← THE TRUTH ABOUT YOUR FUTURE with Ric Edelman
THE TRUTH ABOUT YOUR FUTURE with Ric Edelman
Episode #2: What College is Really All About
00:25:49
Special 4-Episode Podcast Series on College
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This is where technology, innovation and personal finance come together. This is the Truth about your Future with Rick Edelman. Welcome to the Truth ABOUT YOUR Future. I'm Rick Edelman. This is part two of our special podcast series on college, all to celebrate the debut of my new book, the Truth about College on December 4th. I'm the best selling financial advisor in the country. No advisor has written or sold more books than me. More than a million copies of my books have been printed in eight languages. I've won a dozen book awards, including three Book of the Year awards. The Truth About College is my 14th book. It's being published by John Wiley and Sons and you can pre order it at your favorite bookseller. And if you do, you'll get a couple of exclusive benefits. I'll tell you more about those later in the podcast. Why am I focusing on College? Because it's the most profound decision that teenagers make and the default decision in this country is that they should attend. It's the default recommendation of a high school guidance counselor as it's encouraged by parents and going to college is assumed by most high school students. 6 out of 10 high school seniors go to college immediately out of high school. And like I told you last week in our first episode, college is indeed the path to affluence. Almost every household in the country that earns $200,000 or more is headed by someone with a college degree. That's why I'm doing this special podcast series for you. College is a huge deal and it does indeed make a lot of sense for an awful lot of students. But it can be the wrong choice too. And even when it is the right choice, if the student goes about it the wrong way, the outcome can be very bad. Worse than if the student never went at all. So I want to tell you everything you need to know about college to help both parents and teens make the big decisions. Should the teen go, and if so, to which school and choosing which major? These are big decisions and I found that most families fail in how they deal with it. In today's podcast, I'm going to take a little bit of a deviation from the normal college conversation, but this detour might be the most important one that we get to We've already figured out what the proper goal is that you need to decide on when choosing whether college is the right choice. The teens got to graduate in four years, debt free on the dean's list, and emerging with a degree that lets them have a career in the field they want to work in. We covered that Last week. Today, it's the emergence from college after graduation that I want us to focus on. So here's a simple question for you to ask your teenager. What are their aspirations? Don't let them say that they want to travel and see new places, buy a car, get married, own a home, have children. Everybody says stuff like that. Instead, I want answers that put their aspirations into the context of lifestyle. Say they take a vacation in New York City. Will they stay at a midtown three star hotel that costs 270 bucks a night? Or will they stay in a suite at a five star hotel that costs $5,000 a night? When they fly, will they book a ticket, economy class for 100 bucks or business class for 1000? When they need to get around town on their vacation, will they take the bus or the subway for $3 or will they rent a car? And if they rent a car, will they run a Chevy for $200 or a Mercedes for 2000? And when they eat, will they go to a fast food joint for 10 bucks or dine at a Michelin two star restaurant that's 500 bucks a person? You get my point? Make sure your team does too. Almost everything we do in life involves money. Most people get a job and then they build a lifestyle based on whatever that income will allow. That is completely wrong. What you should do instead is figure out how much your desired lifestyle will cost and then get a job that gives you the ability to earn enough income to pay those costs. But very few people do that. Instead, they focus on the career they want, and then they passively accept whatever salary they get and as the price of pursuing that career. But that passivity, that tolerance of a limited income, that often doesn't last. Let me give you just one example. Students in school majoring in education, they want to become schoolteachers. And they know that schoolteachers don't earn a whole lot of money compared to most other careers. But education majors love kids. They want to devote their careers to teaching. So they just consign themselves to the fact that they're going to live the lifestyle of teachers. That's fine to say when you're 19 years old and in college, but once they graduate and become a teacher, their attitude could well change. You want proof? Last year, more than 300,000 schoolteachers quit, according to the American Educational research association. And McKinsey says the number one reason they quit is compensation. Or rather the lack of it. You know, it's easy for a high school kid, all dreamy eyed and innocent, filled with idealism and fantasy to say, well, that'll never be me. I love my chosen field. I'm going to remain dedicated to it even if my salary isn't the greatest. Really? Well, hit them with this quiz. Say you want to buy something but you don't make enough money to pay for it in full. Will you A, not buy it and do without. B, buy something less expensive that you can afford or C use credit cards or get a loan to buy it. Oh, it's easy for a teen to say they'll never turn to credit cards, but we know that's not realistic. And it's not just because they're going to succumb to temptation. Life really does demand that they go into debt. Say their best friend