Color of Money Live with guest Bill Emmons (Feb 13)

Feb 13, 2020

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

This week, Michelle will be joined by Bill Emmons, assistant vice president and economist at the Federal Reserve Bank of St. Louis.

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Debt vs. retirement: How to choose where to put your money
Can’t pay the IRS what you owe in taxes? This is the one thing you should do.

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Thank you for joining me today. I have a great guest so pepper him with lots of questions. Joining me today is William Emmons, the lead economist with the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. His areas of focus at the Center include household balance sheets and their relationship to the broader economy.

He's taking you questions today about my column on a report he co-authored  "Is College Still Worth It? The New Calculus of Falling Returns," published in the Federal Reserve Bank of St. Louis Review. 

Here's my review of the report: Is college still worth it? Read this study.

Okay, let's get started. 

And, as always, send me your Thursday Testimonies. 

Without adequate savings or enough scholarships and grants to go around, students and their parents feel they have no other choice than to take out student loans.

But this debt sentence has sparked a debate: Is college still worth it?

So, is it worth it? And if so, what cost is reasonable? 

Let me start by saying that what I say is my own opinion, based on the research I have done with Lowell Ricketts and Ana Kent here at the St. Louis Fed. In short, our answer to the question, "Is college worth it?" is, "It depends!" That may seem like a wishy-washy answer but our point is that this question used to be a "no-brainer" for most people. Our results suggest that's not true any more. It depends on a lot of things, including the cost and what the student can reasonably expect to gain from a college degree. Also--the chances of actually completing that degree.

I wanted to give a shout out to you all! I have met with a financial planner and we are really thankful for his guidance. He recommended a few things that Michelle wouldn't recommend generally (LOL I have been reading your columns for a decade) BUT given our particular situation, we are glad to have his specific guidance. NC/Female/33

Glad you are getting some help. Just curious what is he recommending that you think I wouldn't agree with? 

I have a newborn and I am learning about this entire huge ocean of investments 529. I learnt quite a bit recently. I live in TX so there is no incentive to save in State sponsored plans for state related tax benefits. That opens the window to being able to invest in other state plans. How can I go about comparing the various state plans to compare and contrast which 529 plan I can put money in? What are the top 3-5 things to look for when comparing these plans? Thanks.

Good for you for starting this process early. The sooner you start saving for your child the better. My husband and I started when our kids were tiny and as a result we have enough to send all three to college (in-state) with no debt for them or us. 

Go to savingforcollege.com and the site has a great tool that allows you to compare plans. Be mindful of fees. And don't go through a financial person. Just do a direct setup, which will save you money. Check our Morningstar's 529 ratings as well. 

Read: Even if your child is just a few years away from college, it’s not too late to fund a 529 plan

 

Experts are constantly saying borrowing for education is a “good investment.” Is it? When is it not the case? 

It definitely can be a good investment. Our research suggests that the risk of the investment has increased, on average.

We looked at both the income earned and wealth accumulated by four-year college graduates compared to people who did not have the degree but who were otherwise similar--same birth decade, same age at the time our data cover, same race or ethnicity. We found that the income benefits are holding up for millennials, compared to Gen X, baby boomers and even older folks (the so-called "silent generation," born before 1946). But we found that wealth accumulation (wealth = what you own minus what you owe) is not holding up. The youngest group we studied, born in the 1980s, were not showing wealth benefits from a college degree.

Hi Michelle! This is my first time writing in. My Thursday testimony is that I have finally paid off my car, a Honda Civic that I plan on driving for as long as humanly (mechanically?) possible! It was my first big "adult" purchase and I am so happy that the monkey is off my back!! My question is: I am trying as hard as I can to be frugal, minimizing non-essential spending because I still have student loans to pay off. I find myself getting really indecisive and anxious over small spending decisions. Things like: Do I buy the $15 Target shirt because it's less expensive or the $45 shirt that I like a little more/might last longer? All store brand groceries or "splurge" on the special San Marzano tomatoes so my pasta sauce will taste better? I can't find the line between "worthy investment" and "spend the least $ on everything". Do you have any wisdom for these little decisions? I know it's small potatoes compared to the questions about 401ks, annuities, investments, taxes etc you always get, but it matters a lot to me because my budget is VERY tight, I am trying to make every cent count and I want to get rid of all my debt monkeys ASAP! Thank you! - she/her, 26, Massachusetts

First, congrats on getting rid of the car loan. I know that is a big relief. I haven't had a car note in more than 20+ years. And never will. Hate debt.

