Strategies for Saving for the Future: College Funds and First Cars

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we're diving into a topic that's near and dear to the hearts of many parents and young adults alike: saving for the future. Specifically, two of the major milestones, college funds and first cars. I have with me today, Sara McKinney, our VP of Legal and Regulatory Compliance. Hi Sarah.

Sara McKinney: Hi, JQ.

Jessica Quindlen: And Bree Shellito, our Senior Manager of Community Impact. How are you, Bree?

Bree Shellito: I'm great. How are you?

Jessica Quindlen: I'm good. So, Sara, we haven't had you on yet, but you have two kiddos. Yes?

Sara McKinney: I do. I have two daughters who are 10 and 16.

Jessica Quindlen: Fantastic. And I assume you are preparing college funds and first cars and all that fun stuff?

Sara McKinney: Yes. Yes, I am.

Jessica Quindlen: Fantastic. So, let's just get started. Can you explain why it's essential for parents to start planning and saving for significant future expenses early?

Sara McKinney: Yes. My husband and I found it easier to start saving early so we weren't caught unawares, and we had the money and we weren't taken by surprise when these expenses hit. Because as your kids grow up, you see big expenses kind of all hit back-to-back [00:01:00] to back all at the same time.

Jessica Quindlen: Makes sense for sure. Bree, I'll run it over to you. What are some of the most common, big expenses that parents should consider when planning for the future? I know we're specifically talking college funds and first cars in this episode, but just sort of in general. Let's just have a general overview.

Bree Shellito: Yeah, as Sara said, they come and go and sometimes in waves. Definitely comes in waves, but certainly education and we're seeing that that starts even earlier than most folks think. It's not just college. It is, you know, even Pre-K, there's expenses and school supplies and all those things. We've got another episode all on that.

Jessica Quindlen: Absolutely. I have to say my daughter’s childcare is more than my mortgage, so I feel that in my soul.

Bree Shellito: Yeah. Good point, Jess. Even before school, childcare is certainly a big one. So, anything to do with education extracurricular activities, if they want to do anything at all, it's going to cost you money. Whether that be club things, I mean, every single sport under the sun is going to have a cost associated. Even just things where they're [00:02:00] getting together with friends and if they have friends, those friends are going to cost you money too. So just everything along the line, but certainly what we're talking about today, that education and first car.

Jessica Quindlen: I love that. Sara, are your girls involved in extracurriculars or all the birthday parties?

Sara McKinney: Yes, all of it. All of it. Extracurriculars, birthday parties, all of the things.

Jessica Quindlen: I know. It's amazing how easily it adds up. I feel that. And my daughter's only four, so I can only imagine.

All right, so let's dive into college savings. What are some of the most effective strategies that parents can use to save for their child's college education?

Sara McKinney: So, I can speak from experience when I say start as early as possible, because compound interest adds up over time. So, you want to get it in some sort of vehicle where the compound interest will increase your savings.

You can take advantage of tax advantage plans when possible, like a 529. Those laws vary by state. I know in Colorado, they can only be used for college. In other states, they can be used for elementary school [00:03:00] and high school, so make sure to check with a tax professional on that if you want to take advantage of a 529.

I think another important thing to do is have an early expectations conversation with your child. What is expected of them? What is expected from them? What are you going to provide? What do they need to be ready for? My daughter is a junior right now, and we've had that conversation since probably her freshman year, if not eighth grade.

And even still, we just had a recent conversation. And it's somewhat overwhelming for her right now because she's in the year where she needs to start looking for scholarships and she needs to start looking for grants. And that has proven to be a lot for her to take on. So having that conversation early has proven helpful because it's more of a reminder than a, “Hey, I'm going to spring this on you and you have a year to get it done.”

Jessica Quindlen: Right. Do you also have expectations, you know, aside from looking at scholarships and grants, but also grades and the types of schools she may be able to go to and those things?

Sara McKinney: Absolutely. Just a personal experience, this summer we [00:04:00] had her present one college a week that she had to look into. She had to research, she had to tell us the cost. She had to tell us the grade, the GPA, the SAT score. She wants to run, so she had to tell us about their track team in order for her to narrow down what schools she's looking at.