gets engaged and the teen is their best man or their maid of honor. Then the friend announces that their bachelor or bachelorette party is going to be a weekend in New Orleans or Austin or Nashville or Vegas. Your kid's got to go and they're going to spend more than $1,000 to do it. Between the hotel and airfare and booze and whatever, they don't have that kind of money. So what are they going to do? Not go. Not be the best man? Not be the maid of honor? No, they're going to go and they're going to go into debt to do it. That's life. And those are the dilemmas that life throws our way. So you have to make sure that your teen thinks seriously, realistically about lifestyle. In addition to investigating their major, they need to investigate whether that major will let them live the lifestyle, want to live. If it can't, they need to figure that out right now and make a decision. A decision to either change their lifestyle or change their career, just like 300,000 schoolteachers did last year. And that brings us to the most adult of all aspects of the college conversation. Taxes. Last year the average cost of a one week vacation for two people was $3,982. That's according to Bankrate.com that includes airfare, hotel, ground transportation, three meals a day, and typical expenses for admission fees, gifts, memorabilia and whatnot. But Bankrate got it wrong. The real cost is not $3,982. The real cost is 5,688. Why? Because of taxes. You see, if you're In a combined 30% federal and state income tax bracket, you've got to earn $5,688. So you can net 3,982 after taxes, 3,982 that you can then spend on the vacation. So if you want to take that trip, you need to earn six grand, not just four grand. So I've got a question to you. Have you ever talked to your teen about taxes? You'd better, because they think that whatever salary they earn, they'll be able to keep. You know that's not true. It's not what you earn that counts. It's what you keep after taxes. And taxes erode those earnings, income taxes, sales taxes, property taxes, use taxes, capital gains taxes, gift taxes, estate taxes, fees and licenses. When a teen gets excited about a job that's going to pay them 80 grand a year, well, do they know they're just going to net 56? Let's go back to that vacation. If you stay at a hotel in Miami beach, you're going to pay a 4% resort tax, a 3% convention development tax, a 2% tourist development tax, and a 1% professional sports facilities franchise tax. So even though the hotel says the room costs 400 bucks a night, you're actually going to spend 440 a night, 10% more. And that doesn't include a 2% food and beverage tax. You've got to make sure your teen knows that everything costs more than they think because of taxes. The average new automobile is $47,542, according to Edmunds. But you actually spend a whole lot more than that. First, most states charge a sales tax. The average is 5% of the purchase price. That's almost 2,400 bucks. You also pay dealer preparation fees, destination fees, documentation fees, title and registration fees, and auto insurance. That's 2,700 bucks alone. That brings the average cost of a new auto to $52,589. And you haven't even driven it yet. You know that every mile you drive reduces the car's resale value, and it increases the maintenance or repair costs. But does your team know that? And the cost of gasoline, parking tolls. The average American driver spends almost ten grand a year operating their car or truck. And will the teen ever get married? The average cost of a wedding is $35,000. Add the honeymoon, you're at 40 grand. Then there's homeownership. The average house last year was sold for $419,000. That means you need cash of at least 13 grand for the down payment. Then there's the Tuttle settlement company, Tuttle insurance, the appraiser, the home inspector. Add it all up. You need maybe $25,000 to sign that home contract. And all that's in addition to the price of the house. And you still haven't moved in the cost of a moving van or movers furniture, everything from audio video gear to household appliances to a lawnmower. Now let's put children in that house. The USDA says it costs $300,000 to raise a child from birth to age 17. You got three kids, you triple that number. Yeah, a million dollars for three kids. And that doesn't include college for any of them. All this equals lifestyle. And money is the foundation. In my new book, the Truth About College, I show teens the incomes and expenses of American households, courtesy of the Consumer Expenditure Survey produced by the Bureau of Labor Statistics. This data reveals that almost every household, 94 out of 100 that are earning more than $200,000 a year, is headed by a college graduate. And the more money you earn, the more likely you own your own home, the more valuable that home is likely to be. Homes that are more valuable rise in value faster than homes that are less valuable. This is partly why people who have a college degree tend to become wealthier over time than people who don't have a degree. The BLS data reveals a whole lot more. For example, people earning under 100,000 a year are almost all living paycheck to paycheck. And a lot of them are relying on their parents for financial support. I'm not just talking about 20 somethings who are just out of college. Half of parents are providing financial support to at least one adult child. Everything from groceries and cell phone bills to rent and credit cards. The average monthly support from parents is almost $1,500 a month. And is that really what teens want for their future? To stay dependent on mom and dad? Is that what mom and dad want? If you don't talk about this with your kids, they'll have no idea. Because right now you give them place to live, food to eat, clothes to wear, cars to drive, and they know nothing about what it takes to truly support a lifestyle. Teens need to