Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropout » Mon Mar 20, 2017 12:45 am

Scott 2 wrote:I've observed the other side of the gifting - a parent using it to establish or maintain dominance over their adult child. Especially with a house, it's not pretty.

I've spoken with several Uber and cab drivers who were doing it specifically for extra money so their kids could graduate college debt free. It really sounded like the kids didn't truly understand the value or appreciate the sacrifice.

I' guess I'm a scrooge, I don't like gifts. I would feel very uncomfortable taking so much from my parents. It's their wealth, they earned it, and I'd want them to enjoy it, or give it to those with real need.
I would feel zero guilt taking a free house from my parents because I would do the same for my kids in the future. lol

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by rube » Mon Mar 20, 2017 4:48 pm

In the light of the web of goals, ere-style, I do not think it is one or the other.

I would say, year 1 you can build the house together with your kid, learning the kid a trade or at least good DIY'ING. Then he can learn how to rent it out and use that income to fund his schooling in a much cheaper way then what seems to be normal for the USA. The kid can go to Europe for example. He will be able to live in a different country (learn a different culture/language) and can study. If the kid works a bit on the side, together with the rental income the study can be paid from it, no debt when the kid graduate.

Then after some years the result is the kid has learned some good DIY'ing, knows how to manage a rental out of state (business), learned another language, gained life experience by living abroad, and graduate. And still has the rental where you paid for.
This seems for me a much better yield then giving a house alone.

It is like (A) giving somebody a freezer full of fish (costing electricity, space) (compare to giving a house) which can be kept or sold but it is not yielding money, it is costing money (taxes, upkeep etc.).
Or (B) giving him a fishing rod = able to catch fish when needed. Compare to pay for an education and make sure the kid can take care of himself by earning money.
Or (C) learn the person how to make a fishing rod, learn how to use it and to sell fishing rods/fish/fishing trips, just what the kid like (ere style, web of goals, tapping water or money when needed and in a preferred way).

Besides, there is more to an education (which does not always need to be formalized) then a monetary yield. FI is not the endpoint, it is just a major milestone. An education can be a valuable part for self developing.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Mon Mar 20, 2017 11:05 pm

Dont get me wrong, I am all for educating ones self. I just dont agree with paying one single penny for it. Go to the college of YouTube ! ITS FREE !!!! Minus the internet bill of course.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Ydobon » Tue Mar 21, 2017 10:35 am

Unfortunately you get what you pay for sometimes :lol:

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Tue Mar 21, 2017 11:21 am

Your exactly right that you do get what you pay for and the 1.4 TRILLION DOLLAR student loan debt bubble is proof of that. I keep looking all over YOUTUBE for a DEBT BUBBLE and I cannot find one. People keep coming and going to youtube for free, lol. If I want to repair my own furnace I go to YOUTUBE and type in the problem and walla I figure it out in about 20 minutes for 100% free. I sure as hell wouldn't go to college to furnace tech school for 4 years. Youtube is to college what Amazon is to the big box stores or what Facebook was to myspace or what the internet was to the book stores. You will see in the that youtube will crush most worthless college courses out there.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by jennypenny » Tue Mar 21, 2017 12:46 pm

I don't want to argue that one should overpay for college because there are many paths to success that don't include an expensive private college. That said, YouTube isn't college. If you want to be a school teacher, accountant, lawyer, research scientist, or work in a healthcare profession (just to name a few) you won't get the credentials you need watching YouTube.

The other point I'd make is that I can see why it's tempting to buy a child a house for $100K instead of spending it on college. It would reduce their housing costs to maybe $5-7K/year (taxes, utilities, maintenance). But if they worked at Walmart, their housing costs would still be a fairly large percentage of their take-home pay, even owning the house outright. If that same kid used the $100K to get a marketable degree (easily done with that much), they would end up earning a lot more than a Walmart employee. In a few years they could save up the $100K again to buy a house, but at that point the recurring housing costs would only be a small percentage of their take-home pay. If they waited a little longer to make sure they had a decent kitty saved up as well, it would generate enough income to pay their recurring housing costs. That would leave them with a paid-off house, no need to work, and a skill set/degree they could use to generate decent income in the future if needed.

Have you read ERE yet? If not, you might find the wiki useful.
Last edited by jennypenny on Wed Mar 22, 2017 6:38 am, edited 1 time in total.

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Dragline
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Dragline » Tue Mar 21, 2017 1:03 pm

dropout wrote:
Dragline wrote:No, you don't get it. If you own a house and live in it, you have to pay taxes on it and upkeep to maintain it. It's an expense, not an asset. A job at Walmart might not be enough to pay for it, depending on the house. Again, unless you have a lot of other assets or income, owning a house just to live in does not make much sense other than in comparison to what your rental/other arrangement alternatives might be. There is nothing magical about owning a house per se.
Your joking right ? Im sorry but your way way way off on this one, who knows maybe your baiting me in for an argument. If you own a house you dont have a house payment and you dont have to pay rent some where and your property taxes and insurance are about $4000 a year. lol I feel stupid even arguing this. Are you serious ? Of course you aren't. This is common sense. LOL !
No, it makes very little sense. It might make some sense if the plan was that the 18-year old would live at home and rent the property or rent out rooms and be able to make some income off of it. Otherwise its just an expensive gift that teaches nothing and ties the individual to a location that might not be advantageous. And you forgot maintenance costs in your calculation. You have not done the math and have not realistically compared the alternatives. Whether you should feel stupid or not -- that is up to you; I would characterize the notion as "uninformed."

