Making the Grade: Saving & Investing for Education
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Making the Grade: Saving & Investing for Education
OWAIZ DADABHOY: So, we’re just going to get started here, before the presentation, we’re going to talk about the top 13 ways to save money in college. I’m going to run through this relatively quickly, here, but they are good things to keep in mind. So, number one on this particular list that I found. It was actually 15; I cut it down to 13. It says don’t buy new textbooks, right? If at all possible, don’t buy new ones. See if you can rent them or buy used ones from Amazon. You can also rent books from Chegg or Barnes & Noble, etc. And part of what we want to do today, you know, many of you may still have children that are going to be going to college. Maybe they’re a year away. Maybe some of the information will be useful but maybe saving and investing for it might be a little late. Although if they’re going to go for a master’s program, you could potentially use the money for four or five years down the road. But, if you don’t have children of if they’re, maybe, past college already, what we could do is we could spread this news to our nephews and nieces, our grandchildren, etc. So, when we go through the presentation, feel free to take screenshots of whatever you would like, as well, to share, with anyone that is not on the call today from your family and friends, what not. So, that was number one. Number two, don’t leave home without your student ID. And that’s because when you’re near campus or even off of campus, there’s going to be discounts for students. Something as simple as going to a movie. Our children will do that, and they’ll get discounts for doing that and for many other things. Even some of the restaurants near campus might have a discount if you are a student. So, just make sure you show your student ID. This particular one says, “Don’t own a car,” because the cost of the car, parking gas... Parking on campus, right? Parking off campus. You might have two different kinds of costs for parking. So, use Zipcar, Uber, Lyft, etc. or try to get an apartment on campus or close to it so that you can walk. Don’t be careless with credit cards, which is number four. I do recommend that students—as soon as they become 18 and they’re able to get a student credit card from college—that they should do that. Because once they leave college, what ends up happening is they have to qualify based on their income and they may not have any income. And we want to start off their credit history as soon as possible. Credit card companies will allow your student to get a credit card even with minimal income. The income could be from parents or from other sources and doesn’t have to be the same type of income that you would need for other types of credit cards, right? Besides student credit cards. And then, you know, just let them know to pay off their credit cards each month and not be late, because that will ding their credit and also, they’ll get charged extra for fees and interest. Visit your local bank and find out if they have a student checking account, so you can get reduced or, you know, completely eliminated checking account costs. If your bank does not do that, you can always go to a credit union and see if they have that option for your student. And, you know, the earlier you start... I used to be in banking many years ago... the earlier that you start, the better. A credit card and a banking account. Because later on down the road when you need to make a deposit, you need to cash something, if you have years of, you know, experience with that bank, they may not put a hold on your check, whereas if you have a new account, they may put a hold on it. Do limit meals out. This is easier said than done. I have a student in college right now. They love to go get coffee and boba and whatever all the time, right? They love to eat out. But they should be disciplined in some ways for the majority of their meals to prepare them in their apartment so they can save money on that. Because as our guest will tell you, the cost of college is not just tuition. There’s going to be many other costs that go into it and when he spells that out, it will become very apparent that we should limit outside meals. Choose housing wisely. Check dorms and outside apartments. My daughter had to do that. She checked both and ultimately, she’s going to be living on campus for her final year in her four-year degree. Explore campus amenities. So, you can check out amenities, such as the fitness classes that might be offered for free. Free movie nights. Colleges have a lot of different activities going on but often times, our students do not take advantage of that or even learn about them until they’re out of college. So, there are many different amenities that they can take advantage of. Number nine is to trim or split subscriptions. Many of our students, you know, our children, have Hulu and Netflix and different kinds of subscriptions. So, they can split that with somebody, or they can, you know, split it with their parents or other family members and not take the entire cost on themselves. Number 10, and this is all before we get into our presentation. Start investing, if you can, is what this particular list gives me. If you have any leftover money, talk to your parents or family about opening a savings account to start putting some money aside there and even a Roth IRA. If you have income, you could consider a Roth IRA for yourself, so you can get ahead of the game before you start working full time. Number 11, stay focused on your studies. The reason why this one is huge is if you go to a four-year college, you’re going to have four years of college costs, but if you don’t get done in time, now you have to add another year. That can become very expensive. So, if you’re going to a college that has $10,000 tuition per year, you just added $10,000 to the total. Number 12 is to buy in bulk. So, you know, get a membership like at Sam’s or Costco. Maybe the parents already have that and can add the student there if they’re living off campus. To help them to understand about, you know, buying under special programs like these membership kinds of stores to save money. And this will go through their lifetime with them. Right? It’s not just going to be during college but they’re going to learn some success tips early on. Number 13, meet application deadlines. Some scholarships renew each year. If you take time to reapply, be sure to get your forms and letters of recommendation in on time. Earning scholarships and grants can help you save money in college by covering more of your tuition and living