know that they need to save and invest for their future once they graduate and get into the workforce. But more than a third of us adults don't save at all because they're living paycheck to paycheck and they're getting handouts either from the government or from mom and dad. Your teen needs to get themselves on a path that lets them avoid that fate. And that means they need to choose a career that lets them earn six figures. According to the BLS data, those who are earning between 100,000 and 200,000 have 25% of their incomes left over after paying their bills, and those earning more than 200,000 have 33% of their incomes left over, meaning all these folks have plenty of cash to save and invest. That's how they're able to create wealth over time. Life is all about choices, and when your teen is thinking about college, they're in the very moment of their lives where they're about to make some of the most important choices of their life. You've got to make sure that your teen frames all this in the context of lifestyle. College isn't just about getting a degree. It isn't just about having a career. It's about their life and the lifestyle that they will be happy with. Life is all about choices, and the choices they're about to make will have consequences. They need to make an informed decision, and that means understanding the full picture we're going to continue with this conversation and we're going to come down out of the big picture, down to the tactical, with the most basic of all topics when it comes to college, that's the Cost of College I'm going to share with you the true cost of college in just a minute, but first I want to say that I really hope you're enjoying this series about college. And I hope you pre order my new book, the Truth About College from your favorite bookseller. If you pre order the book right now, you'll get a special workbook, 20 conversation starters, to help adults and teens talk about college. This exclusive workbook is only available if you pre order the book and if you order three copies, hey, why not? It's a great stocking stuffer. You'll get both the Conversation Starters workbook and a special invitation to to join me in a private webinar where you can ask all your questions about college. And you'll also get the link so you can watch the video recording of the webinar anytime you want in case you can't join live. And if you're a financial advisor, you can get big discounts on bulk orders. The book is a perfect holiday gift for your clients. Same goes if you're an educator or guidance counselor to get this book into the hands of your students to get these special offers, just click the link in the show notes. So let's continue and talk about the true cost of college. I'm amazed at how often parents and teens focus only on what school to go to and what major to select. They spend very little attention on how much that school, how much that major will cost almost as though it doesn't matter, or that it's inevitable or. And I've seen people say this, the more they spend, the better their child's life will turn out to be. Well, yeah, maybe that's true. If the teen is going to go into a career at a private equity firm where they love to hire grads from Ivy League colleges, maybe you can convince me that whatever you spend on the degree is worth it. But if you're going to be a schoolteacher or a nurse or an HR professional, I assure you where you get the degree makes no difference to your future employer. That means you need to pay a lot of attention to how much the degree costs. Most college students are not entering fields where the school or the major give them an edge in the job market. So we need to focus on the cost of college so that you and the team can make good financial decisions. To receive the college degree, the teen has to obtain 120 college credits. Generally, you get college credit every time you get a passing grade in a qualifying college course. Most courses give you three college credits. And the grades you get, they're the same as high school. A, B, C, D, or F. Most colleges offer two semesters a year, fall and spring. So think about it. Two semesters a year, five classes per semester, three credits per class. That means you earn 30 credits a year and you need 120 to graduate. So that means it'll take your teenage four years to get their degree. Okay, that's the cost of getting a degree in time. Now let's look at the cost of getting the degree in money. The least expensive colleges in the country are operated by state governments. The average cost of tuition for in state students for tuition and fees, meaning for students who live in the state. In state students, it was $406 last year. That was per credit. Since each class gives you three credits, that means each class really costs $1,218. That's per class. If you take five classes, we're talking $6,090 per semester. Two semesters a year. The total is $12,180 per year. That's for tuition and fees. But of course, that's not the total cost, is it? You also pay an average of 1500 bucks for books and supplies each year. If you live on campus, you eat in the school's dining hall, room and board. That's another $13,000 on average, plus miscellaneous expenses. Add another four grand. Add it all up. The grand total to attend an in state public school Last year was almost $31,000. So let me ask you, if the total cost last year was $31,000, what is the total cost of getting a degree? Well, let's see. 31 times 4, that's $124,000, right? No, not right. You see. Yeah, 31,000 times 4 is $124,000. But no, that's not what a four year degree will actually cost. Because you're forgetting inflation. From 1977 to 2024, college costs rose an average of 6.1% per year. That means if college was 31,000 last year as a freshman, then college this year as a sophomore is almost 33,000. Junior year will be almost 35,000 and senior year will cost almost 37,000. The total cost of college then won't be just $124,000. It'll be more like $135,000. And even that's not right. That's because the average full time student doesn't earn 30 credits a year. They only earn 22 credits a year. Meaning the average college student takes six years to graduate, not four. Only 28% of students actually graduate in four years. Why do seven out of 10 students fail to graduate in four years? There are three main reasons. First, they sometimes fail the class. Second, most students take only four classes every semester instead of five. And that means they collect only 96 credits in four years instead of 120. That means they're 20 credits short of what they need to graduate. That means they need to spend another two years to finish. And the third reason why students don't graduate in four years? 