Number of employed high schoolers at lowest level in more than 20 years

The American job market is no place for students as the number of employed high schoolers has hit its lowest level in more than 20 years, according to new figures from the National Center for Education Statistics.

In 1990, 32 percent of high school students held jobs, versus just 16 percent now. Blame their elders.

Sectors that traditionally have offered teens their first paying gig — fast-food chains, movie theaters, malls and big-box retailers — have now become the last resorts for out-of-work college graduates or older Americans forced back into the labor force out of sheer financial necessity. The resulting squeeze has left students on the outside looking in.

The recession and an increasing focus on school can be blamed for the high teen unemployment rate.  It’s important to make good grades a priority, but lack of work experience can make it harder to find a job after college graduation.

In the long run, the trend could produce more and more young adults who lack the basic skills, such as how to interact with a customer, gained while working early in life. The longer a young person goes without a job, Mr. Sum said, the less attractive he or she looks to employers.

“There’s only one way you can learn how to work — you’ve got to work,” he said.

Related:  College grads need ‘real-world’ skills before they can get ‘real’ jobs

Rising contributions to 529 plans and other trends

Rising Contributions to 529 plans

Recent market performance and the corresponding jump in personal savings bode well for college savings plans, even if the national savings rate is still not back to its 2010 levels. According to FRC, 2011 saw the most new contributions flowing into 529 plans on record, as shown by the chart below. If the financial markets continue to improve, we expect similar or even greater growth in 2012.

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Other trends in 529 plans as reported by AKF Consulting Group:

• Total number of plans has increased from 89 in September 2010 to 94 in February 2012, with the number of investment options offered among all plans now up to 1132.
• More conservative investment options are being offered, with additional choices in money market funds, Treasury Inflation Protected Securities (TIPS) funds, and federally insured savings accounts and CDs.
• Fees have dropped among direct-sold 529 plans, with an average reduction of nearly 10%.

A Return to Equities

AKF foresees a return to equities, in particular ETFs and index funds, based on investor activity in the fourth quarter 2011.  As college costs continue to rise, long-term investor realize they need to take on the risk of stocks in their 529 plans.

Related articles

• The ‘problem’ of extra money in your 529 plan (costofcollege.wordpress.com)

The ‘problem’ of extra money in your 529 plan

If you’re lucky enough to have left-over money in your 529 plan, there are ways to handle that problem.  Besides paying for traditional two- or four-year colleges, other options exist for 529 funds.

1. Vocational education - money in a 529 plan can be used to pay for postsecondary vocational or technical training at schools eligible for financial-aid programs administered by the U.S. Department of Education. This includes schools that teach a variety of trades, such as automotive and aerospace maintenance, hairstyling and computer skills. 
2. Graduate school – 529 funds can be used for postgraduate education
3. Change the beneficiary to another family member – siblings, first cousins, parents, or grandchildren
4. Leave the money in to grow tax-free – as long as there is a living beneficiary
5. Charity – donating the proceeds to charity allows you to take a tax deduction if you itemize deductions

Tax penalties waived if a scholarship covers college costs

Say there is money left over in a 529 account because your child got a big scholarship that reduced his or her college costs. In that case, money withdrawn would be subject to tax on the earnings but the 10% penalty would be waived, as long as the withdrawal doesn’t exceed the amount of the scholarship. The penalty on withdrawals also would be waived if the beneficiary dies or becomes disabled.

Related articles

• Recent developments among 529 plan providers (costofcollege.wordpress.com)

Recent developments among 529 plan providers

A few recent changes among 529 plan providers, some precipitated by volatile market conditions

• Addition of FDIC insured certificates of deposit and bank savings accounts.
• Less exposure to stocks in some age-based allocated funds.  For example, average stock exposure for 14-year old beneficiaries dropped to 33% from 39% over a one-year period.
• Introduction of “open architecture”, plans that offer mutual funds managed by outside firms in addition to those from the main manager.

529 plans from six states earned the top performance ranking from Morningstar – Alaska, Maryland, Nevada, Ohio, Utah, and Virginia.

