My son plans to work FT for a year to save for college. How can he invest his $ to get more bang for his buck?
August 26, 2012 3:56 PM   Subscribe

My son plans to work FT for a year to save for college. How can he invest his $ to get more bang for his buck?

My son is a bit of a late bloomer and put off making a decision about college. Now that all his friends are heading off to school and after spending a summer working in a warehouse, he has begun to understand the value of a college education. He has decided he would like to work a year and then go away to school next fall.

His take-home pay is around $1000/month. He's also considering picking up a part-time job in the evenings. Any ideas for short-term investing to beef up his savings over the next year? I don't think he'd be averse to some risk, though blackjack is out of the question : )

The way it looks now, I'm afraid that even with saving for a year, his goal might not realistic.
posted by caroljean63 to Work & Money (18 answers total) 5 users marked this as a favorite
I'm afraid that even with saving for a year, his goal might not realistic.

Can you clarify a little more what his goal is? How much does he want to have saved for next fall? Does he intend to go to a public or private university, continue working through college, apply for financial aid, etc.? All of this will make a difference in terms of what qualifies as realistic.
posted by scody at 4:04 PM on August 26, 2012 [1 favorite]

I am not a financial expert, but I am an amateur investor.

No investment vehicle will give you or him the returns you are hoping for over such a short period. Any one that promises to and looks good will carry an amount of risk equal to the possible returns. It is not worth the risk.

If he or you insists on "investing" over a short period like this, throw the cash in CDs. My advice is just to stick it in the highest-yield savings account you can, I've heard good things about Ally.
posted by InsanePenguin at 4:13 PM on August 26, 2012 [11 favorites]

I just thought of another idea. I don't have children, so I don't know the specifics, but look into a 529 College Savings account. There are tax benefits for it (again, not sure what they are.) That way he could still feel like he wasn't just putting money in a bank somewhere, it'd go to a specific account with a specific goal, but he wouldn't be risking his college tuition to do it.
posted by InsanePenguin at 4:17 PM on August 26, 2012

As InsanePenguin says, there's no such thing as high-yield short-term investing. Otherwise we'd all be rich :)

Your son should work hard and live frugally. A good strategy is to give yourself a small "fun" budget and spend it one night a week. Everything else goes straight to savings, and make sure he understands that working for a year won't pay for the next ~4yrs of school - he's going to need to continue working through school.

Also, he needs to research and be practical about where he choose to go to school, and look at *all* the costs (living, moving, books, commuting, fees, phone, internet, computer, etc). Additionally, you get out of school what you put into it - he'll need to work just as hard at school as he does at work. Finally, a college degree is not an automatic job - he need to be doing internships, coops, volunteer work, and networking. He needs to show passion and skill at what he chooses to study.

Has he considered vocational training? Maybe what really interests him doesn't even require a college degree, and he should be pursuing an apprenticeship. Just because all your friends go to college does mean that you need to, or that you're less of a person because you don't.
posted by jpeacock at 4:25 PM on August 26, 2012

The best and only way this will work out is for him to "save" by living with you, eating your food, not paying rent, not buying clothes, not eating out more than once a month, not buying gadgets. Set a concrete goal (in writing!) that you both agree on, something like "I will save $1200 per month from my two jobs, and I promise I will never ever touch this money until next year when I write the check for my tuition." And then you help him to stick to it. It will be hard. Your profile doesn't say where you live, but there are many many places in the USA where $12,000 will pay for two or three years of a state college, especially if he continues to live at home. It is how thousands of young (smart) people have gotten their educations without being trapped in the "college loan" scam.
posted by seasparrow at 4:26 PM on August 26, 2012 [4 favorites]

It seems to me that the most efficient use of his time is doing anything (volunteer work, internship, etc.) part-time as well to make himself a more attractive candidate. A degree from a good state school could be twice as valuable as one from one with fewer opportunities, effectively doubling his investment. You won't get that from the stock market.
posted by R a c h e l at 4:28 PM on August 26, 2012

It's awesome that your son wants to pay for college himself, but he should take some time to talk to the schools he most wants to get into to see what kind of financial aid packages could await him if he were to declare himself as an independent with no income before he starts bulking up his savings. Absolutely all of the money he saves from here on out will belong to the university or college he eventually goes to, and as a recent grad, let me tell you -- that utterly bites.
posted by These Birds of a Feather at 4:35 PM on August 26, 2012

if he were to declare himself as an independent with no income

You can't actually do this.

I, too, took a year off of college and worked full time. When I decided to go back to school, I assumed I'd be able to file a FAFSA independently of my parents and qualify for a ton of great financial aid options.

Sadly, despite the fact that I was 20 years old, living thousands of miles from my parents, and completely supporting myself on my own income, that's not enough to qualify as "independent" for financial aid purposes.

You typically have to be over 25, in the military, or with dependents of your own to qualify for independent status. Or there have to be seriously extenuating circumstances, like parents living abroad, a serious inability to contribute to your support, etc. You can't just declare yourself independent of your parents. If you could, everyone would do it.
posted by Sara C. at 4:40 PM on August 26, 2012 [1 favorite]

On the face of it, this seems to be a waste of precious time. Unless your son is doing some kind of heavy and hazardous work (Alaskan fisherman?), his earnings will barely cover tuition at a state school. Here in Maryland, in-state tuition is $9000 per year. And that doesn't include room and board, the cost of textbooks, transportation and incidentals, and so on.