So, I totally get the concern of overspending. And actually, keep having those conversations with yourself in your head. You should always ask: Is this a need or a want.

So, no to the clothes -- Do you really need the shirt? Seriously, don't most of us have all the clothes we really need.

Yes, to the tomatoes that will make that pasta sing! 

I am constantly second guessing purchases. But when I ask myself is this a want or a need it really does help me make the right choice. 

With you because you still have student loans, most of the time you need to say "no" to yourself. Just keep in mind the debt and the saying no becomes easier. 

Here is why the student loan process is odd to me. I could be a 40+ year old entrepreneur with a business generating some revenue and could need $250K loan for a variety of reasons to grow my business and my access to capital is extremely difficult or next to impossible to secure. Hypothetically... Or... I can be an 18 year old with no credit history, no skills yet, and I can borrow $250,000 for a very expensive education and there are tons of people lining up to lend me money. Something is wrong here!

Your observation is correct as far as federal student loans are concerned. These loans are not underwritten based on the risk characteristics of the borrower, as a business loan would be. Private student loans are a different story, being closer to the business loan you are talking about.

Congress understood the difference between private loans that are underwritten based on borrower risk characteristics and direct federal loans that are not. Their decision to make the loans available to a broader pool of borrowers reflects other considerations.

Yup, something terribly wrong. I totally agree. And folks I see the results of this over borrowing for college. I know the "average" says it's just about $30,000 per but that stat doesn't capture the many people who are not average. I've seen couples with six-figure student loans nearly as much as their mortgage. And now they are trying to figure out how to pay for their kids to go to college. 

I was about to file our taxes when I noticed the dependent FSA box was blank even though that money was taken out (and repaid to us) in 2019. Is the only recourse getting a new W2 from HR? My husband just wants to add the amount in, but that seem risky. We are set to get a refund, I'm just not looking forward to waiting on the new W2 form.

Check with HR to see how soon you can get a corrected form. I would wait if you can get it just to be sure. Because the IRS receives these documents and compares to what you put on your tax forms. If the numbers don't match your return may get delayed in processing, meaning so too will your refund be delayed. 

I'm due in April and plan to take the full 12 weeks leave covered by FMLA. I'll get 1 week parental leave pay, then 60% pay for 5-7 weeks short term disability (based on delivery). I plan to take LWOP to save PTO for all the doctors appointments/sick days that'll come later. I won't get my 401k contributions/match while I'm out. We have about 8mo living expenses in an emergency fund and $1k in a life happens fund. Should I prioritize upping 401k contributions now to make up for the loss? Or reduce/keep them the same and start socking away the expected daycare costs that'll start in July? I should also add I have this nagging feeling my job isn't secure in the long run...

Congrats on the coming baby. If it were me, I'd hold steady and save the money until you get the handle on all the expenses, including child care. Plus with you job being a bit shaky, you want to stock pile cash just in case. You can get right back to saving for retirement once you know how the extra expenses fit into your budget. 

In the paper you write: “The wealth-building advantage of higher education has declined among recent graduates of all demographic groups. Among all racial and ethnic groups born in the 1980s, only the wealth premium for white four-year college graduates remains statistically significant.”

What does does this mean for minorities and families with low incomes? That they shouldn't go to college? 

No, we are not saying college is not for non-white students! We found that the income benefits for young non-white college grads were holding up. But these young college grads were having a very hard time accumulating wealth. So if you define the promise of college as earning a higher income than if you didn't have a degree, it holds true for Hispanic, Black and other non-white groups of every age. Wealth accumulation was what looked different for the youngest non-white college grads.

