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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion with Liz Weston about her column “How to Complain and Get Results.”
Then we pivot to this week’s money question from Katie, who sent us an email: “I want to start saving for my young son. I’ve considered an educational savings account, but worry if he doesn’t choose college that there will be a penalty. What advice do you have about setting your kids up for financial success and independence (when you don’t have a ton of money to put in)?”
Check out this episode on any of these platforms:
Our take on complaining to get results
Smart Money co-host and NerdWallet columnist Liz Weston wrote recently about how to complain to customer service and get results. First, Liz recommends preparing yourself mentally and physically for the interaction. Accept that dealing with customer service can be frustrating and time-consuming, and collect relevant information like confirmation numbers and warranty information to have on hand.
Companies have multiple avenues for consumers to submit complaints, including through social media, by phone or with a chatbot. Choose the method of communication that suits you and the nature of your complaint. Liz also offers suggestions for dealing with customer service reps. When you eventually get in touch with one, clearly explain the problem and how you’d like for it to be resolved, and be kind. It might help you get what you want.
Our take on saving for college
Parents have a menu of options that can help them save for their children’s education. Plus, these savings vehicles are not mutually exclusive, so if you want, you can open multiple accounts that can be tapped to pay for educational expenses.
One of the most popular education savings account is the 529 plan. Withdrawals are tax-free when used for eligible expenses, and there is some flexibility in how funds can be spent. If your child doesn’t attend a four-year college or university, the money in the 529 plan can be used to pay for vocational school or for the schooling of another family member.
Parents can also put money into a high-yield savings account, CD or savings bond. If you open a CD or bond, familiarize yourself with the penalties for early withdrawals. A Roth IRA is another option for parents of children with earned income. Its name indicates that it is a retirement account, which it is, but Roth IRA earnings can be used to pay for qualifying educational expenses. What’s more, those earnings may be withdrawn without incurring a tax penalty.
Know your options: Pick an account to use for savings, such as a 529 savings account or Roth IRA, and try to put money into it regularly.
Make this a learning opportunity: Talk to your child about how you’re saving and why it’s important.
Be flexible: Research your options for early withdrawals or beneficiary changes if your circumstances change.
More about saving for college on NerdWallet:
Sara Rathner: You want to save for your kids' future, but what if they don't end up going to college? In this episode, we tell you how to set your kids up for financial success, no matter what they decide to do with their lives.
Liz Weston: Welcome to the NerdWallet Smart Money podcast where you send us your money questions and we answer them with the help of our genius Nerds. I'm Liz Weston.
Sara Rathner: And I'm Sara Rathner. If you have a money question for the Nerds, call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or email us at [email protected]. Also, this year we're talking with our listeners live on the podcast. So if you want to chat with us, let us know when you send your money question.
Liz Weston: In this episode, regular Smart Money host Sean Pyles and I answer a listener's question about how to save for their children's future, even if they don't pursue a college degree. But to start this episode, Sara and I are talking about one of our favorite subjects: complaining. I recently wrote a column called "How to Complain and Get Results," so we want to share some of my insights with our listeners.
Sara Rathner: This is a perfect time of year for that because people are returning those unwanted holiday gifts. Maybe they're noticing some incorrect charges on their credit card statements. So this is the time to sort out all of those issues, and unfortunately, it means you might dedicate a lot of time to dealing with this stuff, and it's annoying and boring, but you got to do it.
Liz Weston: Well, that's a great segue to the first tip, which is get in the right mindset. If you are going to contact customer service, you really do need to prepare to persevere because this stuff just takes time.
Sara Rathner: Mindset's really important because if you are in the middle of six other tasks, you're busy with work, you're busy with your kids, you're in the middle of cooking dinner, you're trying to put groceries away, you're trying to do all this other stuff, you're not going to want to dedicate the time that you might need to dedicate to solve these problems. So you want to find the right time where you can pay attention to it.
Liz Weston: Yeah, my mistake is I will pick up the phone to deal with customer service right before I need to do something else, like I need to leave the house to go to an appointment. So now I'm not only irritated about the fact I have to make the call, but I am stressed about the time involved and worried I'm going to have to hang up mid-resolution. So giving yourself enough time to get this done also can help with something else, which is known as consumer rage. There's a whole complex reason for why we go into these …
Sara Rathner: Fugue states.