Unless your son is a mediocre student with no academic inclination and few realistic prospects, and he is already prepared to attend a cheap regional school while continuing to live at home, his decision is unlikely to make him better off in the end.

Keep in mind that taking a year off to work will allow your son's academic skills to deteriorate, especially in math. His decision may make him a less competitive applicant to many schools. And when he returns to school, he will have a harder time academically.
posted by Nomyte at 4:44 PM on August 26, 2012 [6 favorites]

Use that money to improve his credit rating, because he will most likely have to borrow.
posted by Ardiril at 4:59 PM on August 26, 2012

It really does depend on where you live. In Georgia, depending on the state school he chooses, his year of savings could almost completely pay for 4 years of college if he lived at home.

Even if you live in a more expensive state, 2 years of community college (continuing to live at home) could help stretch his earnings further.
posted by hydropsyche at 5:17 PM on August 26, 2012

This is a great approach and plan, and he can do it. However, there is a problem: the job.

He needs a better, higher paying job. $1000/net = $20K a year gross. I would suggest he get a sales job, a telemarketing-type job. Such a job with moderate success will gross him $30-35K. Such a job allows him to earn more than just the usual hourly rate.

$35K = $2,100/monthly take home
Now, we are looking at almost $24,000 in savings - a much more noticeable impact towards his college goals.
posted by Kruger5 at 7:42 PM on August 26, 2012

Sara, it must depend on your state of residence because I declared myself as an independent at 23 in CA with none of the extenuating circumstances you've listed.

It will serve your son well to go to the different financial aid office websites to get a ballpark figure of what he might be in for aid-wise and EFC-wise, ESPECIALLY if he wants to go out of state.
posted by These Birds of a Feather at 7:56 PM on August 26, 2012

Seconding InsanePenguin's excellent advice.

No one should take risk for short term savings on money they know they are going to need.

He (and you) should be able to fairly accurately figure out whether his goal is realistic or not by creating a budget based on his projected salary and costs, how much he plans to save, and what the costs of school will be - assume the rate of return for his savings will be around whatever the high yield rewards checking account he can get would be (this site is one of my favorites that lists the top rates at banks around the country). Once he's got those numbers together then come back to us and we'll be happy to give more feedback!
posted by treehorn+bunny at 8:08 PM on August 26, 2012 [1 favorite]

I would suggest he get a sales job, a telemarketing-type job. Such a job with moderate success will gross him $30-35K.

Sir, do you live on the moon? A telemarketing job, with nothing but a high-school diploma, paying $30K or more? Or, really, anything over $10 an hour? In 2012?

Sara, it must depend on your state of residence because I declared myself as an independent at 23 in CA with none of the extenuating circumstances you've listed.

At least for the purposes of the FAFSA, which is the central document used to determine eligibility for federal and other aid, this is false and does not vary by state. See page 45 in this PDF document.
posted by Nomyte at 10:08 PM on August 26, 2012 [4 favorites]

I took a year off between high school and college. The amount of money I saved was insignificant - it all got eaten up by the first quarter of school. You simply can't make enough money with a minimum wage job in that amount of time to make a big dent.

I worked on a hiking trail crew for the summer that was Americorps funded. This was good for two reasons:
a) Most of my room/board was covered by the org (I saved money!)
b) I received a $1200 education awards for that amount of time (I made extra money!)
c) I had a great life experience in and of itself, notwithstanding saving cash for college

I would recommend him to find something to do in this year that has some of subset of these qualities. If it's a shitty experience (read: full-time job + part time job in the evenings) he better really be saving a lot of money. But college is so expensive that I don't see this being worth it. He's better off taking this year to have a "good" experience, whatever that means for him.

Also, he needs to start doing his own research and making his own decisions asap, even if he makes bad ones :)
posted by victory_laser at 1:56 AM on August 27, 2012 [3 favorites]

You're going to want to lower your expectations. If there's a job that will pay him enough with only a HS diploma to save up to pay for college...he should just stay there. Those simply don't exist anymore.

At $1,000 a month, even if you put away an insane 80% of it, he'll be left with $8,000. This will cover at most one or one and a half semesters. How much grant aid he gets (Pell grants, institutional aid) will have far more effect on how much debt he will have to take on than the measly savings he can get with a minimum-wage job.

He will not be able to declare himself an independent unless he gets married or you die. The biggest factor will be your assets and income.

If you want to reduce the cost of college the most you can in one year, follow the suggestions here to maximize what you are eligible for under FAFSA. Assets in the child's name are not treated in the same way as parental assets are, you want as much in the parent's name as possible.
posted by Hollywood Upstairs Medical College at 8:14 AM on August 27, 2012 [1 favorite]

A savings account will offer less than one percent. With an investment horizon of a year, you're not going to be able to shift that number much. So instead of spending brain power trying to turn what is at most 120 dollars in interest into 130, you're better off learning how to run a tight budgetary ship.

Time management, budgeting, planning. That stuff. Learn how to use calendars and accounting software like Quicken / GNUCash. Build a spreadsheet budget. Get multiple competitive quotes on expensive but necessary things. Build a profile on LinkedIn. Review the BLS occupational outlook publications. Figure out how much he'll need to borrow to graduate, and how much monthly payments will be at 6.8 percent. Get that out of the way and he'll be far more prepared for freshman life.
posted by pwnguin at 8:04 PM on August 27, 2012

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