expenses. So, that is the top 13 that I condensed from 15. Hope you enjoyed that. Thank you for joining us again. We thank you all because some of you join every single month. Some of you might be joining for the first time. You can always find our past webinars on our website. There are many of them. You can google “Amana Mutual Funds webinars” or just go to amanafunds.com and find them there. We also have the Halal Money Matters podcast. Thank you for joining our webinar today and we’re going to talk about college education costs, how to save for college, and how to find different funding sources for college. And today I’m joined by Mr. Syed Rizvi who will talk about the overall cost of college education: not just tuition. Which, in my presentations, I talk a lot about just tuition cost, but we wanted him to come on to talk more about the overall cost of education and he will explain other funding options because what I talk about is how you can save and invest over time for your student. I think you’ll enjoy this presentation. I love giving this presentation, so hopefully that will show. Feel free to take any screenshots of anything that we share today and at some point, I’m going to share my personal experiences with you, as well, with college costs, because I do have a 19-year-old that’s in her fourth year of college now. So, I can give you some real-life examples of that. So, this presentation is called Making the Grade: Saving and Investing for Education with myself and Mr. Syed Rizvi and I’ll give you his bio right before he speaks which will be about 15 minutes from now. You know, with any presentation that we make, we do talk about investing and Amana Mutual Funds, so obviously you have to consider an investment’s objectives, risks, charges, and expenses before investing. Most of you are already investing in the Amana Mutual Funds so you’re seasoned investors. Do pick up a prospectus from our website. You can see it there: amanafunds.com. And I’ll talk to you a little bit more about risk and other things to consider later on in the presentation. The cost of education is going up on a regular basis. It’s been going on or going up for years. Right? Ever since college education started many decades and decades ago. The cost is there because, you know, inflation is rampant throughout our lives, especially now in the last year and half or so. But college education inflation is higher than the average inflation in the United States. So, if you had saved... let’s say you had saved $20,000 fifteen years ago when your child was two or three years old. And you said, “Let me just put this into a savings account. I’m not going to take the interest. And this is enough for the college right now that I want my child to go to,” but 15 years later that $15,000 is not going to pay for the four years of college anymore because the cost is going up. Tuition ranges from $10,000 to $37,000 per year on average right now. Depending on what kind of school your child is going to go to. So, if they go to a two-year college for the first two years of their college experience, the average cost is just under $3,800. Four-year college is at about $10,560, and you can see back in 1990 that same college, the average was about $3,800. So, it’s gone up about triple. If you go to a private four-year college the cost has gone up from $18,000 roughly to about $37,000. These are just averages. So, you’re going to have some colleges that are going to charge you much more, public and private. And also, this is in-state for public. If you’re living in California and they want to go to New York University, or vice versa, there might be an upcharge because they don’t live in that state, and you haven’t paid taxes in that state. Mr. Rizvi will talk about that a little bit later. Given the rising cost of education expenses and the fact that many people don’t consider saving and investing for college until it’s way too late, the average student back in 2019 was coming out with almost $30,000 worth of debt. This includes students going into the medical field who come out with $200,000 and those that are working and have paid their college throughout or their parents paid for their college and now they came out with zero debt, but the average is about $30,000 nationally. So, how are we going to take care of that? That’s what we hope to talk about today. How can we eliminate this debt because the debt will then saddle your student, especially if it’s $100,00, $200,00, before they can even go buy a car or, you know, buy a home somewhere? They’re looking to pay off this debt because the debt will be there until they pay it off. There are a few different options. You probably have all heard of the 529 plan. This is a fantastic offering that the government has put together because you can put in over $300,000 by the time your child is 18 years of age. However, there is no halal options right now. So, if you buy a time dated mutual fund. Let’s say your child goes to college now, they’re going to get out in four years... 15 years ago you might have started something with a 2025 date on it. As it gets closer to 2025, they move away from stocks and put more into bonds, which is completely riba. And the stocks themselves, the mutual funds that you own that are stock based are not going to take any Islamic principles in mind. But, if this option was there for Muslim investors, for their college education, it would be a phenomenal opportunity because you can put up to $15,000 per year into it and you know, you can take out the money tax-free along the way. It is growing tax-free as well along the way. And all you have to do at the end if show that you had tuition receipts or rent receipts, payments for books and parking and then you can withdraw the money without paying any taxes if you have those receipts. So, many of the Muslim investors and savers for college are putting money into what’s called an Education Savings Account, it’s the precursor to the 529 plan. The government really took the 529 plan and kept molding it. The Education Savings Account is living in 2010. The amount per year has not been increased so it has remained at $2,000 per year, per child and, you know, if you make over $190,000, you are not going to be even able to put in the $2,000, the full amount. Now, if you make over $220,000, you can’t put any into it. So, what I tell people is that if you’re starting to bump up to the $190,000, you might want to start looking at other options instead because if you put money into this and if you’re making too much, if you actually put in too much, you will have to pay tax on what you put in. So, another option for you is the minor account or Uniform Gift to