Jessica Quindlen: I absolutely love that idea. I've never heard of that. Has she been able to narrow down that list at all?

Sara McKinney: I think so. She knows what school she doesn't want to look at.

Bree Shellito: Okay. Well, that's as helpful as knowing,

Jessica Quindlen: Right? Absolutely. Any sort of early education opportunities that you know of or that you've had any experience with that have helped in that?

Sara McKinney: Yeah, I know my daughter is enrolled in some AP classes. So, if you get a high enough score on the test, you can get some early credits for AP classes. Job shadowing, there's DECA, there's specific scholarships offered at schools and different districts that they can take advantage of. And their high school counselor can help get them into those things as well.

Jessica Quindlen: Oh, that's fantastic. Awesome. Anything else to add, Bree, on college?

Bree Shellito: Yeah, we actually have a tool right on our website and there's other [00:05:00] tools out there as well that can help you narrow some of those scholarship possibilities. And as Sara said, the earlier, the better because some of those extracurriculars, especially some of the more obscure ones, can offer a bit more and a smaller pool of folks looking for them.

Some of those mainstream sports can certainly be pretty competitive when it comes to getting a scholarship. But things like fencing, we've joked about things like that. Those different opportunities that you may wish to seek out for your child. There are more scholarships available because less people are in those activities.

So, if there's certain things that they're into, certain things they're interested in, just kind of leaning into some of those and knowing what might have a scholarship attached is great. Not just those mainstream things. You think of those mainstream sports is what people mostly think of but lots of other activities and just looking at some of those tools to narrow it down based on where you live and where you go to school can certainly help.

Jessica Quindlen: Awesome. And we'll be sure to link those in the show notes. So, what are some other college saving options that are available and how much do they differ in terms [00:06:00] of their benefits and limitations?

Bree Shellito: Sara had mentioned that 529 plan, so what we'd suggested as with all things, is working with a trusted financial professional, finding out what things are good for you. I mean, certainly taking advantage when you can of tax advantage plans, but really you can use just a standard savings account if that's what you're more comfortable keeping it liquid in case there's other things that come up.

Even just standard investments, understanding your risk appetite and speaking with a professional and seeing some of those things because of course, as Sara mentioned, depending on the state, you can use those specific funds only for specific reasons. So, if by chance you're having those conversations with your child, you're having those conversations with your family, you don't know for sure that college is going to be the path for them.

Those specific accounts are great that they were tax advantage on the beginning, but they're going to have some penalties if you don't use them for what was intended. So even just some of the standard plans that you think of when you think of savings such as accounts and investments can be a great tool to use for, [00:07:00] any purpose.

Jessica Quindlen: Great. And what about prepaid tuition programs?

Bree Shellito: Yeah, those are interesting and depend on the school. So, if you're looking at particular schools, there's some that are for in-state schools if you already know, I love that plan. Sara, when you're talking about which school it's going to be if they've known and they want to maybe even be a legacy student because you went there, something of that nature, that's when you could look into those. But again, that's, making a decision pretty early.

Jessica Quindlen: Yeah. so, what if, let's just say then I may have started saving a little late for my kiddos college fund, are there still options available to help catch up?

Sara McKinney: Yeah, I think absolutely. I think it's never too late to start saving. As Bree said, you can even just put money in a savings account and set some money aside. There's a whole bunch through the school and through some private opportunities. There are classes and learning sessions that help you decide how to save money and where you can use that money in order to be able to fund school.

You [00:08:00] yourself can get involved in the application process and see what's offered for your family's situation. FAFSA, you'll have to fill out a FAFSA form anyway, when your child applies for college. But there are a bunch of opportunities in that realm as well. Including at Ent.com if you search for scholarship search, we have a tool that will help you find over $3.5 million worth of scholarships.

Jessica Quindlen: Oh nice. I'll be sure to link that as well in our show notes. We've got some great resources on Ent.com. Anything else on college before we switch gears to first car?

Bree Shellito: I think just as Sara said, talking about that with your family. Talking about that with your kiddo at any age. I know that, you know, your daughter isn't quite ready for that conversation, Jess, but getting an idea about like, just in general, a lot of what they are as children can kind of tell you about their love for learning and that doesn't necessarily mean college for everyone.