Liz Weston: Yes, that's a good word for it. These fugue states when we're dealing with this, but …
Sara Rathner: You sort of black out and you don't come to and you have no idea who you just yelled at.
Liz Weston: You really want to try to avoid that. But one of the important things to do is to really pick your battles because these things take time, because you're not going to get a quick resolution typically. You don't want to complain about every single thing that goes wrong.
Sara Rathner: Oh, well, nobody likes that person.
Liz Weston: That's true.
Sara Rathner: You know the person who sends every meal back at a restaurant? You know what I'm talking about. Yeah, don't be that person; I mean, obviously, if your order's wrong or cold or whatever, sure, send it back. But if you're going to nitpick about everything, don't be that person. But advocate for yourself when things are really important. Absolutely.
Liz Weston: Yeah. And be prepared. Make sure that you've got everything at hand when you make that phone call or start the text, whatever it is. Have those account numbers that you need, any warranty info, tracking numbers. As you go along the process, keep track of who you're speaking to and when. All those things can help you get things resolved.
Sara Rathner: So what about the many ways you can be in touch with a company? Because obviously the old-school method is calling them, and you have to find the right number to call, which can be difficult, but how else might you be able to get to a person who can help you?
Liz Weston: Yeah, it's interesting because some companies literally hide from their customers. You cannot find a phone number; you cannot find a way to contact them. It's all going to depend on the company. Sometimes the old-fashioned picking up the phone is the best method. Social media can be fairly splashy because it's out there, it's public, but a lot of companies have learned how to get you to send them a DM and take it private again. All they're trying to do is get you to shut up rather than solve your problem. So it's really going to depend on the situation and the company.
Sara Rathner: Yeah, I have had experience DMing companies on Twitter, and sometimes that's the best way to do it. But it's hard because, I mean, I think about people in my life who are a little bit less tech savvy and they don't have every social media account. They don't necessarily know that that's a good way to get in touch with the company. They really do want to be able to pick up the phone and call a toll-free number. And we went through a situation, my husband had booked a flight on a low-cost airline, whose name I will not call out on this podcast, but I'll shame them nonetheless. And true to low-cost airline form, they rescheduled his flights by entire days, not just later in the day, but they pushed his trip back by more than one day, which meant that he was dealing with just this tidal wave of rescheduling a whole bunch of other travel bookings. So I'm not flying this airline again. And he found online some customer service and started contacting them, and it became clear that that was sort of scammy. And so I DMed them on Twitter, and they gave me the actual number, but their customer service was only through text on this random number that wasn't even toll-free.
Liz Weston: Oh, dear.
Sara Rathner: And they actually did work with him to help him as best as they could, but the amount of hoops we had to jump through to find legitimate help for an airline was really appalling.
Liz Weston: Oh, yeah. Sean told me about an experience he had with a delivery service. He couldn't get ahold of customer service, so he Googled the word Reddit and contact the name of the company's customer service. He found a post that actually helped him find a real person. So if you're looking for customer service, consider that. Consider going to Reddit or using Reddit as part of your search terms to try to find something.
Sara Rathner: It's incredible how deep you have to go into the internet sometimes to find things. And like Liz, you and I, we write for a living, we have to cite our sources. So our Google skills are probably pretty up there. And it's amazing the things that you can find if you get creative with your searching, but the fact that you have to do that in the first place just to get some help from just these major corporations that, in theory, have the resources to have robust customer service and they just make it so hard to reach it. It's like, do you want my money? But the thing is they get so much money otherwise that they kind of don't care.
Liz Weston: And Sara, you used the word expectations, and that is so important because interestingly, our own expectations have been heightened by certain companies. They call it the Amazon effect, which is, Amazon does not do everything perfectly, obviously it has some issues, lots of issues actually, but you expect overnight delivery or even same-day delivery. I found if I have problems, I can get them resolved fairly quickly. And that's the expectation we bring to other companies. And frankly, I don't think it's an unreasonable expectation, but if a company falls very short of that mark, it leads to that customer rage we talked about earlier.