More details can be found at this link:  529 Plans Roll Out New Perks – WSJ

‘College Savings Drop Off as More Parents Feel Pinched’

Wonder how much parents have been contributing recently to their kids’ college-savings plans in this fitful economy? Short answer: Not much.

Just ask Michael Heenan, a Sacramento-based communications consultant.

When the economy was growing in 2006 and 2007, he and his wife were contributing a stellar $24,000 a year to the 529 college savings plan for their daughter, who is now 11.

“We wanted to be able to say, ‘Honey, if you want to go to Harvard or MIT, you go!’ We were a couple of years away from being able to take a huge financial concern off the table.”

But his income dipped along with the recession, and paired with the tanking stock market, it “brought annual contributions to a halt,” said the 48-year-old. “One time I opened a statement, looked at the number, and thought, ‘Well, to hell with that’.”

Many of us are in similar circumstances.

Heenan’s not alone in shying away from college savings, as a result of being spooked by a wildly gyrating stock market and rising tuition bills.

New figures for the nation’s 529 plans are in from Boston-based Financial Research Corp., and there was a $354 million outflow in the third quarter. The last time parents pulled cash out of college-savings plans, rather than putting in: The fall of 2008, when the financial crisis was at its height.…

The middle class, who should be doing most of the saving, is feeling more pressured than ever. People are saying, ‘What are we going to do?”‘

That might be why parents are now coming up with only 37 percent of the total college bill, compared to 47 percent last year alone, according to the Sallie Mae study “How America Pays for College.”

If money is tight, parents are doing the right thing.

After all, college savings should not be the foremost priority of cash-strapped parents; retirement, emergency funds and insurance should all take precedence. He makes the analogy of airplane travel with kids: “You need to put on your own oxygen mask first.”

Here’s some some advice for parents of high schoolers facing the high cost of college.

529 plans react to investor concerns

Some 529 plan sponsors are reacting to parents concerned about recent market volatility and losses in their accounts.

Several states are making changes to their college-savings plans, hoping to keep parents from making a market-driven exodus.

Arizona, Delaware, Massachusetts, Nebraska, and New Hampshire are adding investment options.  Some of the new funds have higher than average fees, a reminder that simply adding more choices is not necessarily better.

“The bottom line is more choice at the potential cost of more confusion,” says Joe Hurley, founder of SavingforCollege.com, which tracks 529 plans.

The Wall Street Journal

Variable universal life insurance for college savings?

Variable universal life (VUL) insurance as a college savings strategy is usually considered appropriate only for a select minority of  families.  One of its main selling points is that since it is typically not counted in the formula used to determine financial aid eligibility, VUL can be used to “shelter” assets.  However, this advantage only comes into play if a family is on the borderline of qualifying for financial aid, where a few thousand dollars less in assets would nudge them over to eligibility.

VUL basics from the Wall Street Journal

Back in the 1990s, agents started pitching college savers on “variable universal life insurance,” a type of “permanent” insurance that is designed to be in force for the insured person’s lifetime. (That is in contrast to “term” life, a plain-vanilla type of policy that pays out only if the insured dies within a specified period of time.) As with other types of permanent insurance, the buyer’s annual premium is split between the cost of the death benefit, fees to the insurance company and a tax-advantaged savings account.

In the most commonly sold types of permanent life, the money in the savings account is invested mostly in high-quality bonds. Under variable universal life, the buyer has the option to invest in stocks in mutual-fund-like “subaccounts.”

The decision-making process for determining if life insurance makes sense as a college savings tool can be very complicated, so a financial advisor should be consulted if this option is being considered.  Here are some points to consider.

• You will be paying for life insurance.  Do you need it and could you fulfill this need with a less expensive policy?  If you are insuring the life of your child in order to cut the policy costs, does your child “need” life insurance?  The answer is usually a resounding “no”.
• If you are trying to shelter money from FAFSA and the insurance value will make a difference in financial aid eligibility, you should ask:  How much aid money be are we talking about?  Will the aid be in the form of a cash grant or loans?  Going through all that trouble for a loan “award” doesn’t make sense.
• Depending on other factors, a family on the borderline to be eligible for financial aid could likely be one with financial assets valued between $200,000 and $300,000.  This profile does not fit the typical market for a variable life insurance policy, usually designed for more wealthy investors.