Just having that conversation and deciding. You can open those plans later too. I mean, certainly you're going to have [00:09:00] more advantages the earlier you start, but if you don't know that that's the right path, then there's tons of other options, savings, standard investments, other things that aren't going to have those tax penalties.

Jessica Quindlen: Right. Well, and I think certainly two things. One, time flies as a parent, any parent can, attest to that. But also, I have some friends and people I know who had college savings and their child didn't go to college, but it was a down payment on a first house or helped pay for some trip or, you know, lots of different things. So having that money is helpful no matter what.

Bree Shellito: Yeah. And just knowing yourself and your kiddos as they grow older. What are the things that they value? If you find that travel is something that they value, maybe they're that student that takes a gap year to travel around and determine. I mean, thinking back, I'm sure we can all agree that at, 16, 17, 18 years old, deciding what we're going to do for the rest of our life was a journey.

Jessica Quindlen: Yes. And I have to ask, did any of us at 16, 17, 18, were any of us on the career path we're on now? Did you know you would be a lawyer?

Sara McKinney: I decided what I wanted to do in third grade.

Bree Shellito: You did?

Jessica Quindlen: Yes, you did. I love it.

Sara McKinney: I knew. I knew I wanted to major in [00:10:00] English and be a lawyer.

Bree Shellito: You're the best.

Sara McKinney: I did both of those things.

Jessica Quindlen: That's fantastic. I wanted to be an actress, my bachelor's in theater and I did do that for a while. I don't do that now. How about you? Did you know? You were like, I'm going to teach financial education at a credit union?

Bree Shellito: Absolutely not. No. In fact, even when I got out of school, I went to college for a short amount of time. I was going to be a police officer, wanted to go into the SWAT team with zero influence at all. That's just what I decided was going to be great. And then I was like, “Actually, this is really expensive.”

I was going to look to be an esthetician or a massage therapist. I'm a germaphobe for those that know me well. So why? Yeah. I had not a clue. Not a clue what I wanted to do. Right. You couldn't have asked me and it couldn't have been. It it's worked out. Yeah. But no, this was anything but a linear path.

Jessica Quindlen: Well, there you go. All right.

Sara McKinney: I want to add too, even if you don't have any college savings, plenty of students go to college on student loans.

Bree Shellito: Yeah.

Jessica Quindlen: I did. My college savings was in the stock market and I graduated high school in 2008. So, I'll just leave it at that.

Bree Shellito: I'll brag on Ent for a moment. I mean, the tuition [00:11:00] reimbursement programs and things are amazing. So, if they decide to go that route and start working first, there's tons of opportunities. for their new job to help pay for school.

Jessica Quindlen: That's very true. It's becoming more common these days too, for tuition reimbursement programs.

So let's switch gear to first cars. So, I know my first car was a Toyota Corolla. I bought it at 18.

Sara McKinney: I had Tercel. They don't even make them anymore.

Jessica Quindlen: Yes, yes, it was. Oh, I loved that car. It was not very good, but it was great as a first car, what was your first car?

Bree Shellito: First car was a Honda Civic. As old as I was.

Jessica Quindlen: I love it. Did anyone's parents buy it? Did you buy it? I half-sied with my mom.

Sara McKinney: My parents bought mine.

Bree Shellito: My mom actually won on a lotto scratch-off ticket and put some money towards both me and my sister. We each got $1,000 to go towards our first cars, and so it was basically a match, but yeah.

Yeah. Scratch ticket. That was the most helpful thing and so got that and was able to put half that towards my $2,000 Honda Civic.

Jessica Quindlen: You're fine. Yeah. Mine was $4,000.

Bree Shellito: It lasted all of [00:12:00] seven months, so you know.

Jessica Quindlen: Okay. Mine lasted two years. First two years of college. How long did yours last?

Sara McKinney: Through law school.

Bree Shellito: Sara went full reliability on it. Yeah, of course.

Jessica Quindlen: Yes.

Sara McKinney: I've only had three cars in my life. Really? I drive them until they die.

Jessica Quindlen: All right. I mean, that's the smart way to do it.

Bree Shellito: Constantly impressed by you, Sara.

Jessica Quindlen: Same. So saving for a car on the other side. It's a huge milestone. It's very exciting. What are some steps that parents can take to financially prepare for that specific expense?

