Personal Finance: March Madness
For many college students, March Madness isn't about picking their favorite teams to win the NCAA men's basketball tournament. Instead, they're hoping to be picked to attend their college of choice. And for many parents of these anxious college-bound students, madness sets in after the acceptance letters arrive.
"In coming weeks many parents will wrestle with the choice between sending their kids to an elite school or enrolling at a less prestigious one offering lower tuition or a larger grant package. Many parents go for the name, on the theory that the returns will offset the higher costs," writes Bloomberg's Amity Shlaes.
So how can you avoid sending your kid to a college neither of you can afford? Face the facts, Shlaes says. For example, don't buy into the fallacy that debt accumulated for college is always a good investment.
"Debt can ruin a child's good name, and problems tied to college loans are far wider than default rates convey," she writes.
Shlaes goes on to dispel a number of myths about going to brand-name colleges.
So why do colleges charge so much?
"Because they can," said Richard Vedder, an economist at Ohio University tells Slate.com's Timothy Noah. "I mean, who's going to stop them? Parents? The government? There's nothing stopping them—literally nothing."
Read how Noah struggled with helping his son choose a college, and then answer this week's Color of Money Question: Would you spend -- or more likely borrow -- whatever it took to send your child to a certain college even if it meant decades of debt for you or your student?
Send your response to email@example.com. Be sure to include your full name, city and state.
Live Video and Chat Today
Speaking of college costs, join me for my text chat at noon ET.
My guest will be Mark Kantrowitz, author of "Secrets to Winning a Scholarship," this month's Color of Money Book Club pick.
Prior to the noon chat, join me at 11:45 ET for my live video chat.
The New York Times reports on a new technology that allows consumers to make purchases using their mobile phones. Consumers, instead of using their credit or debit cards, could pay with their phones.
"Is it possible to make a system that's too easy to use, where you reduce so much friction from the transaction process that people aren't necessarily aware of what they're spending on something?" asks Jan Chipchase, executive creative director at the design firm that studies mobile payments.
Sure it is. Consumer advocates warn that lots of problems could result from this new mobile wallet. Experts are concerned that a mobile system would bring higher fees and question whether consumers even want a new system.
Credit Cards Late Fees Drop
Fewer credit card users are paying late fees, according to the Office of Comptroller of the Currency.
A recent report shows that 5.7 percent of accounts were charged late fees in November, compared to 6.5 percent in February 2010, before the Credit CARD Act of 2009 regulations took effect.
Under the new rules, credit card companies cannot charge more than $25 in late fees, in most cases. Card issuers can't impose penalty fees that exceed the amount of the violation.
A new rule proposed by the Consumer Financial Protection Bureau will continue to help people reduce their credit card fees. The bureau wants cardholders to be provided the exact interest rate and credit line they will receive before applying for a credit card, that information is currently not received until after the application is processed, reports Daniel Wagner of the Associated Press.
The agency is considering tweaking the summary of rates and fees that appears on marketing materials.
"When the costs of risks of a credit card are clear, consumers generally will make wise decisions about borrowing," David Silberman, director for card markets for the new government agency.
Tax Tips for the 2011 Filing Season
Here are some more responses to your tax questions from Jim Dupree, IRS spokesman and media relations specialist.
Q: Just finished my taxes, and after owing a lot last year, both my husband and I now claim no withholdings. This year we still owe. We have no deductions, rent, no student loans, no kids and we don't donate enough to make it worth itemizing. The only thing I can think of is that my husband didn't change his withholdings until April. Do you have any suggestions for this problem?
Dupree: Check out the IRS withholding calculator!
If you are an employee, the Withholding Calculator can help you determine whether you need to give your employer a new Form W-4, Employee's Withholding Allowance Certificate to avoid having too much or too little Federal income tax withheld from your pay. You can use your results from the calculator to help fill out the form.
Q: Both my kids work and go to college and they got killed on taxes this year. We didn't realize that if you work two part-time jobs the employer doesn't always deduct enough even if you only claim one exemption. My son, who earned $12,000 while going to school full time, now owes state and federal taxes of $956. My daughter, who earned about the same while going to college, owes $655. If they claim their tuition deduction, then we can't claim them as our dependents and we lose even more of a deduction. Is there any hope for them?
Dupree: They should both consider adjusting their withholdings if they both find themselves working part-time jobs again this year. Check out the IRS Withholding Calculator.
Q: I received a large settlement for physical injuries from a traffic accident in 2010. Should I put down the settlement figure as income on my income tax form?
Dupree: Generally, physical injuries or physical sickness settlements are generally non-taxable. If you receive a settlement for physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to this injury in prior years, the full amount is non-taxable and generally does not need to be reported on your income tax return.
Join me on Thursday, April 7th from 7 p.m. to 8:30 p.m. at the Howard County Library, 6600 Cradlerock Way, Columbia, Md. 21045. I will discuss managing your money in the new, less robust economy. To register for the event, call 410-313 7700. Early registration is encouraged.
Tia Lewis contributed to this e-letter.
You are welcome to e-mail comments and questions to firstname.lastname@example.org. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.
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Subject: Personal Finance: March Madness