Minor account, or UGMA. Now, if you go into your local bank and say, “Little Ahmed is two years old, has some money from Eid and birthdays and I want to open a minor account for them.” They’ll say, “Sure, we have a young savers account.” It’s the same thing. It’s a UGMA. So, you can open up a bank account like that. You can also open up an investment account, a brokerage account, under the child’s name. It will be under the child’s social security number. Once the child turns 18, it will be under their name completely and you can put up to $30,000 per year into this if you want, or you can put in, you know, much less than that, if you want to. And the benefit of this one is that you can save a lot more money, there’s no income restrictions, and you can pull it out not just for college education costs but for anything. You can buy them their car. They can use that for a down payment for their home. If you are a particularly good saver and investor, so this is a very good option for just about everyone. What you could do is you could pair them both together. So, some people say, “Well, you know, Education Savings Account is only $2,000 per year. I need to save more than that.” Well, take advantage of the $2,000 first because it’s going to have major tax advantages there and then open up a minor account and put in more money there. The other reason you might want to do this is because the Education Savings Account is purely for education whereas the minor account can be used for anything. So, you have more than one financial goal for your children so you might want to pair these up. Now, let’s talk about how we can take time and save a lot of money—hopefully—if we get started early. Because Einstein is attributed to have said that the greatest force in the universe is the power of compounding. So, let’s see how that works. So, if we put in $83 a month once the child is born. The first month, we put in $83, which happens to be $1,000 a year. With the assumption that I have created here, which is 7% average return... at the end of the presentation I’ll give you some numbers about real-life performance of our Funds so you can see whether the 7% was achievable in the past... so if they put in $83 a month, $1,000 a year, after three years, at a 7% rate of return, average, they would have put in $3,000 and you would have grown it to $3,194, and so you probably come back to me and say, “Look this is not working for me. I’m not making enough money.” But you have to understand that it’s the power of compounding. So, the first $1,000 becomes $1,070. And the next year when you multiply that 7% return—if that’s what you got—you’re multiplying it by $1,070 and not $1,000, so that’s where compounding comes in. So, if you fast forward; your child is now 18 years of age. You put in $18,000. You have just over $34,000. And we had said that the average student is coming out of college in 2019 saddled with $29,900 worth of debt, so if you had this much money for them, they could have potentially come out with zero debt. Now, the beautiful thing is the Education Savings Account allows you to put in $2,000 per year or $166 a month, and so that would get you closer to $70,000 by the time your child is 18 years of age. The personal story that I’ll tell you is when my children were both born... my daughter is now 19, my son just turned 15... you know, as soon as I got their social security numbers, I already had this experience and knew about this—the power of compounding—so I started up accounts for them way back when, and I delayed gratification. I kept putting money in there every single month. Automatic investing. Because you’re buying at different levels of that fund, right? So, when Amana Income Fund is $30 a share, you’re buying more shares with your $100 a month or whatever you’re putting in. If it goes up to $40 a share, you’re buying fewer shares. If it goes down to $20 a share, you’re buying more shares. So, that’s called dollar cost averaging and my experience has been that once my daughter started going to college... she actually went the first two years to Mr. Rizvi’s college and any time she came with a bill, I was able to pull it out of the accounts and did not have any issues funding college and now this is her fourth year. She’s going to UCLA. It’s a little bit more expensive than the junior college but still have saved up enough just because I started all those years ago. Now, imagine saving the last three years before your child is 18. From 15 years of age until 18, if you put in $1,000 a year at 7% return, you’re going to have $3,194. So, the story here is that if you wait too long, the game is not over. You just need to put in more money to save for them and if they are going to get a master’s program, maybe you fund their bachelor’s degree through your checking account if you have it, or your savings account, or any other means, and then save up for their master’s program and you know, you can have a little bit better experience there because master’s programs typically cost a little bit more. What I’m going to do now is introduce Mr. Rizvi and we’ll talk about, you know, the overall cost of college. Not just tuition. And he’ll also give you some helpful hints about other types of funding. Mr. Rizvi is an education professional with diverse student services experience leading and serving students. In February of 2018, Santiago Canyon College named him Vice President for Student Services. Mr. Rizvi has served in a variety of high-level leadership roles at that college. He was appointed Associate Dean in May 2005 of Financial Aid and subsequently was promoted to Associate Dean of Student Support Services in July 2012. In March 2015, he was promoted again, this time to Dean of Enrollment and Support Services, where he served until his current appointment. His primary role at the college was to ensure all areas of student services were serving students with the highest level of services in relevance to their needs. Under his leadership, the college has developed a robust and still-growing international student program, which brings students from around the world to campus and provides much-needed cross-cultural enrichment opportunities for all students. Currently he is heading a number of new initiatives as the state legislature in California—with the California Community College’s Chancellor’s Offices—have mandated fundamental in changes in how all community colleges, not just SCC, are funded, and how they serve students and track success and progress towards degrees and meaningful employment. So, he has a vast experience even before this college, which I omitted for the sake of time and now we will hear from Mr. Syed Rizvi.