Sara McKinney: You know what my husband and I did is when Emma, our older daughter, was probably about 10, we decided how much we wanted to spend on a car. We took 12 months through six years and divided it, and we saved that amount of money.

Bree Shellito: Who knew what the car market was going to do, right?

Sara McKinney: And we did not have enough, because the car market did not stay for six years.

Bree Shellito: Sure didn't.

Sara McKinney: And we just put ours in savings. And, you know let some interest accrue on it. My daughter now does pay us back. We have her under a contract.

Bree Shellito: Sarah's an attorney. If you [00:13:00] didn't hear that.

Sara McKinney: It's a signed contract. Every month she pays us. Basically, she'll pay for about 10% of the car as time goes, and she has to pay through high school.

Bree Shellito: Okay. I love that. Jess, Sarah made me think of one other thing that we didn't mention about savings.

There's also certificates of deposits, CDs as people know them as well. Those can be great. for short term. They start as low as three months. Is that correct? Three months?

Jessica Quindlen: Yep.

Bree Shellito: And go upwards of five years. So even though there's no risk of losing any of the money such as in the stock market. But you have a higher interest rate if you know about how long it's going to be.

So standard savings is great, but actually putting that money away, even though it locks some of that down for the time, you can certainly earn higher interest if you don't plan on spending it within a certain amount of time.

Sara McKinney: So, interestingly, part of the money Emma has paid us, we did put in one of Ent's CDs that had a good rate because we we're using it to teach her about CDs. So we're going to go back to her and say, you paid us this much. Now it has accrued to this much and this is how you end up doing that.

Bree Shellito: I [00:14:00] love that.

Jessica Quindlen: Look at you. I love this. We need to do more parenting podcasts with you. Did you involve Emma at all from 10 to 15, 16? I don't know what the age is in Colorado.

Sara McKinney: Not when she was young, but as she got her permit. And got into driving and talked about wanting a car. We involved her in the process.

Jessica Quindlen: Nice. Did she pick out her car?

Sara McKinney: She was there.

Bree Shellito: She was. She was present.

Jessica Quindlen: She was present.

Sara McKinney: She likes it. It's a gift car.

Jessica Quindlen: I mean, listen, I could not get my license fast enough.

Bree Shellito: Same.

Jessica Quindlen: I like flew to the DMV the day I could.

Bree Shellito: Freedom.

Sara McKinney: So, so did she.

Jessica Quindlen: Oh, absolutely. So outside of involving her in this contract and perhaps having conversations with your child about the cost and all of those things, what are some other expenses that parents should anticipate? Because unfortunately, as most of us know, you don't just buy a car and then run off into the sunset.

Sara McKinney: Insurance, gas and maintenance are the top three.

Jessica Quindlen: There you go. Is your daughter involved in any of those?

Sara McKinney: She pays for her own gas. We do pay for her [00:15:00] insurance and maintenance we're splitting right now. However, in teaching her how to be an adult, we do make her make the maintenance appointments because she always wants us to call and make them and we won't do it.

Jessica Quindlen: Oh, I love that. Just the little things to make them grow up a little bit.

Bree Shellito: Teaching them to be an adult. I love it.

Jessica Quindlen: Yes. Do you have anything else to add Bree, about first car purchases?

Bree Shellito: Yeah, I mean, outside of the car, just doing some of the research as well. Understanding that insurance is different certainly as you're younger, but also with the car that you choose. Having an idea of what each one is going to cost and knowing to do some of that research.

We speak with many folks of all ages that don't know to do that research ahead of time. The cost difference in that type of car, even when it doesn't seem to really make sense at times, you know, it can even be two sedans that are wildly different.

So understanding the research phase, anything that comes into a vehicle. Also license plates, just add up very quickly. You can go right to the website and get a cost estimator for what that's going to cost for particular vehicles. So would definitely [00:16:00] recommend that because that's often a time people don't know that that expense is coming.

Jessica Quindlen: Hmm. I love that. Well, that brings us to the end of our show. Sara, Bree, thanks so much for being here. It was great to have you.

Bree Shellito & Sara McKinney: Thanks for having us.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next week. Same time, same place.