Suze Orman Money Matters

It's no news that people constantly ask me questions. What I find interesting is that no matter what the particular venue -- a speaking engagement, a television appearance, or an impromptu sidewalk chat -- there's a core set of questions they always ask.

So I thought I'd introduce a new feature that will appear in my column from time to time: You Asked for It. In it, I'll share my answers to the most frequently asked questions I get on a particular topic.

For my first You Asked for It, I'll focus on issues regarding money and your grown children.

Four Questions for the Ages

In a recent column, I covered how to send young children the right money messages. But as any parent knows, money issues just keep coming up you as your child age.

Here are the questions I'm asked most often about grown kids and money:

1. What's the best way to save for my child's college education?

The most important decision is to figure out if you should be saving anything at all.

Bet that got your attention. If stashing away money for a child's future college expenses will prevent or curtail your retirement savings, then my advice is to forget about the college fund -- at least for now. I can't stress enough this simple truth: There are loans for college, but there are no loans for retirement.

For those of you who can handle college savings in addition to retirement savings, the hands-down best way to save is in a 529 college savings plan. Yet in a recent survey, about half the parents questioned said they didn't know what a 529 is. That's a costly lapse, as 529s offers a great tax-advantaged way to save.

Anyone, regardless of income, can open a 529 plan. All money invested grows tax-deferred, and money withdrawn to pay for college expenses is free of federal tax. And in many states, you can also snag a state income tax deduction on the money you contribute to a 529.

If your state offers a tax break for investing in an in-state 529 plan, that can make the most sense. But if the annual expenses are way over 1 percent, take a look at investing in an out-of-state plan with a better fee structure. What you save in expenses can be more than the value of the state tax break.

And if you were on the fence about 529s because it wasn't clear if the federal law granting the tax breaks would become permanent (they were scheduled to be phased out after 2010), rest assured that the breaks were made permanent by Congress last year. One of the best online sources for more information about 529s is Savingforcollege.com.

2. Doesn't tapping home equity to cover college make more sense than loans?

Not really. By saving the kids from student loan debt, you're taking on more debt yourself.

That's a nice sentiment, but consider the possible ramifications. Chances are your kids will head off to college right when you're in your late 40s or 50s. That's a stage of life when you should be focused on decreasing your housing debt, not increasing it. I don't care if you intend to work well into your 60s or 70s -- that doesn't mean you'll actually be able to continue working. You may get downsized, or illness may intrude.

My point is that any financial plan that requires you to maintain a sizable income well into your sixth or seventh decade is risky, and you could ultimately lose your house if you can't keep up with the payments on a home equity loan or line of credit.

I know this is hard for some parents to wrap their heads around, but the best financial help you'll ever give your kids is to ensure your own financial independence as you age. Taking care of your financial needs means your kids won't have that burden later in life, and keeping your home equity intact is a great way to help your kids build their own financially secure future.

3. My kids moved back in after college. Should I charge rent?

You bet you should. They're adults now, and that means paying at least part of their way. That's how they learn to respect money and what it takes to run a household.

One option is for you to collect a monthly "rent" from your child and then keep it in a savings account for them. It then becomes the security deposit on a rental or part of the down payment for a home.

This must be a formal agreement -- there's to be no skipping payments, or letting them off the hook. My advice is that you should expect your child to set up an automatic monthly direct deposit from his or her checking account into the savings account you set up.

4. My child graduated from college with credit card debt. Do I bail her out?

Nope. But you do help her, by sitting down and working with her to plot a repayment strategy.

First, you need to teach, not berate. I've covered this before: It's shameful how easy it is for college students to get credit cards without anyone -- parents, the school, or the credit card companies -- doing their part to educate young adults on how to handle the card responsibly. So if your kid managed to slide through college without a proper credit card education, well, it starts now.

The single most important step is to make sure they understand how important it is to always pay the minimum amount due on the card by the due date. This will no doubt be big news to your college grad -- they're likely panicked that they have to pay the whole bill. While that would be ideal, it isn't realistic. Explain that by making the minimum payment due each month, they're not going to do any additional damage to their credit score. Then you need to discuss how to come up with the money to add at least $50 a month to the minimum payment.

This is when reality really sets in, and your grad perhaps realizes that spending every Friday and Saturday out on the town with friends needs to be rethought. They may even consider moving back in with you for six months or so to save on living costs. But again, they have to pay you something every month for this privilege. You can then "give" them that money back to help chip away at their credit card debt.