Warning: Not Understanding Bad Investments Can Ruin Your College Education

You have probably heard about bad investments before

. Well, in financial terms, some bad investments are developed specifically to trick people into investing into them. Therefore, it is important that we must stick to proven and basic investments that have beaten the market.

Marketers will always tell you about the latest hype and such. However, do not fall for these marketing traps. The same goes to educational expenses too.

Life insurance to fund college

Did you know that bad investments come in the most common way? One example of this is the life insurance policies (for funding college costs) that do not have values at all.

Why is it not good to use life insurance to fund you college? This is because you should instead contribute to retirement accounts. Retirement accounts give you tax deduction immediately that saving through life insurance does not offer. Life insurance comes with a more expensive cash value. Therefore, parents are more likely to make mistakes in terms of not buying enough coverage. The bottom line is, you would be better off buying life insurance that costs less.

Inflation

Some investments can fail to protect you against the rising inflation rate. Such investments are money market accounts and bank savings. If you are thinking of investing money to fund your kids college education, be sure to select one that beats the annual inflation rate.

Avoid prepaid tuition plans

This is common in certain states in the United States of America. They allow you to pay college costs at a specific school at a certain age. They advice you to pay early today to avoid worrying for the future (college education).

But financial experts will always tell you that you should not do it. It is most likely you do not have the money today to pay in advance. Secondly, allocating your money into these plans decreases your chances to qualify for a financial aid. You would be better off investing your extra money for other purposes.

The conclusion is clear. Paying upfront for your childrens college education is a very risky thing to do. When you pay them your money, they are going to invest it in somewhere. Why dont you do it yourself?

by: Lisa Wash

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