For a thought experiment, consider what MMM's alternative life would have been like if he bought himself a house and lived in it at 18 and worked at Walmart instead of getting a degree in computer science and moving to where the jobs were. He would have never been able to move to the U.S., would have never met his spouse, would not have been able to become financially independent in 10 years, and would not have become MMM. The math just does not work. The math tells you that owning an income sucking "asset" that you have no experience managing at age 18 is just a bad choice, given the other available alternatives.

The other concept that you do not appear to grasp is that the economic value of college (let's just assume there is no other value to college for the purpose of this discussion) is not in anything you learn there in particular -- its in the credential(s) you receive and the connections you make to potential employers and others. These credentials and connections are not available on YouTube. The nuance is that not all of these credentials and connections are equally valuable, even though they may cost similar amounts and require similar efforts to obtain. Again, MMM's example is instructive. He paid relatively low for a highly valued credential and identified and qualified for lucrative job-opportunities while in school. Of course, someone can just as easily (or even more easily) overpay for a credential that is not very valuable and fail to make connections. But those are choices that can be avoided with a little due diligence.

@rube -- Did somebody just say "DO BOTH"? ;-)

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by rube » Tue Mar 21, 2017 1:23 pm

+1 for JP and Dragline.

And ehm yes unintentionally I probably have said 'do both' :lol:

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vezkor
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by vezkor » Tue Mar 21, 2017 2:46 pm

dropoutretire wrote:
jacob wrote:Hehe, that "Have you heard of that MMM guy?" happens to me from time to time IRL. I get a kick out of it when it happens.
My friends say that I have MMM's twin brain. LOL. Are you the owner guy of this site ? Pretty cool site that you have if thats you.
@dropoutretire it is very apparent you are new here. Please read this post:

http://www.mrmoneymustache.com/2011/05/ ... t-extreme/

and then this post (note the date of publication):

http://www.mrmoneymustache.com/2011/12/ ... ent-torch/

and please please please keep in mind that if dragline tells you that a house is not an asset because it consumes money regularly and does not produce an income for you to live on: He is correct.

These forums are a fantastic place to take in a massive amount of information. Almost everybody here is aware of Pete Adeney and they tend to consider MMM as the more optimistic and consumerist-friendly version of what's going on here (pessimistic/realistic/doomsday prepper extreme). Not bashing anybody because I personally love MMM AND ERE, just trying to share perspective.

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vezkor
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by vezkor » Tue Mar 21, 2017 2:51 pm

Also one of my favorites since it's on topic for the moment:

http://jlcollinsnh.com/2013/05/29/why-y ... nvestment/

The links provided within JL Collins article are also pretty good. Remember that the single most important factor with these decisions is almost always going to be price.

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Fish
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Fish » Tue Mar 21, 2017 7:09 pm

@Dragline/others: I'm amused that you all would take such a nuanced position on homeownership. It's a simple proposition. All else equal, would you rather own your residence free and clear or not? Unless the house is due for major maintenance like a roof replacement, why isn't this a clear-cut and resounding yes? Why pay the cost of capital to your landlord or bank?

Sure, the answer might be different if offered cash or some other inducement if you don't take the house. I understand the arguments about a primary residence being a liability if you consider expenses and ignore imputed rent. You're right at that level. @dropout's not interested in debating those details. But you could also meet him where he is and acknowledge he still has a point.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by jennypenny » Tue Mar 21, 2017 7:26 pm

Fish wrote:@Dragline/others: I'm amused that you all would take such a nuanced position on homeownership. It's a simple proposition. All else equal, would you rather own your residence free and clear or not?
But the question wasn't asked that way. Homeownership was compared to obtaining a college degree. I'd argue that the costs of homeownership, even without a mortgage, are too great if a person will have a limited income and has limited experience maintaining a home. It would also lock them into that situation at a time when they should be free to pursue any opportunities that come their way.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Fish » Tue Mar 21, 2017 7:41 pm

I would question the assumption that not going to college necessarily means working a low-income job. Rather, owning your house debt-free means you have the ability to cover expenses with minimum-wage work. Just like with ERE. The point about freedom of location is correct though. Although you could always rent out or sell the house when other opportunities come along, that's a situation where cash might be preferred. And college might be king in a bleak future where everything gets confiscated except your brain. :o :?