We think an important thing that has changed for younger generations is the much higher cost of attending college. This raises the stakes. This is much more consequential for students whose families cannot cover much or all of that increased cost. This includes many families from historically disadvantaged backgrounds, including parents who themselves do not have college degrees as well as members of historically disadvantaged minorities. For those students who must finance the cost largely themselves, they are forced to borrow. Failure to complete the degree or a slow start to one's career can cause the debt burden to be very painful.

This is also a process, right? Many the Kroger tomatoes don't compare and the Aldi ones are a fine replacement. Or nothing is as good as the brand name--for that item. But maybe the beans that you put in a big casserole can be whatever brand because the price difference doesn't matter to the outcome.

Yes, you are right. It's about trade offs and really just thinking through when you spend. I have certain items that I want the brand name, just habit probably or maybe it really does taste better. But when it doesn't matter, I go for the store brand or sale item. But if you HAVE to have a certain thing, it means not spending on other things that don't matter. For example, I do not have a problem with people buying Starbucks coffee. They say a good cup of java gets them started right in the morning. For me, if that cup of coffee will keep you from slapping or cussing out your co-worker - get the coffee please. But bring your lunch. 

And on the matter of small purchases, please keep in mind it's the big dog expenses that matter more. Try to reduce your housing costs, transportation, expensive vacations, drive a cheaper car, etc. Eliminating the coffee isn't what's going to make you a millionaire. It's the totality of all your spending and saving. So it's okay to carve out a little something that will make you happy. BUT.... just one or two things if you have a lot of debt. 

I want you to SUFFER while paying down debt because it's that suffering I hope you remember to keep you from sliding back to bad behaviors. 

I struggle with reports like this, because I typically see reporting only on the top-line takeaway. Meanwhile, families who can afford it are still going to push their kids into college (note Michelle's article mentioning that the wealth premium for white four-year college grads still exists), and they very quickly start saying things about how it's important for *their* kids to go to college, but it's not good for *other* kids. There's little to no focus on the need for systemic change that reduces overall income inequality, reforms student loan practices, and controls the cost of higher education/training. I don't want wealthy families sending their kids to college to get wealthier while other children -- and yes, they're still children -- are told to go in other directions.

We agree with your views. We wrote an article that says what you are saying: College actually is accentuating these gaps. It is a pernicious aspect of our high-cost college system. Here is the article:

https://www.stlouisfed.org/publications/in-the-balance/2017/college-inadvertently-increases-racial-and-ethnic-disparity-in-income-and-wealth

Hi Michelle, this may be outside your scope of expertise, but I wanted to get your opinion. A car backed into me in a parking lot a few months back; the driver admitted fault at the time and caused $1300 in damage (per the repair estimates) to my car. We swapped insurance and DL info; it turns out he was a 17yo kid who wasn't insured to drive his cousin's car. Cousin's insurance company is saying they don't have to pay since the kid wasn't insured by them. So now I'm out my $500 deductible and my insurance company is out the additional $800 in repair costs. My insurance co. said they'll keep trying to recoup the money, but I've pretty much lost hope. We had the rainy day fund to tap into (because you give awesome advice, Michelle!), so my car is good to go, but beyond simple fairness (which is definitely not present), it seems like the kid and his cousin (and their insurance company) have gotten away with damaging my car. I did get an assurance from my company that they won't raise my rates for filing the claim; I can only hope karma bites the cousin and raises his rates, even though it wasn't even his fault, unless you count letting his dope of a cousin drive the car in the first place. Any pearls of wisdom to help me feel better, or at least more charitable? I have driven by their house before and saw they didn't bother to fix the (minimal) damage his car incurred. ARGH!

As the parent of young drivers I feel your pain. My son has had a few fender benders. And it could be the cousin had bad insurance because my policy pays for accidents for non-insured drivers of my cars if they don't live with me. Am I wrong any insurance folks out there?

For example, if I let my friend borrow my car and she gets in an accident, it's covered. 

Anyway, don't wish ill on the cousin on the kid. Life happens. AND this why you have a Life Happens Fund. 