80% of them change their majors and 37% of them transfer to a different school. When you change your major, the classes you took in your old major don't apply, meaning the time and money the teen spent on them are wasted. And if the teen transfers to a new school, the new school is likely to reject some or all the credits that they earned at the old school, forcing the student to retake the same classes. That's yet more time and money to get the degree. Yeah. Studies by the General Accountability Office and the National Student Clearinghouse found that when the students transfer to another school, they lose an average of 43% of their credits. The bottom line, lots of students end up with 150 college credits. Even though you technically only need 120 to graduate all those extra credits, they were in the wrong major or from a different school. This is why it's so important that the teen choose the right school and the right major from the outset. And if they can't do that, then they shouldn't go to college. At least not yet. It's that simple. Because if the teen changes majors or changes schools, they'll cost themselves massive amounts of time and money. But students rarely consider the financial impact of all this, and that financial impact is huge. By failing to graduate in four years, they're forced to attend college in years five and six. And the cost rises every year. The fifth year of college at that state school, that'll cost $39,000. The sixth year will cost $41,000. That brings the total cost over six years to more than $215,000. You'll have spent 80 grand in just the last two years alone. And it's even worse than that. Those two extra years will really cost you close to $600,000. Yeah, I'm serious. We're talking not just two more years of tuition, room and board, books, miscellaneous expenses. We're also talking about a lot more in student loans, and that means a lot more in interest charges over the next 20 years. It also means losing two more years of being in the workplace. Instead of graduating at age 22, graduation is now not until age 24. Say the graduate earns $50,000 in their new job. By delaying graduation for two years, that translates into two years of lost income, two years of lost savings and investments. By my calculations, graduating in six years means that teens will have in retirement nearly $600,000 less than the student who graduated in four years. And all this gets even worse if a student goes to an out of state college or to a private college or university. The average cost for an out of state student at a public school was $55,000 last year. Getting the degree in four years costs $241,000. And if it takes six years to get the degree, the the cost is $385,000. And that's not the most expensive. Private colleges and universities are the most expensive of all. An average of $67,000 last year over four years, that's nearly 300 grand. Over six years, it's almost 400 grand. Oh my. Okay, everybody, let's take a deep breath. It should be obvious by now, we cannot let the student overpay for their degree. But what do I mean by don't overpay? First, get those 120 credits as fast as possible, because the sooner you finish, the less you pay. And the sooner you finish, the sooner you can enter the workforce and start earning an income that's why I finished college in three and a half years. Second, choose as inexpensive a school as possible. Third, select a major that leads to a high paying job. But choosing an inexpensive school and a major that leads to a high paying job? Well, those require a lot more conversation and I'm going to do that for you next week. In the meantime, please support this series by pre ordering my new book, the Truth About College from your favorite bookseller and click the link in the show notes because if you do pre order the book right now you'll get a special workbook, 20 conversation starters, to help adults and teens talk about college. This exclusive workbook is only available if you pre order the book and if you pre order three copies. Hey, it's a great stocking stuffer. You'll get both the Conversation Starters workbook and a special invitation to join me in a private webinar where you can ask all your questions about college. You'll get the link so you can watch the video recording of the webinar anytime in case you can't join live. And if you're a financial advisor, you can get big discounts in bulk orders. The book is a perfect holiday gift for your clients. Same if you're an educator or guidance counselor. Get this book into the hands of all your students. To learn more about these special offers, just click the link in the show notes. Join me next week for our third episode of the special podcast series we where I'm going to help you deal with the most important college choices your teen will make. See you next week. And in the meantime, please share this podcast with all the parents and teens you know increased awareness and actionable intelligence about the forces that are shaping our world. This is the truth about your future with Rick Edelman.