S4-10: Budgeting for the Holidays & Choosing a 529 Plan

Meghan, a personal finance expert, held a live Q&A session where she answered personal finance and economic market news questions.

HELOC Rates & Interest Rates

She addressed a viewer's concern about HELOC (home equity line of credit) rates, explaining how increased interest rates in bonds lead to higher interest rates for everyone, one of the consequences of the Fed's raising interest rates to combat inflation. Meghan discussed the impact of market interest rates on variable rate debt and noted the significant hike in market interest rates in recent years. She suggested that with the Fed pausing on rate hikes and inflation improving, interest rates may start to moderate, but advised those with variable rate interest to aggressively pay off debts due to the market's unpredictability. She also mentioned that a recession or consistent low inflation might be needed for rates to significantly drop.

Setting Financial Boundaries When Budgeting for the Holidays

Meghan discussed the challenges many families face this holiday season due to inflation and uncertainty in the economy, and encouraged individuals to set their own boundaries with their personal finances during the holiday season. She suggested that people should not feel pressured to extend themselves beyond their means and should not apologize to friends and loved ones for their financial decisions.

Related Post: 6 Gift Giving Ideas for Big Holiday Savings

Meghan provided examples of alternative gift-giving strategies, such as drawing names or choosing a gift theme, and emphasized the importance of communicating any changes in financial priorities to family members. She also advised that hosting a gathering doesn't mean shouldering all the expenses and suggested that potlucks can be a helpful solution. Meghan ended the discussion by reminding everyone that there is no one right way to celebrate the holiday season and encouraged people to prioritize their financial wellbeing.

Kids' Savings Account Types

Meghan discussed the best type of account to set up for kids' savings, such as money from Christmas and birthday gifts. She suggested that the intent behind the money should guide the type of account chosen. If the money is meant to be used as needed, a high yield savings account could be suitable, as it allows for delayed gratification and earning interest. However, if the child needs more frequent access to the funds, a custodial checking account might be better. Meghan also mentioned the possibility of a Roth IRA for kids with documented earned income, which could be another potential option for savings.

Tracking Spending Habits of Low-Mortgage Rate People

Meghan discussed the limited data sources used to track the spending habits of people with low or no mortgage rates. She explained that this type of information is typically released either less frequently or in more aggregated forms due to data collection difficulties and privacy concerns. Meghan also noted the significant pent-up savings and equity in homes that some people have accrued during the pandemic that may be fueling continued consumer spending.

What is Included in Shelter within CPI

Meghan then delved into the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index, highlighting how the latter is based on what people are actually paying for goods and services, making it a more accurate measure of inflation. She pointed out that while the CPI estimate can be useful, it has its imperfections and limitations. Shelter calculations in the CPI are based on actual rents, as well as homeowner's estimates of what they could charge for rent on their home - making CPI higher than potentially what people are actually paying for just their fixed rate, low-interest mortgage.

Finally, Meghan touched upon the impact of inflation on different groups of people, noting that those who own assets benefit from inflation, while those without assets struggle to catch up. She concluded the discussion by answering questions about the shelter component of the CPI and how it is calculated, as well as the fact that some people may not feel the full effects of inflation due to their mortgage rates.

529 Plan Options and Benefits

Meghan discussed the various options for 529 plans and advised that there were many to choose from. She highlighted the benefits of using a plan associated with one's state, such as state tax incentives. Meghan also emphasized the importance of understanding the fund administrator and the investment options they offer, including the fees associated with those options. She suggested looking for lower fee options to maximize returns.

Related Post: How do Parents Pay for College

Meghan also mentioned the existence of a private college 529 plan, which allows for pre-buying of private school tuition credits. She concluded by stating that her primary criteria for choosing a 529 plan would be the availability of state tax benefits and the fees associated with the fund options.

Related Post: The Best Way to Save Money for College

How to Interpret Numbers Reported for Dow, S&P 500, Nasdaq

Meghan discussed the reporting of financial news, emphasizing the importance of understanding the Dow S&P 500 and Nasdaq indices. She explained how these indices are calculated and advised not to focus too much on intraday movements.

Related Post: What Drives the Stock Market?

Other Economic News This Week

Meghan also touched on the current state of the economy, highlighting declining retail sales in October, rising unemployment and indications of a potential economic recession. She mentioned the impact of economic downturns on different sectors of the population and advised those struggling to find jobs to consider broadening their search, both geographically and among industries. Meghan also provided an update on the US government's temporary budget resolution and upcoming existing home sales data set to be released Thursday.

Next Steps

Meghan is still collecting YOUR stories for her upcoming project to feature case studies on different family financial journies and encouraged participation from diverse backgrounds. She promised to keep the participants' identities anonymous and thanked those who have already submitted their stories. She also confirmed another live session next Wednesday at 9 am.