Concentrate on gratitude. You had the money. Sure, it's a pain to deal with this but you are very fortunate to have followed my advice (lol) so that you didn't have to resort to debt. 

It's okay. Truly. 

Are there any studies measuring the non-financial benefits of going to college? Such as, polling college grads and non-college grads to see which group has greater satisfaction with life, more well-rounded knowledge, more fulfilling jobs, etc. If you're focusing only on the economic benefits of college, you're missing at least half the picture.

You are correct that non-financial benefits are very important. We document some of the associations between being a college grad and enjoying other benefits, such as being married, being a homeowner and having better health. There is a big problem interpreting these associations, however. It's what researchers call the "correlation-vs.-causation" question. Do we really believe that a college degree by itself actually produces those benefits? Or is it more reasonable to say that something else, like your family background or your abilities or the opportunities you've faced, are causing BOTH your success in obtaining a college degree AND achieving some of the other good things. It's very difficult to know how much is intrinsically due to the college experience and degree. 

We agree with Chairman Powell that now, while the economy appears to be on stable ground, we should be attacking our rising national debt. That doesn't seem to be a priority for the current administration. What does this mean for all of us in the future? Higher taxes perhaps?

Government borrowing and the resulting debt are known as "fiscal policy." What the Fed does, including changes in interest rates and, sometimes, large purchases of bonds, are "monetary policy." So the Fed normally focuses only on monetary policy, not fiscal policy.

Economists recognize, however, that these two types of policies cannot be analyzed in isolation. For example, in countries that have allowed their government debt to grow very fast, it can create economic problems that the central bank must deal with as it conducts monetary policy.

Fortunately, we in the U.S. have maintained separate fiscal and monetary policies since World War II. The Treasury and the Federal Reserve agreed in the early 1950s that we would each "stay in our lanes." That has worked very well ever since.

So the Fed's approach to the national debt is that, as long as it doesn't interfere with our ability to conduct an independent monetary policy, it is the concern of Congress and the President, not the Fed.

I keep seeing people complaining about the new RMD rules (for example, from Monday's newsletter: "the government will be forcing them to spend my hard-earned retirement funds during their college years."). But nobody is saying the money needs to be spent, it just needs to be taken out of the retirement account. It might result in somewhat higher taxes (although doubtful - a college kid's tax rate will likely be the lowest in their entire life), but it can be put into some other savings/investment instrument. It doesn't need to be spent. The rampant misinformation and pearl clutching on this is driving me mad!

Dear Anxious Spender - I was you. Learning to watch every penny got me to a comfortable retirement (where I am still learning, wonderingly, to spend on non-necessities). You will find your own path. Ask yourself - what is easy for me to cut? What will pay off cutting? What item that costs can be swapped for something that doesn't. And, what is critical enough to me that I want to, as Michelle says, carve out that space for expenditure. It's ok to be ambivalent and to sit with doubts. Just keep moving along your path and know that your doing need not be perfect.

What an incredibly thoughtful and heartfelt response to the spender. Thanks for sharing this. 

I really do agree. I know I come off hard to a lot of people but I LOVE that you are having these discussion in your head. 

I find when I question purchases even something as small has paying 20 cents for a slice of cheese on my sandwich it makes me think about the value of my time, my money, etc. 

Sweating the small stuff puts you in the posture of questioning the large stuff too. 

Make sure you spending is aligned with your values -- paying off debt, spending kids to college with no debt or as little as possible, retiring early maybe to spend time with your honey boo boo...grandkids, etc. 

When you think of it that way, it becomes easier to say "no" to expenditures that really don't matter. 

Millennial here (she/her). Since the study found that the income benefits of college are holding up for millennials, compared to prior generations, but not wealth accumulation. Is it less about the college degree being "worth it" and more about all post-college factors (e.g., job opportunity in high-cost city, housing costs increasing, etc.)? Was the study able to determine if the diminishing wealth is due to college (e.g., student loans) or to other factors facing millennials?

