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Money 911: Commit yourself to saving

TODAY financial editor Jean Chatzky, CNBC’s Carmen Wong Ulrich and Sharon Epperson, author of “The Big Payoff,”  offer advice on protecting your credit, paying down debt, investing and more.
/ Source: TODAY

How should you go about buying stocks for your grandkids? Should students opt for affordable state schools instead of expensive private schools? TODAY financial editor Jean Chatzky, CNBC’s Carmen Wong Ulrich and Sharon Epperson, author of “The Big Payoff,” offer advice on these issues, plus wise words about protecting your credit, investing and more:

Q: I am a 17-year-old high school senior and I am receiving admissions decisions from colleges every day, and my question has to do with college tuition. I have been accepted at my dream school, as well as some others. The problem is that my first-choice school costs about $51,000 per year. My parents are doing all that they can to help out (keeping in mind that they have three children to put through school), but even after their help and the money that the university has given me, I would still have to take a loan out for about $20,000 per year.

This means that as a college grad, I will be required to pay back $80,000 in student loans. I have also been accepted to state schools that are much more affordable, but are definitely not my first choice. If I do attend a state school, I will come out of college with no loans. The question is, should I enroll at my dream university and take out student loans, or enroll at the state school and come out with no loans? — Zach, New York

Sharon Epperson: This is a tough one, Zach. If you've been accepted to an Ivy League school there are countless reasons that you should go. First of all, the network and connections will prove invaluable. It's often not what you know or even who you know, it's how well you know them. For some students, the education and degree from a prestigious private institution will pay off big-time. But studies of successful people have also shown that they would have been successful no matter where they attended school.

You also have to consider the field you plan to pursue. The curriculum really matters for certain professions like science and engineering, but not as much for liberal arts or business. If you wind up going into social services or teaching, your income may not support the loan repayment, although there are some new federal loan rules on that score and loan forgiveness for certain jobs.

On the flip side, who knows what the job market will be in four years? Interest rates on your student loans could be higher, and if you really want a top school on this resume, you could get that at graduate school.

Also, don't forget to check everywhere and anywhere for scholarships. is an excellent resource for checking scholarships. In applying for scholarships, point out what makes you unique. Make a list of academic, extracurricular and work experiences that make you stand out. The more specific the scholarship, the easier it is to win it. Think local and personal. The smaller the geographical area the scholarship targets, the better your chances. Also, see if your (or your parents’) workplace, community groups or area businesses have programs.

And don't forget to talk to college financial aid officers; most aid ultimately comes from them. Aid packages are negotiable. If the private university knows you are leaning toward the state school, it may not be too late for them to sweeten the deal.

Q: I wasn't money savvy in my younger years, and now I have charge-offs and late payments on my credit history. How do I correct these problems so I become more money savvy and more reliable with my money? — Lori, Kentucky

Carmen Wong Ulrich: First: Pay everything on time, every time. To help do that (easier said than done!), either sign up for automated payments from your checking account for all your debts; or set up an online calendar with alerts that show you when each and every bill is due; or open every bill the day you receive it and send out payment immediately. For many folks, though, it’s tough to do this, as half of Americans live paycheck to paycheck and there’s not much of a cushion to pay bills until a paycheck arrives. 

If you need your bills to follow your paycheck-pattern, stick to automating bill pay online, with payment dates based both on your due dates and when your paychecks hit your account. A big part of being money savvy is being disciplined when it comes to your personal accounting.  Places to go for support and free software to help you manage your bills are sites like

Q: I am 24 and just got a small refund check. I have no debt and want to start saving money. Should I go with an online savings account? — Megan, Florida

Carmen Wong Ulrich: Megan, I love online savings accounts and, full disclosure, I have a couple.  Here’s why: Web-only banks can offer better savings rates and deals because they don’t have the burden of paying tellers and rent on buildings like brick-and-mortar banks do. Just make sure you do your research — look into fees, the fine print and, of course, make sure it’s FDIC insured, the most important requirement!

Q: I would like to buy some stocks for my three young grandsons, stocks in companies they know, entertainment companies, or fast-food or snack foods or toy makers. I would like to know how to buy two or three individual stocks for two or three different kids without incurring a lot of brokerage fees. JeanJean Chatzky: I think this is a great idea, particularly because you’re specifically buying stock in companies that are recognizable to your kids. Because of that, they’ll be more likely to get involved, and watching their money grow is a great lesson that will help them be better savers in the future. That said, these days, it’s easy to do this. You can use a site like ShareBuilder, which allows you to purchase small amounts of stock for very low commission charges — $4 per investment for the site’s basic pricing program. There’s no investment or account minimum, and if your grandson isn’t active on the site, you won’t be charged an inactivity fee. The site also allows you to buy a portion of shares, so if you want to give each child $50, and the stocks are trading at $15 a share, they could buy about 3 1/3 shares. Keep in mind that because your grandsons are minors, they will need to have a parent or guardian on the account as well.