SYED RIZVI: As-salamu alaykum. Thanks for having me. I wanted to go into the details of estimated student budgets. So, it’s normal for everyone to talk about tuition when they talk about sending a kid to college. But there is a lot more than that. You have tuition and fees which you have to actually account for—annual tuition and fees—for a student to attend a college. In addition, if they are going to live at home or they’re going to live on campus, or they will be living off campus in an apartment or a relative. Whatever that would be, there’s a cost associated to that. Every school, when they develop a financial aid budget for a student, as to how much they can qualify for financial aid, they have a cost of attendance budget, and you can find that figure at every institution’s financial aid website. As to what the school’s financial aid cost of attendance budget is. So, in this case, for an example, Owaiz has used UCLA’s nine-month budget. As you can tell, an academic year runs differently than a calendar year. So, an academic year usually is three courses for quarter system schools—nine months—or two semesters for semester schools. Summer is always optional in both cases. So, a typical UCLA budget has $13,000 worth of tuition for a California resident. This is non-resident budget. And that’s where I like to mention this to folks: that if you are... I’m sure you’re from all over the United States... the state that you live in, if your child goes to an in-state institution, you get that in-state tuition piece. Take advantage of that. If you don’t take advantage of that, then your taxes are—especially in the states where you pay state taxes—your taxes are going to waste. Because there is a subsidy that in-state institutions receive from the government and that allows them to keep their costs where it is. And that’s why a school charges out of state and in-state tuition. So, that’s the key to understanding how these things work. Rooms and meals vary from state to state, the cost of living, books and supplies—as Owaiz was mentioning—can be mitigated, depending on how you go about obtaining those books. In some institutions, even libraries have a few editions of the same books that the institution actually prescribes. By law, especially in California, there is a law that you are to publish, along with the class, the book’s serial number. So, that way, a student can actually purchase it from anywhere, so you’re not tied to the bookstore on campus to get those books. Transportation cost varies from state to state, from campus to campus, depending, and also in some states they have a very robust train system, and, in some states, we don’t. So, in California, we count on actually driving a lot more than actually taking trains and things like that. In addition, you also have to take into account the parking cost that is associated on campuses. I can tell you this: UCLA has an astronomical parking cost for students who actually want to park on campus. It goes in the vicinity of $500 to $700 per quarter or even more. And California State Universities also run in the vicinity of over $500 per semester or per quarter, depending on the distribution. The health care and insurance cost goes into effect also for some students, depending on whether the parents can cover them or not. And the personal cost: haircuts... Owaiz talked about the movies. This and that and what else and what not. So, all of this is taken into account when a student budget is created for a student. And you can see, here they have also thrown in, the second to last line in this budget, a non-resident supplemental tuition component. So, for a student who is a California resident, their cost of attendance budget has, actually, a $36,000 budget for in-state, and those were actually not a resident of California. They’ll end up paying close to $66,000 for an academic year and a student goes there for four academic years. That’s the way they will end up doing it. That’s very common. We see it all the time, that children want to go to some other institution, out of state. It happens in California a lot, where kids want to go to Arizona State or some other schools and to tell you the truth, it cost a lot more and it doesn’t make any sense. We strongly recommend that the student stay within their state so they can go ahead and take advantage of the institution aid. If we move to the next slide...
OWAIZ DADABHOY: And before we do that, you know, there was a weekend a few weeks ago where I talked to two different students and you know, one actually was a client of ours that lives in New York. And he wanted to come to UCLA and then somebody here that got into UCLA who actually wanted to go to New York University. Right? So, you can see that the students want to go to the opposite ends of the country. Now, you mentioned to me offline that there are subsidies... so if you can give an example of the University of California system, and this might be the same for other states as well. And then there’s the Cal State system in California. How much is the typical subsidy that the State of California is paying for that student.
SYED RIZVI: So, when a student attends a California community college, the California community college tuition for in-state Californian residents is only $46 a unit. And obviously, you can’t even keep the lights on with $46 a unit. So, in the background, for every full-time equivalent student, the state gives California community colleges about $5,000 per current students. Same token for California State University. It runs, for every full-time student, in the background, the subsidy is between $8,000 and $9,000. And for the UC system, it can go up to $15,000 per full-time student.
OWAIZ DADABHOY: Is that annual?
SYED RIZVI: It’s an annual subsidy.
OWAIZ DADABHOY: OK. A significant subsidy...
SYED RIZVI: That the State of California puts into the background. Otherwise, this tuition for $13,258 would technically go up to almost $28,000.
OWAIZ DADABHOY: It totally makes sense to make use of that in your own state if possible.