Sara Rathner: And when I work with companies that have really good customer service, I am more likely to keep shopping with them because I'm like, these people really stand behind what they sell. They clearly care about their customers, they invest in this ability for customers to get help with their problems, and my interactions with them have always been very positive. And so I walk away from these experiences feeling really good about this company and excited to buy things from them in the future.
Liz Weston: Sara, that loyalty thing is really, really important. And sometimes it's worth paying more to get a company that really knows how to handle customer service. If you're constantly going for the cheapest possible service, you're going to buy yourself a lot of trouble. Sometimes it's just worth paying a little bit extra.
Sara Rathner: So, Liz, if somebody is facing a situation where they need to contact customer service in the next couple of days, what are some takeaway tips for them to hopefully improve their success rate, get their problems solved? What would you say?
Liz Weston: Be concise. You want to communicate your problem clearly and simply. I know that I get frustrated after I've had a problem, and I want everybody to hear the blow by blow. Shrink it down. Just get to the basics, get to the facts. Know what you want as part of the resolution. A lot of times people aren't clear about the outcome that they want. Another thing to remember is that you don't really have to care what the company's policies are. You might get some feedback from the representative, "Oh, our policy is this or that." That's not your problem. Tell them what you want and how you want them to resolve this.
Sara Rathner: Yeah, that's a really good idea. Also recognize that the person on the other end of the phone or the chat is a human being who's just trying to do their job. And it's a particularly thankless job because they get yelled at all day, or all night, depending on which shift they work. So it's a real "catch more flies with honey" situation. Treat them with the respect that you would like to be treated with. Treat them like a person and enlist them as an ally, as somebody who can collaborate with you to help solve your problem, instead of somebody that you are in combat with.
Liz Weston: Yes, I've found asking them, "OK, how would you solve this problem?" Or, "If you were in my shoes, what would you do?" That really helps turn it into a human interaction, and that can help turn the situation around.
All right, well, I think that about covers it for now. Before we move on, we have some exciting news. We are running another book sweepstakes for our Nerdy book club series. Next month, we're talking with Axton Betz-Hamilton, author of “The Less People Know About Us: A Mystery of Betrayal, Family Secrets and Stolen Identity.” This is a book about what happens when the person who steals your identity is your own family member.
Sara Rathner: Well, that's a spicy topic. Wow. I think Christmas going forward is going to be awkward if that happens. So to enter for a chance to win our book giveaway, send an email to [email protected] with the subject Book Sweepstakes during the sweepstakes period. Entries must be received by 11:59 p.m. Pacific time on Feb. 16. Include the following information: your first and last name, email address, ZIP code and phone number. For more information, please visit our official sweepstakes rule page.
Liz Weston: Now let's get into this episode's money question segment with Sean.
Sean Pyles: This episode's money question comes from Katie, who sent us an email. They wrote, "I want to start saving for my young son. I've considered an educational savings account, but worry if he doesn't choose college that there will be a penalty. What advice do you have about setting your kids up for financial success and independence (when you don't have a ton of money to put in)? Thanks, Katie."
Liz Weston: To help us answer Katie's question, on this episode of the podcast, we're joined by personal finance Nerd and mother of three Kim Palmer. Welcome to the podcast, Kim.
Kim Palmer: Thanks for having me.
Sean Pyles: I'm assuming you know a good amount about how to save for your children's future, Kim. So can you talk through some options that parents have?
Kim Palmer: Yes, and yes I do. So there are so many different ways to save for your children, and I think it's really all about finding the best fit for you. So let's talk through some of those options. Probably the most popular one and the one that many people have heard of is setting up a 529 plan. So this is a way to save for college, it gives you some tax benefits, and to Katie's point, if your child doesn't go to college, it can be applied to other expenses. Things like vocational training, that kind of thing. But it is important to check on that. Basically how it works is you're making after-tax contributions and you can qualify for some state income tax deductions. And then when you withdraw the money, as long as you're using it for eligible expenses, then it's not taxed.
Sean Pyles: OK. One thing that I think trips up some people when it comes to 529s is that there are so many different 529s depending on the state. How can someone determine whether the 529 offered by their state is the right choice versus the one from the state next door potentially?