Investors should also be careful when considering projected earnings on VUL subaccounts, which are typically illustrated to show a 12%  annual return.  Very few advisors consider that to be a realistic number for financial planning.

Bottom line for variable universal life:

While it has some major advantages, investors should understand the risks.

Three years to go before college starts?

Let’s admit that the prudent thing is to start systematically saving for  college when your child is an infant, but for various reasons not all of us do that.  In addition to the following  WSJ suggestions for last-minute college financial planning, parents should remember that a gap year spent earning tuition money and starting out at a less-expensive community college might be ways to make college affordable.
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Highlights from the Wall Street Journal’s Three-Year Countdown to Saving for College

Three Years Out

Savings: While you’ve hopefully been setting money aside since your teen was a baby, this is the time to get your college savings on the fast track….

You can’t afford a lot of investment risk this close to the college years, but unfortunately interest rates on savings accounts and certificates of deposit are pretty paltry these days….

So your best bet for boosting college savings is still a tax-advantaged plan, such as a 529 college-savings plan and Coverdell Education Savings Account….

Many 529 plans took a hit during the recession and the recent market dives. So many states have added safer investments, such as CDs, to their plans….

Financial Aid: It’s never too early to start thinking about how much financial assistance you can get — and from where.

Online tools, such as SimpleTuition.com’s TuitionCoach, can help you figure out where to put your money to qualify for the most aid, depending on the individual college and the methodology it uses for financial aid.

Janet Krochman, a certified public accountant in Costa Mesa, Calif., says you should start juggling money now so it won’t weigh as heavily in the calculation when you apply for aid. But speak to an accountant or financial adviser before making any moves. For instance, discuss whether to keep a child’s money in his or her name or transfer it to your name.

Start searching and applying for scholarships and grants….

Two Years Out

Savings: Continue funding your 529 and other savings accounts, upping the amount if possible. This also is the time to start taking a serious look at potential schools — and estimating the cost of each.

Starting in October, schools that award federal financial aid are required to publish a net price calculator (most on their websites), which lets you enter basic financial information to get an estimate of the school’s bottom-line cost of attendance and how much need-based aid a student could get.

Financial Aid: If you’re planning to sell assets to help pay for college, and will have capital gains, some financial advisers say now is the time to do so. You don’t want to show a big capital gain on tax returns you’re going to submit to the school, Ms. Krochman says.

When planning campus visits, make an appointment with the financial-aid office to learn how the school determines financial need….

Loans: You still don’t know how much you’ll need to borrow, but you should start looking at your loan options …

One Year Out

Savings: By this point, you should have the bulk of your money in less-risky investments, such as money-market funds, CDs and Treasurys, since you won’t have much time to recoup any losses….

Financial Aid: Your child will be applying to schools and filling out the Free Application for Federal Student Aid, or Fafsa….  Delays could hurt your chances of getting money since some schools dole out aid on a first-come-first-served basis. If you haven’t already done so, apply for grants and scholarships.

Loans: Once you’ve figured out how much you’ll need to borrow, first look into federal loans, which typically have the lowest interest rates….

When it comes to borrowing, “a good rule of thumb,” Mr. Kantrowitz says, is that the “total debt at graduation should not exceed your child’s expected starting salary” upon graduation.

Your retirement savings are not included in determining EFC

Your 401k plans, IRAs, Keoghs and other qualified retirement savings are excluded when your Expected Financial Contribution* (EFC) is calculated using either FAFSA or PROFILE methods.

Saving for your retirement should be an important priority, and it makes sense that this portion of your financial pie is not “supposed to” pay for your child’s education.  In reality, many parents end up dipping into retirement savings to help pay for college.

* Expected Family Contribution (EFC)
The Expected Family Contribution (EFC) is how much money your family is expected to contribute to your college education for one year.
Typically, the lower your EFC, the more financial aid you will receive. Factors such as family size, number of family members in college, family savings, and current earnings (information you provide on the FAFSA) are used to calculate this figure.