SYED RIZVI: Yes, exactly. And not to mention when folks also measure some of the state institutions against private institutions. And I can again give you an example of USC, the University of Southern California, where due to the fact that it’s a private institution, it can upwards of $40 some thousand dollars for tuition alone. And the dorms and everything, USC for undergraduate student, can run in $70,000 or more a year. It does not mean that the education is better. They do not have the subsidy in the background from the state because they’re a private institution. So, that’s also needed to be taken into consideration. Now, this brings me to the next slide. And before Owaiz covers a few things on the slide, I also want to talk about the scholarships a little bit. When it comes to scholarships, one has to be very careful because scholarships... there are a lot of fraudulent scholarships out there. And they can take many forms. And if you receive an offer that uses one of these tactics to be suspicious... you have to be very protective of yourself and your child. There are sites which can actually tell you more about those things but it’s very common, when there are companies which are asking you to pay a fee so you can qualify for a scholarship. That’s the first red flag that goes into effect. Then, there are scholarships which comes out of the blue without applying. When someone tells you that you won a scholarship prize. You do not want to go for something like that, especially, I’ve heard cases when people would send you a check and say, “You know what, we’re cutting you a check for more than what the scholarship is. Write us a check back for a certain amount.” Then and there it’s a red flag. Nobody would do that with a scholarship. There is no such thing as guaranteed for scholarships so please don’t get caught in that scam. In addition, every institution has a foundation, and they have a private fundraising arm at every institution. For instance, UCLA has a foundation. USC has a foundation. Harvard has a foundation. Princeton has a foundation. Columbia has a foundation. In fact, Harvard is committed to paying for every student’s tuition to some extent or cover all of it. And Princeton is moving in that direction, and they’ve moved in that direction with most of their students. Columbia has already moved in most of this direction. So, please, while you’re looking at these search engines—which in my opinion are the most reliable search engines which are listed here—you have to go to each and every institution’s site and find the private scholarships program. Their own... the term that’s used is institutional scholarships at those schools. And look at their criteria. They have totally different deadlines. Their deadlines will not match the application deadline, for an institution. It may be even before that. So, it’s very important that you look at those things and act accordingly.
OWAIZ DADABHOY: So, the institutional scholarships that you’re talking about. They’re not completely evident and no one really tells you about them, so it’s up to each parent and student to go in there and look for their particular college’s institutional scholarship. Is that right?
SYED RIZVI: That is very true. You also brought up a good point and I think I should cover this here. There are some very small private institutions which are notorious for giving full rides. And folks, it happens in Boston a lot. It happens in California quite a bit, too. And folks get very excited when their child gets these full rides at these institutions. These full ride scholarships are legit. There’s nothing wrong with that. However, internally, for profit institutions and most of these private institutions actually call them tuition discounting. The term tuition discounting, actually, means that the accounting on it that this scholarship may not be renewed. The fact is that it comes with a lot of stipulations. One should read all the stipulations of all of these full ride scholarships. For instance, there is an institution here in California which is notorious for giving full ride scholarships to incoming freshmen. And when the student gets it, they get excited. They let go of some good schools they may have been admitted to, not to realize that the stipulation is you must maintain 4.0 through and through in the first academic year. The first academic year is the most sensitive year for every student because they’ve never experienced college before. And 90 some percent of the students don’t end up maintaining the 4.0. Now, you have committed to a $60-$70,000 institution for the first year, but the following year gets very tough on students because they pull the rug from under you. And they say, “You didn’t meet those stipulations that were in the scholarship.” So, that’s very important to understand. Thank you.
OWAIZ DADABHOY: Yeah, and that is really useful information when we’re talking to others as well and someone mentions a full ride, to maybe clue them into that, to look at the fine verbiage there. So, if you can just talk a little bit about FAFSA as well, and how that operates and what the benefit would be for students.
SYED RIZVI: So, even if an institution has an institutional scholarship or grant or any type of free funding from their own funds, they all require for a student to file a FAFSA. FAFSA is the first step towards applying or being considered for institutional or state or federal government aid of any sort. A lot of folks in Muslim communities don’t qualify for federal aid, which, I meant, free money, which is a Pell Grant, because it is designed through a need analysis formula with the congress. And this need analysis formula only takes into consideration low-income families, and it gets very tough for folks to qualify for that. And that means a student can qualify for Pell Grant or not. Recently, over the last four or five years at least, they have actually connected that to the IRS site. So, a lot of times, folks tell me, “You know, I don’t want to claim any income,” or, “I want my child to be on their own.” For a child to not live at home with you before they’ve turned 18 does not make them independent. The way the FAFSA definition works, you have to be under the age of 24 and you have to be not married, not have a child, not a veteran. You are a dependent student and the parents’ income will be taken into consideration. So, you must complete a FAFSA in order to be considered for anything. Some folks tell me, “You know what? I don’t want to get any free money. I know I cannot afford to pay for all of it. I want my child to get students loans only,” yet you still need to complete a FAFSA, regardless. You must complete a FAFSA. For institutional aid, there are two types of institutional aid. There is need-based aid, which means that it goes to low-income students. And there is merit-based. And that’s the key to understand. If your child was a good student but your income does not qualify for you to receive any type of financial aid or your child to receive any type of financial aid, that merit-based is what actually saves you some time. Actually, I mentioned USC earlier. USC goes through an interview process for their scholarships. You’ll not believe it. Depending upon how a child interviews, they have given students full ride for the entire program. They don’t do things like year-to-year-to-year. Yes, there is a satisfactory academic progress requirement regardless of if you receive federal aid or you receive institutional aid. Satisfactory academic progress... look at it this way. You go to work somewhere. You receive a paycheck. If you don’t show up to work, you don’t get that paycheck. The same thing applies for any kind of scholarships or grants. If you don’t produce what they expect you to do, you will not get that aid. However, the institutional satisfactory academic progress requirements are usually very flexible compared to whatever standards are for kids. You don’t have to be a 4.0. You don’t even have to be—sometimes—a 3.5 or a 3.0. They expect you to do C or better at times in order to continue to meet institutional satisfactory progress requirements. So, it’s important to know that FAFSA is the first step, no matter what you do. And FAFSA, it does generate expected family contribution and that’s when I get these types of questions from parents about, “You know what? I’m not helping them with anything.” Yeah, you may not be helping them, but if they are under the age of 24 and they don’t fall under any of those things where they’re not a veteran, they already don’t have a child, that automatically makes them a dependent student and, in our community, that’s very common for a child to be a dependent student. So, that covers the FAFSA. FAFSA is the premier website... when you come across a site which has a .com on it, please don’t go to that site, because that’s for-profit. They will charge you if you do these things. When it’s a government site or an .org site... .org is for non-profits, so that way it actually allows you to understand that you can actually get a decent amount of information from those sites.
