© 2014 Shmoop University, Inc. All rights reserved.
Financial Literacy

Financial Literacy

Home Financial Literacy Investing 101 College Finance: Investing in Education

College Finance: Investing in Education

Why you need to think about this starting at age 10 (not just for Tiger Moms, Hawk Moms or really Somerset Maugham either).

Worrying about college at age 10? Are you nuts? No. Not any more. Not today. Aside from the world being highly competitive, college is exorbitantly expensive. And things got much, much worse in the financial collapse of 2008 when large swaths of university endowments were wiped out, forcing universities to then adopt a much more conservative investment approach (likely at just the wrong time) and forever harm the scholarship monies available to needy students. A university endowment typically “throws” or gives about 4.25% of its total assets back to the university to cover operating budget costs, from heating the buildings to paying various student fees. With more conservative investing on an asset base 30% smaller, endowment throw looks more like 3.75% today and shrinking.

If you can save “just” two grand a year starting at age 10 and you can compound it at 8% (net of fees and taxes etc for now…) per year – think: S&P 500 index funds – you start your freshman year of college in really good shape.

The best scholarships are the kind where the university seeks you out because of your amazing talents – you run a 4.4 second 40 yard dash carrying a pig, you patented a computer widget at age 17. These are talent-based scholarships and aside from being flattering and kinda glamorish, they come with the least amount of paperwork. And no need to beg, smile or shmooze anyone for anything.

Need Based

Common mistakes:

Well, your biggest mistake was being born middle class. You screwed up. If you'd been smart enough to be born into a family that either had tons of money or NO money, you'd be set. Both of those classes have college covered. It's the big fat middle that carries the hardest burden for college payments in the U.S.

Fair?

Well, what's the alternative? Should the smartest get the money? There's only so much to go around. What about the best looking? The fastest 40 yard dashers? How do we divide the pie?

You figure it out when you get old enough to make a diff – in the meantime, deal with it.

People who Shmooped this also Shmooped...

Advertisement
Advertisement
Advertisement