The Truth Concepts suite is designed to be versatile, and some demonstrations can be done on multiple calculators. Todd has designed the calculators this way because in his work with both advisors and clients, he’s found that some are more numbers-oriented, and some are concept-oriented. Being able to approach ideas in more than one way allows understanding to thrive.
It’s also critical that as advisors, we meet our clients where they are at. A spreadsheet full of numbers may be ideal for some clients, and completely overwhelming for others. Graphs and charts may be perfect for conceptual clients, but too broad for a client who likes to dig really deep.
We must understand how our clients learn in order to advance their understanding of the concepts we share with them.
Education Calculator vs. Cash Flow
Discussing the true cost of Education is a prime example. The calculations can be done in the Cash Flow calculator; however, the Education calculator is designed to be more streamlined for visual learners. For advisors, the Education calculator is designed so that you can plug in the numbers with no additional setup, making it faster and simpler.
Since education costs will continue to be a big conversation for financial advisors and their clients, we want to help you find what works best for your practice. Let’s compare the two calculators.
Step 1: Inputting information
As with any calculator, you’ll want to start by adding relevant information. In Cash Flow calculator, you’ll start by adding in the parents’ existing savings in the Present Value column. Pretend that this client has $100,000 of savings, and hopes to add $10,000 annually, until both children are through school. You’ll input the $10,000 in Cash Flow 1. (For right now, we won’t add any interest rates, so you can compare the “bones” of each calculator more easily.)
Secondly, you can add the children’s tuition costs. Let’s say your client currently has an eight-year-old and a ten-year-old, and they want to set aside enough for both of them to attend a 4-year program if they choose. In Cash Flow, you’ll have to do some more legwork. Turn on Cash Flow columns 2 and 3. And instead of adding the tuition cost in the top, you’ll actually add it straight to the column. Assuming both children will start college at 18, they’ll start their first year in year 9 and year 11. Add (-30,000) as your value, and zero out the column after 4 years.
This setup requires you to do a little bit of mental legwork to figure out when the children will start school, as well as some manual manipulation of the calculator. However, it’s helpful as an advisor to understand WHY you’re getting the results you’re getting.
In Education, you can actually let the calculator do most of the legwork for you. All you need to do is input how many children they have, their ages, what age they’ll start school, how many years of school they will attend, and some information about their tuition and funding. The calculator will then auto-populate that information and turn it into a graph, showing how much each student will owe in tuition. (If you toggle the “Future Student Ages” button, it will change to “Parent Information,” where you can input their assets and other information. You’ll see why in the next step.)
Step 2: Parent Information
From here, you’ll want to include information about the parents and their assets, such as age information, savings, and their available assets.
In Cash Flow, you’ve already done this.
In education, the fields are labeled, making it easy for a client to follow and understand. Click the button that says “Future Student Ages” and you’ll be allowed to input parent info. We’ll include that same $100,000 starting point, with the annual $10,000 contribution. You can also include their starting age.
Since they’re only saving until their children are through school, they’ll stop saving at age 48. You can also include distribution age and mortality age, if the asset they’re funding is also meant to be retirement income. In this scenario, we’ll leave that element out.
Step 3: Analysis
From here, you should be able to see the results of the clients’ education funding.
In Cash Flow, you can see that with the parents’ current contributions, their account will be depleted. This is okay if the savings are meant purely for tuition funding, but often this isn’t the case.
And if you adjust for a 4% inflation of tuition, which we’ve done below, you can see that the parent’s aren’t actually saving enough. You can find this value by using your future value calculator and plugging in the values.
In Education, you’ll see the same results, however you can toggle between the pure cost of each students’ tuition, the impact on the parents’ assets, or you can view a chart similar to Cash Flow. To see this chart, you’ll click the left button just above the words “Actual Costs” at the top of the calculator.
And if you add the 4% inflation, you can see the impact in all three of the charts below:
Which Is Better? You Decide.
Ultimately, the tool you use behind the scenes is entirely up to you. It’s best to do what is going to give you the best understanding so you can speak with confidence. Yet, when you’re meeting with the client, it’s important to consider what’s best for their understanding.
Regardless of what you choose, the values and principles behind the illustration that the client learns are at the heart of this. Helping them understand the value of good savings habits, scholarships and grants, better ways to fund school, and even more affordable alternatives (like in-state schools, trade schools, or owning rental property) are of great importance.
