Roths for Teenagers?

March is just around the corner, which means we are entering the heart of tax season. Time to gather those 1099s, fire up the old TurboTax, and wonder how we can possibly pay Uncle Sam less money next time.

So ’tis the season to think about, and write about, schemes and tricks to minimize your tax bill. For example, the AP ran an item the other day discussing the rather unlikely maneuver of teenagers opening Roth IRAs.

It’s an idea with some intuitive appeal. As readers of this blog know, Roths are attractive if you believe that the tax rate paid today is likely to be lower than what will be paid when the money is withdrawn from the IRA. A teenager with a tiny income, and thus a low marginal tax rate, certainly qualifies.

And there is the tremendous emotional appeal of "the magic of compounding" that miracle of mathematics that will drastically increase the IRA balance during the very long journey to retirement. Even with only 5% annual return, after 50 years $1 would grow to $11.46. Imagine how grateful your child will be when they retire and realize the foresight you had in making them save way back in 2010.

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Is a Fake College Degree Worth Anything?

Earlier this month I asked Is a College Degree Worth Anything? It is a theme I’ve touched on a few times over the past year. (See other posts in the category "College" at right.) In my view college is financially a great deal for some people, and a good deal on average, but at the marginal extreme probably not worth it.

Two recent posts on WalletPop (here and here) raised an interesting follow-up question. Is a fake college degree worth anything?

I am talking about degrees from what are called diploma or degree mills. Deliciously, WalletPop makes a distinction between the terms based on how blatant the fraud is. Diploma mills sell official looking papers for a modest fee. Degree mills make a show of reviewing your "life experience" before selling you official looking papers for a slightly less modest fee, running from several hundred to several thousand dollars.

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Is a College Degree Worth Anything?

One of my favorite questions, the monetary value of a college degree, is back in the buzz. Last week the Wall Street Journal ran an article asking What’s a Degree Really Worth, with the alternate title "Earnings Gap Between College and High School Grads Small."

It seems that for some number of years the College Board, the lobbying group  for colleges, had been citing $800,000 as the difference between lifetime earnings of college and high school graduates. They got that number by taking the difference in average annual salary for high school and college grads as measured by the Census Bureau (about $20K) and multiplying that by a lifetime of work. (Which apparently is 40 years. I would have guessed higher.)

It is a very crude calculation, but then I am not sure that the College Board ever claimed otherwise. According to the WSJ, until December their website did say that

Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000. In other words, whatever sacrifices you and your child make for [a] college education in the short term are more than repaid in the long term.

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Why College Keeps Getting More Expensive

Because it can.

This week the College Board (the SAT people) released their annual survey of college tuition and found what they always find. College got more expensive last year. This time ’round public colleges went up 6.5% and private ones 4.4%, both of which are pretty steep increases when compared to the 2.1% decline in the CPI over the same period.

This was a particularly bad year for the tuition vs. inflation comparison, but the overall trend is striking. According to the College Board, over the past thirty years the average tuition cost has tripled in real inflation-adjusted terms. It’s hard to think of anything else we buy that has gone up as much. It would be like paying $12 a gallon at the pump.

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Why Go to College?

There’s a good post today at Wise Bread making the argument that going to college just for the learning doesn’t make sense. In a nutshell, the post makes the case that, with only some peculiar exceptions, a person can learn stuff just as well and a lot more cost effectively on their own. I couldn’t agree more.

Of course, a person should probably go to college anyway. It’s just that learning things is not, per se, reason enough to spend four years and a modest fortune in tuition. There are good dollars and cents motivations for college and keeping a clear head about them is important.

(I haven’t researched this, but I write this blog under the assumption that my readership amongst high schoolers is zero. So to a certain extent this discussion is, you will pardon the expression, academic. Perhaps there are parents of high schoolers reading.)

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