OWAIZ DADABHOY: So, this is a lot for us to chew on and understand and, you know, if your child is only three or four years of age, you’re just going to have to keep it in the back of your mind that you need to do a lot of reading and understanding before your student does go to college, and one of the options is obviously to go to a two-year college, a community college—also known as a junior college—before going to a state school or a university in your state. It will save a lot of money and we can do an entire presentation just on that and I know that Mr. Rizvi does that. Now, just a couple other pieces on here. ISNA.net, which is the Islamic Society of North America Scholarship Fund, and then the last two, which are the same organization. acontinuouscharity.org. You can access it through those two websites: acceducate or acontinuouscharity.org. ISNA and Islamic Scholarship Fund, they give different kinds of scholarships and if you think about it, Muslims are 1-2% of the US population. And so, since that’s the case, you’re eliminating 98-99% of your competition by going to a scholarship that is meant mostly and primarily for Muslims. So, if you look at organizations, you may be able to find what your child needs in terms of some type of scholarship. Amana Mutual Funds, Saturna, actually sponsors two of them: one at ISNA and one at islamicscholarshipfund.org, so I have first-hand knowledge that they do give these out. They even provide the names of the students when the student is OK to publish their name as well. So, something to look into. Take a screenshot of this. Acontinuouscharity.org is not a scholarship program. What they will do, if you don’t qualify for a scholarship and you need some money, they will give you some money and you pay them back without any interest. There may be some fees associated but the typical interest cost that really is overbearing and very difficult: that will not be there. It was created by the community for the community, started in Dallas but is a nationwide program. And once your student becomes an employee somewhere, then they can start paying it back. Whatever they are paying back, it goes back into the Fund and then the next student that comes around can take a loan as well, interest-free.
OWAIZ DADABHOY: So now, I mentioned 7% rate of return a few times, as an average. So, you know, is that possible? Amana Income Fund, which is the first one that you see here, started back in 1986, this is a mutual fund that has all stocks in it, dividend paying companies. The average 10-year return is 11.09%. So, as you can see, in this particular 10-year period, through June 30 of this year, it did eclipse that 7%, which would really supercharge your education investment or any investment. But it is a look back. Right? So, we don’t know what the future 10-years will look like. This is just a glimpse into the past. You look at Amana Growth which was started in 1994. These are growth companies that we invest in, hence the name Amana Growth. Over 50% of the Fund is in technology-related companies. Around 20% or so is in health care and the rest of it is spread amongst other growth companies in different sectors. That return has been over 15%. This is net of fees. And I was showing you a 7% rate of return as an assumption. So, you can always go to Google or whichever search engine that you’re using and punch in “education savings calculator” and punch in the return that you expect, whatever that might be, as just an example for yourself, and put in $100 a month or $83 or $166 or whatever the number is and see what that would do. Your child might be four years old or eight years old. What will that do once they turn 18? How much might you expect to get if it goes your way, with your assumption? We also have the Amana Developing World Fund. This one has not performed at the same level in the 10-year period. That’s because it is in emerging markets and emerging markets have not performed in the past the same way as Amana Income and Amana Growth, but that’s not to say it may not in the future. As you can see, the 1-year from July 1 of last year to June 30 this year is about 34%. The Amana Participation Fund does not invest in stocks at all. It invests in sukuk, which are bond-like instruments but instead of being debt-backed, they are asset-backed or asset-based. So, we expect, in a typical year, for there to be a lower return here, but you don’t have stock market risk. So, how do you figure out which one to select? So, you can go to amanafunds.com and right on the main page, there is an app there called the Amana Fund Selector. You answer a series of questions. It should take you no more than five minutes and it will give you a suggestion of how you can allocate your money based on your risk tolerance, how you answer those questions, which should take into account a little bit of timeline as well. And you can either go with that or you can use that as a basis to create your own portfolio. So, you see my information there. My email address is email@example.com. Or you can call the 800 number and get to my extension. My team is also listed here. Sameer, who’s in New Jersey. Amjad, who’s in Chicago. Haitham, who’s in southern California. We would love to answer your questions or help you. You can open accounts online, for education accounts of minor accounts, IRA accounts, Roth IRA accounts, for your children, etc. So, now, we’re going to move to taking some of your questions. So, let’s go to the first one. We thank you for sticking with us. Again, we want you to share this with other people that are not here today. “Do you cover planning for college, like 529 or other tax savings plans?” So, the 529 plan, we don’t have one of those. Those are typically the largest institutions in the United States that can offer those. We do not play in that field at this point. So, we have the alternative, which is the Education Savings Account, which we talked about, and also the minor account, which has different features and different benefits to it as compared to the Education Savings Account or 529 plan. “What about socially responsible mutual 529? Is this halal?” So, you can have a socially responsible fund, but it’s still going to invest in some industries that you do