Dave Ramsey on 529 Plans

Dave Ramsey is a money guy.  I have written about him before.  I agree with much of what he has to say about money.  I don't often agree with him when it comes to investing and anything political.  He does not understand the monetary system, which is rather critical when you are offering investment advice.

With that said, I was surprised to hear what he said this morning on a morning television show.  He was warning people about having state 529 plans.  He pointed out that many states are in financial trouble and that you should avoid contributing to a state prepaid college plan (or something like that) if your state currently has financial difficulties.

This is surprising because I consider Dave Ramsey as part of the establishment.  He has little clue about the monetary system while being a popular personality talking about money on television and the radio.  Yet, with this statement he made about being careful with state 529 plans, he is saying in a not-so-subtle way that some states are headed for bankruptcy.

That is all his statement can mean.  He is saying that states in financial trouble are at least somewhat likely to default on their promises.  This means that you could make contributions for your child's college education and then see it all evaporate because of politicians spending too much and promising too much. If Dave Ramsey is suggesting something like this, then we can be almost certain that it is going to happen, because I don't see him as someone who questions the system very often.

I completely agree with him on this topic.  I would go further and say that you should avoid these state plans no matter where you live.  First, college is way too expensive in most places and I would try to find a cheaper way to pay for your child's education.  There are more choices now with community colleges and online courses.  You can also encourage your child to take college credit classes while in high school and maybe even test out of some college level classes.

Second, if you are going to save some money to help pay for your child's college, then you don't need to contribute money to the politicians in your state.  You can save your own money.

I would not contribute to any state plans, as things can change quickly.  Most of the 50 states are in financial trouble.  It is all relative.  But the worst ones that come to mind are California, New York, New Jersey, and Illinois.

Not coincidentally, the states with the highest taxes have the worst problems.  This could be for several reasons.  First, high taxes tend to drive productive people away.  Second, the high taxes meant high government "revenues" during the so-called good times.  When good times went to bad (the bursting housing bubble), then government tax collections went way down.  But the politicians had already made big promises and were already accustomed to spending huge amounts.  Third, the states with the highest taxes also tend to be the states most likely to elect big government politicians.  (I know "big government politicians" is redundant, but it is all relative.)

In conclusion, you should actually take Dave Ramsey's advice on this.  Stay away from the state college savings plans.  If and when the economy turns south again, we could see a wave of state bankruptcies.  Don't be one of the victims.