I think you're on the right track. Our interpretation of our evidence is that, in addition to the ballooning cost of college--which depletes your wealth but doesn't affect your income-- "post-college factors" are part of the story. One is simply the luck of when you come out of college. We all know that college grads from previous generations (for example, baby boomers) are doing great financially, on average. They certainly accumulated some of their wealth from their own earnings and savings. But they've also accumulated a lot of wealth by seeing the values of their houses and investment portfolios go up. The opportunities for large gains on investments may not be there for the millennials in the same way they were available for boomers. 

What a very smart question. I so love it when I see young adults in the chat. Just being in the presence of people talking about this stuff will put you years ahead of others who don't take the time to discuss/read/ask question about their finances. 

Think of this as your gift to the universe. I know it sounds hokey. But: you've sort of 'donated' $500. Remind yourself that you had the $$, no one was hurt, I assume this doesn't happen to you a lot.... Let it go.

Yup, good words to live by. 

Let it Go!

(I listen to this Disney song often when I'm harping on something.)

Did you control for where people live? I'm wondering if the millennials are not seeing a wealth effect because in order to get an income benefit from that college degree they had to take a job in a more expensive place to live in addition to paying on the larger student loans. Two big extra expenses - higher loan payments, higher rent - will eat up a LOT of larger income. I'm gen-x and managed to pay off enormous (for the time) student loans in just under three years but a big part of that was finding a tiny but safe studio apartment in Brooklyn near the subway for just $725 a month. Not something that anyone could find these days. And my landlord (the co-op owner) was so delighted that my check always arrived right before the 1st of the month, he never raised it on me. The big NYC salary combined with low rent left a lot of room in my budget to overpay the student loans. But if I hadn't found that studio advertised in the paper, brought my checkbook to the showing and had the money in my account for 1st month/last month/security deposit I never would have been able to pay it off so fast and start building positive wealth.

No. This is a great question but we were unable to look at differences by where you live because our Federal Reserve data set does not contain that information. The reason is that we are protecting the identities of all of the survey respondents, who answered an amazing number of very personal and revealing questions. The fear is that, even if the record is anonymised, someone on the outside might be able to figure out a survey respondent's identity by putting together several pieces of information.

To your point about younger college grads living in expensive places: Yes, this could be part of what is happening. There is a lot of research on exactly this question. High living costs in areas with good job opportunities for college grads fits with our contrast of income and wealth.

Is there any downside to having too much money in a 529 Plan? We've got about $130K stashed away form my 7 year old and plan on adding between $10-15K per year until we hit the max limit of $260K on contributions. Should we be putting some of this money into a regular savings account for him? Only debt is mortgage and retirement account is well-funded.

Well, if you save too much in a 529 plan and don't use the money for qualified educational expenses you will be hit with a 10% penalty. 

So unless your kid plans to go to law school or medical school or an expensive grad program you might save too much. 

Why not pay off the mortgage? 

Or, put it aside in a non 529 plan so you can help your child with a downpayment on his first home, etc.

Now, you can always transfer the funds to another beneficiary. 

I've just briefly skimmed Mr. Emmons's paper and read Michelle's article. But it seems to me that the message is that *debt* is bad, and that *home prices* (the principal form of wealth for previous cohorts) aren't rising as fast. None of that adds up to *college* being bad. It seems to me the real message should be "don't borrow for college," or even "reverse the public-policy trend of expecting students to borrow for college," rather than blaming colleges for slower growth in home prices or for that matter the rapid fall of wages for people without college degrees.

You (and some of the earlier questioners) are right that you can't look at college in isolation. In fact, this research is part of a broader agenda where I work, the Center for Household Financial Stability at the St. Louis Fed. We look at household balance sheets broadly--what you own, what you owe and how your financial life plays out.

We agree that the major "disruptor" here is rising college costs. Yet the economy is demanding more and more college graduates. Students whose parents aren't wealthy are faced with a tough choice--forego better job prospects or go into debt? This is why we say the stakes have been raised. Borrowing provides the opportunity to invest in yourself, but it increases your risk.

And for the record, I'm not saying college is bad. I have two degrees. All my kids are in or went to college. 