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Tue Mar 21, 2017 7:52 pm

[quote="Dragline"

Connections found in college eh ? I found massive connections in the working world while getting paid for every single hour and paid overtime after 8 hours also. Sure connections after connections with more nonsensical spend aholics making ZERO lol, I agree to disagree. I retired at 39 and knowing what I know now I could have easily done it by the age of 28 !!!! LOL !!!!!
Last edited by dropoutretire on Tue Mar 21, 2017 10:44 pm, edited 1 time in total.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Tue Mar 21, 2017 7:55 pm

Fish wrote:I would question the assumption that not going to college necessarily means working a low-income job. Rather, owning your house debt-free means you have the ability to cover expenses with minimum-wage work. Just like with ERE. The point about freedom of location is correct though. Although you could always rent out or sell the house when other opportunities come along, that's a situation where cash might be preferred. And college might be king in a bleak future where everything gets confiscated except your brain. :o :?
I LOVE IT !!!!! You have light years common sense beyond belief !!!! YOU SEE THINGS EXTREMELY CLEARLY and you over think nothing. I think that most people have analysis of paralysis, BUT NOT YOU !!!!

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by pukingRainbows » Tue Mar 21, 2017 8:09 pm

I think it all boils down to the kid in question and what they would benefit from the most.
In general, I doubt many kids would be able to handle the responsibility of a home. I know I wasn't ready at that age, (I'm assuming college freshman).
In either case, rather than making the choice myself, I'd like to see them show initiative and then provide support if it's necessary.

DropoutRetire, there's no need to quote an entire post in your replies. Just saying.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Tue Mar 21, 2017 10:43 pm

I dont understand what you mean about quoting ? Sounds like useless nit picking to me. But please explain. Also my 2 kids were more than ready to own a house at 16 even. I raised my kids not the school system. I told my kids listen to the forced curriculum if its your choice but I will never get mad if you get straight F's on your report card. I explain to my kids that the Government forces you to go to school everyday or my wife and I will get in trouble if they dont show up to class by the Gestapo. Right now as we speak I have a 2.5 year old grand daughter and every time she comes over I am teaching her useful things and I am brainwashing her in the correct direction. This is the 1st Youtube college video that I showed her to keep her un sheeped from the American consumerism society. Its by Jeff Yeager and its called DEBTORS AMNESIA !!!!! Its a great video check it out !!!!! https://www.youtube.com/watch?v=9E_L6caihqA

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Fish » Wed Mar 22, 2017 2:02 am

@dropout Here's a tip since you're new here: ;)
(Some regulars with college and even postgraduate degrees should also pay attention, cough :?)

When you want to write something, first click the "post reply" button at the very bottom of the page and NOT the quote button (") next to the post you're responding to.

Failing to do this means everyone has to scroll through huge yellow boxes of text to read what you have written. It's somewhat annoying and makes the forum harder to read, especially on a small screen device. Well now you know 8-)

We have a small set of important rules to keep things running smoothly on this forum. There's actually a guideline for quoting posts, see below. Since you're going to be part of our community, please also review the Forum Rules of Conduct.
Forum Rules of Conduct wrote: 2) [...] IF you're responding to the entire post (which is the case in most cases), just start your post with @username. Then respond. Only use the quote function when/if responding to specific paragraphs or sentences.

dropoutretire
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Wed Mar 22, 2017 1:53 pm

Oh thanks for the info. Does this look correct for a reply ? :)

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Felipe » Thu Mar 23, 2017 3:11 pm

My favorite class was free on Stanford's youtube channel.

That said, I'd take the house. Even better would be a trust in my name where I can collect dividends but not touch underlying assets.

dropoutretire
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Thu Mar 23, 2017 10:44 pm

I like your thinking ! :lol:

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by ellipsis_has_expired » Fri Mar 24, 2017 5:46 pm

@Felipe

That's what I was thinking. A trust where they get dividends or some % payout of my choice. Then full control at age 32 or so. I'm still unsure as to when is an age that the average kid isn't going to do something stupid with his money that he'll regret.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by JamesR » Fri Mar 24, 2017 9:38 pm

ellipsis_has_expired wrote:Then full control at age 32 or so.
Yeah, 32-33 seems like a good age to me as well, but there's probably other more accurate factors to measure, particularly financial maturity. Perhaps just measure if they've accumulated $100K in total net worth (discounting real estate) relative to their starting point, fudge the number based on their job/business. Or just never give full control. Just set it up was a 4% SWR so that it deliberately runs out of money at some random point in 30+ years ;)

Random note - at 18 I was handed a sizable lump sum by my grandparents for university education. A few years later it was gone, and I had no degree. What a waste. It definitely should've been limited to investments only.

dropoutretire
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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by dropoutretire » Sat Mar 25, 2017 1:10 am

I like your story even though that 100k was a waste and I truly think that the the odds are better towards buying a house debt free. The house ties up the money also so its harder to waste.

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Re: Saving up for your kids college from day 1 VS. just buying them a 1OO % debt free house ?

Post by Felipe » Sun Mar 26, 2017 6:10 am

Couldn't you set it up so they learn about it at 18, get access to half of dividends at 24, and then full dividends at 32?

That way they see the power of compounding interest while still enjoying the cash flow. You could add in a clause that they have to be able to save X by Z date to prove they can handle the wealth. Groom them as you raise them so they become their own financial wiz.

Side note that may be relevant: I've worked at my family's business for nearly a decade and have a nice salary that I religiously save at 24yo. So it's more than possible for someone to appreciate and build on good luck. In some sense, every single person on this forum has built on their good luck rather than squander it.

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