not like. And so, that’s part of it. And the second thing is they may have secondary income that’s haram. Maybe their interest income is more than 5%, which scholars say is the maximum, or they could have alcohol sales, right? Their primary business is one thing, and their secondary business is alcohol sales and maybe that’s a large percentage. Maybe it’s over 5%. So, in order to have Islamically principled investing, you have to go to a place that actually takes that into account. “Do UGMA’s provide tax savings, or is it just a savings account?” Now, here, you have to consult with your tax person, right? But I will tell you that there is something affectionately called the kiddie tax rule. So, in any particular year, if your child is under 18, if they don’t have a large amount of income, regular income, or even dividends or capital gains. Then, they don’t have to pay on a certain amount of that. So, there is that built-in tax benefit. But I want you to look into that before investing. Don’t just take my word for it but find what that number is. Talk to a CPA or your tax person or do a Google search and include IRS on it so you’ll get the IRS listing about that. “Does Amana Mutual Funds have specific offerings targeted toward student education like ESA or UGMA?” Yes. That’s what we talked about today is those are the ways that you can save for them. Another way to do it is through a Roth IRA. If you’re interested in that, we’ll use that as a different subject later on. We can talk to you about that. How to use a Roth IRA for education expenses, as well. That’s if you also have a 401(k) plan. So, you’re well taken care of for your retirement through maybe a 401(k) and you can put extra money into a Roth IRA if you qualify and take out whatever you put into it without having to pay any tax or penalty. So, the UTMA and UGMA are the same thing. One is basically saying the Uniform Trust to Minors Act. One says Uniform Gift to Minor Act. But they’re essentially the same thing. Let’s see. And I said that few 529 plan options are halal. So, at the end of that slide, we said a few halal options may exist. We are yet to find one. We put that in there just in case there is one and we haven’t found it yet. If you do find one, please let us know because we have not been able to find one just yet. “For the contact information that you provide, can we contact you for financial planning and advice?” We do have financial planning services as well through a robust system and then we also have, as we mentioned, the Amana Fund Selector, which anyone can use and it’s very easy and there’s no cost there at all. Let’s do this: if anyone else has any questions you can unmute yourself here or you can put it into the chat group. And then, while we’re waiting for that, if Mr. Rizvi has anything else to mention here based on what I talked about or what he talked about.
SYED RIZVI: You touched on undergraduate cost and mentioned community college versus a four-year institution. I do want to make a comment about that. I have seen a lot of parents spend a lot of money on the undergraduate education. And it costs a lot more for graduate studies. It could be medical school. It could be a graduate program or anything else that a student wanted to go into. And definitely, I’m a huge proponent that we need to really look at where we are spending our most money for college education because the graduate school degree is when it counts more than anything else. Where your last degree comes from makes a big difference. Definitely, I’m a huge supporter of spending less money towards an undergraduate degree and more money toward graduate degrees.
OWAIZ DADABHOY: I’ll mention since we’re waiting if there are any questions. Not everyone is going to qualify for financial aid. Not everyone is going to get a scholarship. So, the way I like to look at this is we can take this into our own hands and it’s very easy to do if we start early. And if you’re starting a little bit later, when your child was a month old, you might have had a lower income than when your child is ten years old. So, you can afford to put more aside for them. You can use any of the strategies we talked about or, you know, even if you would have put $1,000 a year into a bank account, without any interest, you would have had $18,000. Without any investing. Without any gain at all. You would have at least had $18,000. If you would have put in $2,000 a year, you at least would have had $36,000. So, it’s really about understanding that time is on your side. I’ll give you a quick proverb. It’s a Chinese proverb. It goes like this. It asks the question, “What is the best time to plan a fruit tree?” And most people will give you an answer... in the springtime, or today. Right? But the best time to plant a fruit tree, especially, you know, many of us, we have different cultures represented here today. You know, we might have a guava tree, a pomegranate tree. What have you. Citrus. And in the first couple of years, you get these tiny little fruit and they don’t taste good. But after five, 10 years, it’s an amazing tree, right? So, the Chinese proverb says the best time to plant a fruit tree is twenty years ago but if you haven’t done that, then it’s today. And it’s the same thing with education savings, with retirement savings, looking into health savings, etc. So, for any of these things, take the ownership in our own hands so we don’t have to hope and pray for a scholarship or hope and pray for financial aid. You know, hopefully we will be making enough money where we won’t qualify for financial aid. So, let me see, I think we have a couple other questions. There are some direct questions. “Is there a way I can move money from my Amana Growth or Income Fund into an education account like a 529 without paying tax on the gains from the Amana Account?” If you have an account that is a taxable account, you would need to sell to do that. But you can use a different strategy. Let’s say you wanted to fund your Education Savings Account with $5,000 for your child. And you’re paying $5,000 a year in charity. You could move your Amana Funds directly, if you’ve held it for more than a year and you have a gain in it... you could move it directly to your charity. That $5,000 