Kim Palmer: It's such a good question. And basically, you're right. There are so many options, and so you need to do a little bit of research, see what your state offers. What's so important to know is that you don't have to go with your state's plan. So you can really choose the one that's the best fit for you. But the way to get that tax benefit, that state income tax deduction that I mentioned, is to go with your state's plan. So that's why you want to do a little bit of comparison, see what works for you and what's the best fit.
Liz Weston: Here in California, we're one of the few states that doesn't have a state tax deduction. So from the get-go, I knew that I could look around and find the best fit for us. And I've actually moved the money around a few times. I've had California, I've had Nevada, I've moved it back. So you also have a lot of flexibility in moving the money around.
Sean Pyles: Why did you end up moving them around?
Liz Weston: Just because the provider would change. So the states sponsor these plans, but they're actually offered by providers. Like your employer sponsors a 401(k), but an investment company actually runs the plan, and that's the same with 529. So sometimes those providers would change and I wouldn't like the offerings that were there, so I would find a different one. And for me, it was really important to have low-cost funds. So that's kind of what drove a lot of our moving around.
Sean Pyles: Got it. Kim, people can also use Roth IRA accounts to save for their children, which many folks may not know. Can you explain how that works?
Kim Palmer: Basically, you can create an account like this for your child as long as your child has earned income. You can also create one for yourself and have the intent to use that for your child's future college education. It is important to understand a little bit how these work, though. People do like them because they're pretty flexible. You can make withdrawals at any time, but contributions are not tax-deductible. And there are also some income limits on eligibility.
Liz Weston: Again, I have so many opinions on this. I would throw in that Roth IRA money can be so, so valuable in retirement. A lot of times, it's worth just leaving it alone to grow for that purpose rather than raiding it for college or other expenses. However, a lot of people like that very flexibility. They like the fact that they can take their contributions out tax-free at any time.
Sean Pyles: And that's in contrast to a 529 where you could face a penalty for doing so?
Liz Weston: Yeah, a penalty on your earnings, though, the earnings only. I think the federal penalty is 10%. States may add something on top of that.
Sean Pyles: OK. And then there are also more straight-up savings accounts that people can use, like a high-yield savings account or a CD or bonds. How do those come into play, Kim?
Kim Palmer: Well, I think it's easy to overlook the fact that when you are saving for a big goal like this, your child's education, you can always use traditional savings methods. So you can use an after-tax typical savings account, you can go search online for a high-yield savings account and put money in there, you can use CD, you can use bonds. So basically all of the tools that we usually have for all kinds of savings, you can still turn to those. They don't give you the extra tax benefits that some of the other accounts that we talked about earlier do, but they're still great options.
Liz Weston: One thing people might want to check out right now is I bonds. The rates have been higher than usual because they're linked to the inflation rate. They do have several restrictions. You basically can't tap the money for the first year, and if you tap it in the first five years, you lose three months’ worth of interest. All that said, they're going to be helping you keep up with the inflation rate, and they're backed by the U.S. government. So that can be another potential way to put aside some money for your kids' education.
Sean Pyles: Yeah, and if you start one early enough, you imagine that you would be saving for more than five years. So you start one when your kid is 5 years old, you want to have the money when they're 18. You're well beyond that limit, right?
Liz Weston: Yeah, exactly. And they have some tax benefits as well. So that's something to look into.
Sean Pyles: How does using any of these accounts potentially affect financial aid?
Liz Weston: A lot of parents are worried about the impact on financial aid of their savings. And the first thing I want to say is, anything you save is going to save your kid from future debt. So it's definitely worth it. And most of the time, this is not going to significantly affect their financial aid. For example, if you have a 529 plan that is treated as the parent's asset, so it has a very minimal impact on financial aid. So that's something to keep in mind. If you put money into a Roth account, that's a retirement account. That's typically not included in financial aid calculations. If you put the money in the child's name, though, that's going to have a huge impact. So if you've heard of UGMA, UTMA custodial accounts, those kinds of things, those can have a big impact. Those are probably accounts that you want to avoid if you think you're going to qualify for financial aid. And when it comes to other savings like CDs, high-yield savings accounts, those, too, it will depend on whose name the money is in. So you want to keep that in mind if you're concerned about financial aid.
