
When I was working on my last book called The Opposite of Spoiled, which is all about how and when and why to talk to kids about money. There were parents who talked to me about why they believe different kids quote unquote deserve to be treated differently because, well, first of all, there are some kids who just need a different thing. Forget about who's deserving. Some kids have special needs and some don't. Some have developmental disabilities or mental health challenges and taking care of those kids and young adults and making sure they're okay isn't something that should, I don't think lead to some debt, put you in debt to the other child who doesn't need as much, but there are also circumstances where, I know a set of twins like this, where one just worked her tail off in high school and the other one sloughed off and did whatever he wanted and didn't pay much attention in the classroom. And for that kid, a branch in state university was really the best that he could do. And that ended up being fine, and he ended up maturing at a later date and doing well in the world. Whereas the other one kind of shot the lights out in college too. And nobody in that family necessarily expected or demanded that the boy get more resources devoted to him for grad school or ever later in life. That's certainly one way to look at it.
I'm not sure I'm prepared to endorse a particular course of action, except for talking about it early and often. If you have a spouse, making sure you and your spouse feel the same way. And that one parent is not freelancing these conversations with one kid without the other kid or kids or the other parent, knowing.
I get that. This isn't always easy if you're divorced, but there too, if at all possible, just try to keep the lines of communication open.
Jon: Certainly, setting expectations is going to be critical to success. And that's going to be the case in any relationship, not necessarily just the relationship with your children.
Jon: That is going to be it for the 21st episode of Bogleheads® Live. As always you can access a wealth of information for do-it-yourself investors between now and our next Bogleheads® Live.
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