Q: My husband and I are 33 years old with two small children.  With an income of $230,000, we max out our TSP and 401(k) plans. Each month we save $250 to a 529, $200 to IRA and brokerage accounts and $50 to an ING savings account. Given that we are 30 years to retirement, and 15 years from college tuition bills, is it smart to maintain our current savings patterns or to adjust them according to the economy?Ruth, Virginia
Jean Chatzky: Yes, you should maintain your current savings pattern, for two reasons. The first — and a lot of people have learned this the hard way — is that one of the best things you can do to secure your financial future is save when you can, because you don’t know what income is going to be available to you in the future. Right now, you have an income that allows you to save a great deal of money, and it’s great that you’re taking advantage of that. If you find yourself facing a different situation down the road, you can scale back on your savings efforts a little bit if need be. You’ll also have a nice little emergency cushion if it comes to that.

The second reason is that saving while you’re young gives you a huge advantage, because of the power of compound interest. If you save $200 a month starting at age 25, you could have close to $700,000 by age 65 (actual amount is $698,202 at an 8 percent interest rate). Wait until you’re 35 and that balance drops to $300,000 ($298,072 at 8 percent). That’s a difference of $400,000, even though you’re only saving $24,000 less by starting at age 30.

That said, you are young, and you don’t want to save so much that you’re not allowing yourself to have fun. You’re in a great place right now, especially for your age, so take your family on a vacation if you want to. You don’t want to have any regrets later on, and those kinds of experiences are worth the money.

Q: Our daughter is a freshman in college and our son is a junior in high school. We have been investing in our state's 529B plan for the years. Currently their college savings total $1,200 less each than we have invested. We stopped contributing to the plans this month. What should we do with the money that is currently in the plans and what would be the best plan of action for the money we invested each month (e.g., Education IRAs/CDs)? — Terry, Rhode Island

Sharon Epperson: Many parents, like Terry, are facing the fact that the years they spent saving for a child's college education seems to have gone to waste. As their children head to college, the balance in their 529 plans is now less than the amount that they invested. The reason: The investments in these plans were much riskier than advertised. In some states, like Rhode Island, even an “aged based option” that's designed to get more conservative as your child gets older can hold a significant amount of stocks — as much as 35 percent.

But a 529 plan is still probably the best option for Terry to save for college because of the great tax savings.

State tax savings on 529 is a guaranteed return: Parents usually receive a state tax break for contributions with their state's 529 plan. As with all 529 plans, the money is then invested and grows tax-free, and withdrawals for tuition usually aren't taxed either. (Now, thanks to the stimulus bill, 529 money can also be used to pay for computer equipment and Internet access.) Rhode Island residents get a state income tax deduction for their contributions that's capped at $1,000 a year for joint filers ($500 single). But any excess contribution can be carried forward to future years! With older children, the state tax savings makes for a guaranteed short-term return that is nearly impossible to match with any other short-term investment. Your state won't give you a tax deduction for investing in an Education Savings Account and you can't contribute to an ESA for a child who is 18 years old or older.

Preserve principal if child is near college-age: You have one child in college and another less than two years away, so you want to preserve your principal rather than reaching for high returns. You can switch among investment options in a 529 plan two times in 2009. Rhode Island's plan offers a less risky, stable value fund option that invests primarily in fixed income and money market securities. If you think the market is going to bounce back a little, the Vanguard Total Stock Market Index is another option.

New ultraconservative options are available for 529 plans: You don't have to stick with your state's plan. There are about 80 plans to choose from. Several states, including Ohio, Utah, Arizona and Wisconsin, are offering safer, government-insured investment options like savings accounts and CDs. You could put new money in one of these plans and still keep the Rhode Island plans. Keep in mind you won't get a state tax deduction for contributing to another state's plan, and returns can be as low as 1%. Also, if you're wondering if you should just roll over the money in the current plan to another state that offers CDs, remember you'll be locking in those losses.

Matching grant program available in Rhode Island: Terry, you may not be aware that you could get up to $1,000 in a matching grant from Rhode Island for participating in their 529 plan. Your family income has to be $80,000 or less to get a matching grant, and if your income is $65,000 or less you could qualify for a “2 for 1 match” up to $1,000. Your child has to be 10 years old or younger when you open the 529 plan to participate.