Sean Pyles: OK. So we kind of touched on this a little bit, but our listener is worried about incurring penalties if the money they save isn't used for college. How can they get around that?
Kim Palmer: Well, I think this is a legitimate concern, and it's something you do want to understand what you're getting into if you're contributing to one of these types of accounts. So when it comes to 529 accounts, there are restrictions, but there is also some flexibility built in as well. So for example, say your child doesn't go to college, they can still use that money for other types of educational expenses. Vocational school, other types of training. You can also pretty easily actually transfer that 529 account funding to a sibling. And so that's another option as well. If their brother or sister is going to college, they can use that money.
Liz Weston: I always get a little nervous when I hear parents say, "Well, what if he doesn't go to college?" Really, some kind of postsecondary education is going to be essential just to stay in the middle class. And that's been increasingly true in the past few decades, and it's going to be more so going forward. Doesn't have to be, as Kim said, a four-year school. There are a lot of other options. But when you're talking to your kids about their future and about money, I think this needs to be emphasized that they should not just expect to peel off at 18 and get a great job.
Sean Pyles: Right. Well, that relates to something else our listener is wondering about, which is how to set their kids up for success financially, even if they don't have a lot of money to do so. And I think there's a lot more that goes into it than just saving in an account. So I'd like to hear about how each of you as parents think about and have taught your children how to be financially successful.
Kim Palmer: This is probably my favorite topic. I think about it all the time. And basically, I think it comes down to constantly talking to kids about money. I try to incorporate my kids in these kinds of decisions. So for example, if they mention they want to go on vacation, we'll talk through, well, if we spend money on this vacation, that means we'll have less money to go into your college savings account. We try to have those conversations out loud so they can think through them as well. They're all at different ages, but I think as soon as they hit elementary school, they can start thinking through some of those trade-offs. And so having those conversations, I think, is so important.
Liz Weston: And let's point out that Kim has written whole books about this. You might want to check one of those out. One of them I know is “Smart Mom, Rich Mom,” right?
Kim Palmer: Yes, that's right. I talk a lot about that in that book and just how we can talk with our kids about money to incorporate them into these decisions, because for so many people, I think we hide those discussions or we feel like, "Oh, we'll teach them to be materialistic or to think too much about money." We don't talk about it. And I think it's so important just to bring it into the light and have those open conversations so kids can think through and know what you're sacrificing, too. I think they should be aware of that. And I think it also brings up the larger issue that you alluded to before, Liz, with the Roth IRA accounts. Often we are making trade-offs between money that we are spending on ourselves and our own retirement and money that we are going to put towards our kids' savings. And so that's also a balancing act that we as parents are constantly weighing. And I think letting kids into that conversation when it's appropriate can be helpful to them.
Sean Pyles: It also gives them such a leg up when you are able to have these conversations from the time they're a kid. Because when they reach being 18 years old, they'll have these conversations with you for years and years and they'll be able to go into the world with some knowledge base, whereas a lot of people don't understand how a lot of personal finance concepts work until they make some mistakes on their own and they had a late payment and their credit score has a hit. And so they're learning lessons the hard way, whereas you're able to have this ongoing dialogue with them over many years to set them up for success.
Kim Palmer: That's my dream, that is my goal. I'm trying to do that. Yes.
Liz Weston: And you don't have to be a personal finance expert to have these conversations. You can just tell kids what you know. You can go to the grocery store with them and tell them how you think about different purchases, when you go for a store brand versus a name brand, that kind of thing. And those conversations can start super, super early. So, Kim, specifically, what did you do to save, or what are you doing, to save for your kids' college education?
Kim Palmer: Well, I have three kids, and they're at very different ages. So for each of them, I started a 529 account, but for my 13-year-old, I was just very late to the game because I didn't get my act together. And then when my youngest, who's 3, was born, I basically started his 529 account I think the month that he was born.
Liz Weston: We learn, don't we?