But I'm seeing way too many families borrowing more than they should or need to so that the kid can go to a certain college. 

There are alternatives that I wish more families would consider if they don't have the money for 4-year right off the bat.

 

Community college should be a first choice, not a last resort

The worst thing you can do for your college-bound teen is saddle them with student debt

I strongly suggest folks read (or at least read summaries of) Higher Learning, Greater Good by W. W. McMahon (published in 2017). It is a well researched and presented book by an educational economist. It's dense and looks closely at those benefits of higher education that accrue to individuals and those benefits that accrue to society. The latter are benefits that "spill over to benefit others in the society including others in future generations". These, by McMahon's calculations constitute about 52% of the total benefits of higher education. In other words -- education, including post-secondary education, is good for our whole SOCIETY, not just the individuals who graduate.

I don't know what the breakdown of financial vs. non-financial benefits of higher education is, but I agree completely that we should work hard to make it more affordable and accessible. 

What do you think about the Dave Ramsey/Anthony O'Neal Debt Free Degree book, podcast, etc? Basically 2 years community college, 2 years state school, apply for grants, and work your way through with self-employment type (better than minimum wage) jobs like mowing lawns, dog walking, etc? Is this realistic?

I agree with them. I just posted a column I wrote about ONeal's book. 

It depends on how much the state where you live contributes to the state college/university system. Vermont doesn't put a lot into the system outside the premier Uof Vt campus. NJ does. My cousin transferred to a NJ state college from a VT state college for very, very little more cost and he says the classes (choice and availability of slots) and opportunities (like jobs and internships) are much better.

Many scholars of higher education, such as Susan Dynarski at U. of Michigan, point the finger of blame at states exactly as you are doing. Many states have cut back their financial support for colleges and universities. This translates into higher tuition and fees. The private schools have become a lot more expensive, too. No one seems to be serious about controlling the rising cost of college. If there is one single takeaway from this research, we think it is this: Rising costs are changing the risk and return associated with college and who benefits from it. 

As I sit here eating lunch and reading this blog our wonderful cleaning woman came into my office. She is in her 70s and still working so her grandchildren don't have any college debt. I have two degrees but college was cheap when I attended. Plus my company paid for the second degree.

Some people have all the luck!

Bless that woman's heart. I hope her grandchildren appreciate her and will be there to assist her when or if she needs it.

The question about the tee shirt reminded me of this Terry Pratchett quote from Men at Arms. (It is frequently quoted during internet financial discussions.) “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet."

But if the poor man only had $10, that's all he can afford and so I'm okay with the replacement cost. 

You can only do what you can afford. Or should. 

Or, stay home when it rains, if you can. 

I do this at least once a year to save money. I stop buying and not eating what I buy. I looked the other day. Lots of canned veggies, chicken stock, frozen fruit, soups and veggies, fish, etc., are crammed in the kitchen. So the remaining part of the month, I am cooking what's in the kitchen. If folks don't want to eat that can of beets, the crackers, cereal, tuna fish, BBQ sauce, microwave popcorn, etc., donate it to the food bank. Check the expiration dates.

Love this.

"as long as it doesn't interfere with our ability to conduct an independent monetary policy...." I'm not the OP, but can't help wondering: presumably the Fed has run models about the interaction of growing national debt and monetary policy efficacy. How close are we to some sort of trigger-point where the Fed would / should /might have to publicize, "We can no longer 'stay in our lane.'"

This is an active research area at the Fed and elsewhere but not my expertise.  

My brother and I have very different spending habits and always have. I live in a cozy house (his son said it was "too small" to visit) with maybe 10 years left on the mortgage (if I don't pay it off sooner) and have owned three cars over 35 years of driving. He has a McMansion with a 30 year mortgage and may be on car number 15 by now. But guess who has been using those home and car savings to max out their 401k for decades and now has a pretty decent net worth? That would be me. These are everyday big ticket items that can make a big difference over time.

Saving habits are an important determinant of how much wealth you accumulate. It's obvious but often downplayed.

You win. 

And, I'm not trying to be funny. You took the long-term, big picture approach. 

