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Start saving for your little MeFite babies!
August 3, 2001 9:57 AM   Subscribe

Start saving for your little MeFite babies! With the UPromise service, every time you make a purchase with a participating company, a percentage of the amount will be contributed to a college fund.
(more inside)
posted by Hankins (6 comments total)

 
UPromise.com allows people to set up a college fund, and register their credit card information. Each time that credit card is used at a participating company, that company will contribute a percentage of the purchase to the college fund. It's like any other membership program that rewards customers with cash back, but the money is instead being contributed to a college fund. Spend $100 at JCPenney, get $6 towards the college fund. Need a Fossil watch? 15% of the purchase can go towards the college fund.

The participating companies seem to be reputable and growing. Does this sound like a viable solution for people who are interested in saving for college? Or just another good-intention company that will unfortunately end up closing their doors down the road? It appears to me that UPromise only acts as an interface between you and your 529 plan, so even if the company folds, you still have the 529 (though you won't be able to contribute from every McDonalds Big Mac purchase anymore). Do I have it correctly?

I don't know how many Average-Joe-Internet folks will feel comfortable registering their credit card and having purchases tracked for participation verification. What kind of problems do you foresee with this service?
posted by Hankins at 9:57 AM on August 3, 2001


On its face, it looks ok. But there are some questions. How does Upromise get paid? My bet is that they get a kickback on the commissions paid during the purchase of whatever securities they buy with the money. And it may be that you don't have a choice in what those securities are, unless you open a 529 and transfer the money into there.

BUT if you take constructive receipt of the money, you'll end up paying taxes on it again, which is the whole situation you're trying to avoid by opening a 529 anyway, right? AND you're already using after-tax money to pay the bill. So it's kind of like you're getting a dab of kickback on your taxes, but you only get it if you patronize certain companies... it's get's kind of sticky here. If you open a 529, you get after-tax growth and are taxed at the kid's rate (usually 15% or so) when you withdraw. Which is OK, but a savvy investor can do better, since you're using after tax money anyway (like, why not some tax-free muni bond funds?). But with this plan, you take the same money you've already paid your income tax on, then you take it and buy something, on which you pay your sales tax, which is 7.25% where I live, and then you pay for it with a credit card which, for simplicity's sake, is charging 18% annually, which throws another 1.5% on there if you pay off after a month. For this, you get back 6%... or a net tax loss of 2.75%...? Seem like you'd have to work harder for this plan than to just open a 529, dump cash in it, and save the points. And this doesn't take into account the information you'll have to give them.

This works ok if you are already going to be purchasing something at the right company with your credit card, because you end up getting back the 6%. But if you were going to use this primarily as a vehicle for saving for college, you're sorta screwing yourself. And remember: when it comes to saving and investing for the long term, it is better to save primarily for your own retirement than it is for your children's college education. For one, there are a lot of college funding alternatives - loans, grants, scholarships, etc. - but no one's going to give you a loan for your retirement, are they? Nope. Plus, if you end up being a little short on the college fund, you can always make up the difference then from your retirement savings/investments, somthing you can't do the other way around.

All things considered, I would probably pass on this. Saving is ALWAYS good, but the situation where this would be beneficial is fairly rare and the restrictions otherwise seem to negate the benefits. Better probably to just open a 529 and throw some stocks and bonds in it. Or, if you're the independent type and like to have a bit more control, just add a section to your overall investment portfolio, name it "college fund" and invest just like you would with your retirement savings.

You do have savings, right? And it's invested somewhere in the markets, right? RIGHT??? Pay yourself first, people.
posted by UncleFes at 11:06 AM on August 3, 2001


i would also recommend registering a mefi account now! just think of how a low mefi number will help your tyke with getting into those fancy day cares and ivy league colleges. $135 doesn't seem like such a bad investment
posted by heather at 11:51 AM on August 3, 2001


Nice, UncleFes... I need a new financial advisor -- you interested?
posted by Hankins at 1:32 PM on August 3, 2001


You don't want me, what you want is what I did - interview 2-3 actual professional financial advisors, pick one your feel is honest and will give you good advice, and listen to them. I picked my investment guy because (a) he always gave me multiple options and let me pick what I wanted - he never pushed one thing over the other, (b) he made me outline my financial goals (and didn't just let me say "I want to have a lot of money"), (c) he made me consider those goals in light of my risk tolerance, which is the "know thyself" of the world of personal investments - if you don't know what your personal tolerance for risk is, and what the relative risk of the instruments you are buying is, you're going to be disappointed, (d) he always answered my questions with direct answers, even when the answers were not to my liking, and (e) he was always up front with me about how he got paid. That's important! A lot of "investments" have loads that are backended into the price of the instrument (insurance products that "act" like investments, and annuities, are like this - if you interview a guy that pushes either and you're under age 55, back slowly away with your hand on your wallet). If an advisor is worth his salt, he will be honest with you on how he makes his buck. And conversely, don't begrudge your advisor his commissions - you're not just paying him to buy you stocks and mutual funds (you could do that yourself on the net for $5 a trade), you're paying him for his professional advice, his access to information and his ability to determine what is valuble information and what isn't, and his time and trouble.

Otherwise, I listen when my bosses talk and I subscribe to Money magazine. And I save - as much as I can, even when it hurts. When I pile up a couple grand, I get it to my investment guy. And I leave it ALONE - I never buy anything I'm not willing to hold for five years. When you buy like that, little downturns like the one we're in now are not end-of-the-world events; they're buying opportunities. I wish I had more cash, so I could scoop up some of the deals in the stock market right now.

That said, I have primarily stock mutual funds, growth and value. I'm relatively young and I have some time before retirement, so I accept a little higher level of risk - not STUPID risk, but calculated risk. You are going to have a different strategy, because your goals will be different and your risk tolerance will be different. Talk to a pro. That's the best advice I can give you.
posted by UncleFes at 8:40 PM on August 3, 2001


Good approach -- I'm looking to set up a few interviews with financial advisors myself in a month or so, and the issues you mentioned are certainly very important.

Most of the research I've been doing has been telling me that being frugal and living well below your means is the best way to go as an overall approach to saving for the future. That being said, I've been told that Financial Advisors and Accountants are somewhat of an exclusion to this ideology, and are pretty much worth every cent you put into them (of course, assuming you pick a respectable one).
posted by Hankins at 1:21 PM on August 4, 2001


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