Kim Palmer: We do. So basically for my oldest, I am realizing that her college, potentially, if things progress as planned, is right around the corner. And so I need to speed up contributions to her account, which I'm trying to do. And then with my younger two sons, I'm just trying to make steady contributions since I have a little bit more time. So I do make contributions to 529 accounts for each of them. And then for my daughter, who is the oldest, I'm also just trying to help her practice saving herself. So when she was around 11, I helped her open up her own savings account. It has her name on it. Well, it has mine, too, but it also has hers. And it's not that the interest rate is that high, it's not, but it's more about having her practice saving and think, "Oh, when I receive my allowance or a gift at my birthday, should I set a part of that into the savings account instead of spending it all?" And so I'm trying to impart that lesson, and it's something my parents tried to do for me, too, and I think it stuck. So hopefully she gets that message.
Liz Weston: Oh, that's great. My 19-year-old just asked me how much she should save out of the money that she gets. And I just talked about my own experience in my 20s that I was saving 20 and 22% of my income roughly in that range. And I was so glad for it later because I had a lot of flexibility. And she basically said, "Oh, I'm saving about half." And it's like, oh, I'm so proud.
Kim Palmer: Yay!
Liz Weston: Yes, exactly. But, Kim, I understand that you're not the only one saving for your kids' college education.
Kim Palmer: That's right. So whenever grandparents say, "What do your children want for their birthday?", a really easy answer is to say, "Along with maybe a little toy, they would also love a contribution into their 529 account." I think that our children do appreciate this, and it's something that grandparents love to do.
Liz Weston: Yes. And some of the 529 plans make it super easy for other people to make contributions to your account, or the grandparents can simply give you money or write you a check. But there's lots of different ways to get money into those accounts.
Sean Pyles: Kim, I'm wondering if you've looked into or have used any of those debit accounts where you can have it shared with your kid and you can teach them about how to manage their money and monitor what they're spending money on. Have you played with those at all?
Kim Palmer: I haven't yet, but it's actually my next stage of education for my kids. I think that's what I'll do next because now my oldest is starting to spend money on her own when I'm not with her, and so I think it's a perfect time to experiment with that. And I do like the idea of tracking that spending, of having her be able to spend without carrying cash on her. So I think it's something that is a potentially really helpful tool and something that helps you graduate to a more mature stage of managing your money when you go to college, where you have to balance all kinds of accounts and possibly even have a credit card. And it gives you that really helpful experience when you're still at home.
Sean Pyles: OK. Your saying credit card made me think of how, Liz, didn't you add your daughter as an authorized user on one of your cards pretty early on?
Liz Weston: I want to say she was a freshman or sophomore in high school. And now that she is out of high school, she actually has a fairly long credit history because my history with those cards was imported to her credit report, and she has very, very good credit scores. So I think that really worked out. You don't have to actually give the child the credit card to add them as an authorized user. We wound up doing so because we wanted her to get experience with charging things and seeing the bill and knowing that it had to be paid off in full because that's a rule of the household, and that was something that was much easier to control when she's under our roof.
Sean Pyles: And that can be a completely free way to set your kids up for financial success. Even if they aren't charging something, just giving them some of your credit history can help them get cheaper credit in the future.
Liz Weston: Yes, exactly.
Sean Pyles: Well, Kim, thank you so much for talking with us today.
Kim Palmer: Thanks for having me.
Sean Pyles: And with that, let's get on to our takeaway tips. I'll start us off. First, know your options. Pick an account to use for savings such as a 529 savings account or Roth IRA, and try to put money into it regularly.
Liz Weston: Next, make this a learning opportunity. Talk to your child about how you're saving and why it's important.
Sean Pyles: Finally, be flexible. Research your options for early withdrawals or beneficiary changes if your circumstances change.
Liz Weston: And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. Visit nerdwallet.com/podcast for more information on this episode, and remember to follow, rate and review us wherever you're getting this podcast.
Sean Pyles: And here is our brief disclaimer. We are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz Weston: This episode was produced by Sean Pyles and myself, with help from Sara Rathner. Audio wizard Kaely Monahan mixed our audio. Jae Bratton wrote our show notes. And a big thank you to the folks on the NerdWallet copy desk for all their help. And with that said, until next time, turn to the Nerds.