So when folks laugh at my crazy looking car I've had for 15 years or yes, the hole in the bottom of my boot (worn on non rainy days) I just think of my retirement accounts and a mortgage that will be paid off before I retire. 

 

Those lucky children! My grandparents gave my parents money for our college. We found out when we cleaned the house and found the cards that had accompanied the checks, which stated the intent. My Dad spent it all on his hobbies rather than using it to pay for our college.

I'm so sorry. I didn't hit the parent jackpot either. 

doesn't just talk about investments, but a lot of other accumulation of wealth factors. He says that interest on loans (housing, cars, credit cards, student loan interest) is the most useless spending there is. And he recently told a reader who went on the typical "paying off my 3.5% mortgage is stupid" rant that when average people think paying off debt is dumb because they want to play the markets, that is one of the indications of a market top. He wasn't predicting a crash or anything. Just noting that when everyone is all in the stock market, there isn't a lot of room for demand for stock to go way up in the way it might have over the past decade.

Paying off high-interest debt almost always makes sense if you can do it. Paying off a low-rate mortgage is a closer call for most people but I would ask someone with a 3.5% mortgage, for example, "Can you find an investment that pays you a guaranteed 3.5% right now? If not and if that kind of an investment sounds attractive to you, then paying down your mortgage is just such an investment."

Ditto to what Bill said!

Decide what is most important to you and that may help when to spend and when to save. I used to feel guilty about most purchases and my parents felt like they over did the frugal thing and said it is okay to spend a little sometimes. A good friend helped me prioritize years ago in that is okay to spend a bit more on food ingredients as it goes in my body and I cook nearly all the days and only eat out work lunch 6 times per year. This does not mean I'm buying guacamole at Whole Foods but rather fresh cilantro instead of dried spice version. This helped me to not feel guilty for the food. I also allow myself to spend a bit of money on concerts, dance, and similar since I save so much in other areas of life. For other things, I'm more frugal and recognize I do not want to spend much on necessary stuff. For example, I do not think there is more longevity for more expensive clothes these days which is why I buy almost all clothes used, natural fiber, from places like Poshmark and Ebay where the seller will tell you all the measurements. You are doing great and continue saving and know it is okay to spend a little.

Couldn't agree more. 

My junior's first choice program right now is at a German university: no tuition, low fees, lower cost of living. The program he wants is even English-speaking, although he'll take AP German next year. Even with airfare and other expenses, it will likely be cheaper than current in-state tuition. He didn't start German with this in mind, but it's a definite plus.

Smart. 

It seems to me that we should be questioning why the cost of college increased at something like twice the cost of living over the past 20-30 years. My father-in-law worked very hard to put himself through college and law school in the early 1950's. He was able to do so through part-time work (albeit long hours). My husband and I could never have done that. My children (millennials) would not have been able to do it working full time!

In the article we calculated college costs rising more than 3 times as fast as overall consumer prices since 1978.

What are your thoughts on movements to bring down or eliminate tuition and fee costs for some or all college? My state is currently debating this and one of the issues is whether it should be extended to all families or have an income cap. There is also concern about how this might lead to higher tuition as institutions try to maximize what they can get from the state (which happened to some extent when they started a scholarship for in-state students subsidized by lottery earnings).

This is a complex question related to how we, as a society, want to finance investments in human capital. There are efficiency and equity considerations that are difficult to quantify and balance. 

Thank you so much for joining me today. Great chat. See you next week. 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Bill Emmons
William R. Emmons is the lead economist with the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, where he also serves as assistant vice president. His areas of focus at the Center include household balance sheets and their relationship to the broader economy. He also speaks and writes frequently on banking, financial markets, financial regulation, housing, the economy and other topics. His work has been highlighted in major publications including The New York Times, The Wall Street Journal and American Banker, and he has appeared on PBS NewsHour, Bloomberg News and other national programs. Emmons received a Ph.D. in finance from the J.L. Kellogg Graduate School of Management at Northwestern University. He received his bachelor’s and master’s degrees from the University of Illinois at Urbana-Champaign.
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