that year. And then write a check to your Education Savings Account or minor account if it exceeds the $2,000 per year. So, that’s a way you can not pay any tax on it and get a donation receipt for the full amount. Obviously, that might lead to more questions. You can ask us those questions and talk to a CPA as well. “What can you do with unused money from an ESA account?” You can use it at the end, right? You can use it for yourself. The old saying in the industry is you can go buy a boat at the end if your child hasn’t used all of the money. But one thing you could do... you’re only thinking about college education, right? But you might have had your child go to a private school when they were six and seven and 10 years old. You can go back to that school and ask them for their invoices, and you can pull out the money tax-free, penalty-free based on the invoices from when they were going to third grade an in Islamic school. So, that’s an option. The other thing that you can do is if you have more than one child, you can move that money from one child to another. As long as it’s in the same generation, you can have that money transferred to another child. Even a cousin. So, you can maybe have an arrangement with your brother or your sister that you’re going to send this money over to them and then they can, you know, give you that same amount of money or however you want to arrange that. Somebody thanks us for putting it together. “It was very informative,” they say. Thank you very much for that. “Is there any disadvantage to investing in any type of education fund in terms of scholarship eligibility and IRS limits?” I’m sure there are. We’ll ask Mr. Rizvi about that. But I will say this, again. And this question comes up when I make presentations at masjid and conferences. “Is this going to affect if we can get money from some kind of assistance program?” Right? The way I like to tell you is look, if you can save $83 a month or $100 a month, why take that chance? Because your income might be much greater 15 years from now than it is today, and we are restricting ourselves to hope for something versus guarantee at least something. Right? Again, even if you didn’t invest the money, if you put in $1,000 a year, you have $18,000 versus nothing. Even if you didn’t grow it. And we went through the example of how you could grow it over time. So, Syed, do you have any other thoughts on that? About eligibility if they have education funds for their child?
SYED RIZVI: So, FAFSA is different. FAFSA asks for how much you have in investments and things like that. And in the past, there have been rulings that this is exempt from it. One has to go back and look at it one more time. They ask you declare your assets and even the house that you live in is exempt from it. But if you have rental properties and stuff, that needs to be put into it. If you have investments which are not retirement-related, that definitely needs to be declared. But the retirement-related ones are iffy. So, there is not a clear guideline on that. So, from what I understand, for educational related funds, no, you can’t go without declaring that, because that’s going to go toward education costs anyway.
OWAIZ DADABHOY: And what we like to tell you—thank you for that answer—we like to tell anyone we’re talking to do definitely consult with a tax person if you don’t have your own tax person and pose these questions. The other thing is you can look at IRS publications and they’ll give you this information. You can look in college application websites and they’ll give you this information as well. But we have bumped up against our full hour. We thank you for your participation, for asking your questions. You can definitely contact any of us. If you call our company, even if you don’t have my email address anymore, which is firstname.lastname@example.org... Call into our office and say you want to speak to Owaiz or Haitham or Sameer or Amjad. They will get you through to us and we’ll be happy to answer your questions. And again, you can open up accounts online. It’s very simple. Takes about ten minutes to do. Just have your ID, your social security number, your bank account so you can fund it, and get on the road of saving and investing for your child’s educational and other costs. So, thank you very much. We hope to see you again next month for another webinar, and we thank Syed Rizvi for joining us today. We really appreciate his insights and the education that he’s given us today. Take care everyone.
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A FEW WORDS ABOUT RISKS
Income, Growth, Developing World, and Participation Funds: The value of the shares of each of the Funds rises and falls as the value of the securities in which the Funds invest go up and down. The Amana Mutual Funds limit the securities they purchase to those consistent with Islamic principles. This limits opportunities and may affect performance. Each of the Funds may invest in securities that are not traded in the United States. Investments in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of US issuers. These risks include currency and market fluctuations, and political or social instability. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the developing world.
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Participation Fund: While the Participation Fund does not invest in conventional bonds, risks similar to those of conventional nondiversified fixed-income funds apply. These include: diversification and concentration risk, liquidity risk, interest rate risk, credit risk, and high-yield risk. The Participation Fund also includes risks specific to investments in Islamic fixed-income instruments. The structural complexity of sukuk, along with the weak infrastructure of the sukuk market, increases risk. Compared to rights of conventional bondholders, holders of sukuk may have limited ability to pursue legal recourse to enforce the terms of the sukuk or to restructure the sukuk in order to seek recovery of principal. Sukuk are also subject to the risk that some Islamic scholars may deem certain sukuk as not meeting Islamic investment principles subsequent to the sukuk being issued.
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