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Personal Finance: How divorce cheats college students

Michelle Singletary
Thursday, February 3, 2011; 10:16 AM

Here's yet another devastating stat about divorce. The Journal of Family Issues recently published a study that found that divorced parents contributed about a third of what married parents contributed to their children's education, reports Dallas News Columnist Pamela Yip.

Married parents contributed about 8 percent of their income to their child's college costs and met 77 percent of their children's financial needs. In contrast, divorced parents contributed about 6 percent of their income and met just 42 percent of their children's financial needs.

"Remarried parents contribute significantly less than married parents, in absolute dollars, as a proportion of their income and as a proportion of the children's financial need, even though they have similar incomes," said Ruth Lopez Turley, associate professor of sociology at Rice University and one of the co-authors of the journal article.

According to Turley, in divorced or remarried families, the cost of college is often shifted to the student.

"They are at a disadvantage because they need to shoulder more of the costs of their education. Their first priority becomes funding their education, not completing their education," she says.

It's not that divorced or remarried parents don't want to pay, researchers found. It's that they pay heavy for their split.

After paying professional fees and then dividing up the marital estate, the exes become more cautious about retaining what assets they have, reports Yip.

Additionally, there are financial obligations for the new family, which require them to further stretch their dollars, the researchers pointed out.

Let's go behind the headlines. This week's Color of Money Question: What impact did your parents' divorce and/or remarriage have on your college funding needs? Send your comment to colorofmoney@washpost.com. Put "How Divorce Cheats College Students" in the subject line.

Want to Be Your Own Boss?

Join me today at noon ET for my online text chat to find out how to make the most of your entrepreneurial spirit.

My guest will be Melinda Emerson author of "Become Your Own Boss in 12 Months: A Month-by-Month Guide to a Business that Works," which is the Color of Money Book Club selection for January.

Be sure to send your money questions in early or read the archive later.

Banking Business

Hoping to capitalize on the "unbanked" and customer's anti-bank sentiments, stores such as Kmart, Wal-Mart and Best Buy are providing financial services in their aisles.

The Post's Ylan Q. Mui writes, "Kmart has begun testing check cashing, money transfers and prepaid cards in stores in Illinois, California and Puerto Rico, with plans to roll out the services nationally later this year. Best Buy has installed kiosks in its stores for shoppers to pay utility, cable and phone bills. Wal-Mart has opened roughly 1,500 MoneyCenters that process as many as 5 million transactions each week."

Susan Ehrlich, president of financial services for Kmart and its parent company, Sears, said retailers' growing presence in the financial sector is beneficial to all consumers.

"Our having a voice in making sure that there is an awareness of that, and that we set the regulatory framework to accommodate that is going to be important," she told Mui.

A government survey found nearly 30 million households either do not have a bank account or use one sparingly. Nearly 70 percent of these families, whom are considered "unbanked," earn less than $30,000 a year and many say they will never do business at a bank.

Get A Retirement Check-Up

If you're struggling to figure out what you need to do to prepare for retirement, Bankrate.com has designed a website just for you.

"Building a robust retirement nest egg is a subject of vital interest to millions of Americans, not just the baby boomers approaching retirement," says Julie Bandy, Editor in Chief at Bankrate.com.

The website offers tips and tools to help consumers each step of the way.

Comments for "The Real Deal on Interest Rates"

In last week's e-letter, I encouraged you all to read an installment in the Post's Five Myths series that busted many misconceptions about interest rates.

So last week's Color of Money Question was: Would you have bought a less expensive house or delayed buying your home if there wasn't a deduction for your mortgage interest?

Here are some of your responses.

"The tax deduction was never and is still not a factor in my decision," said Emily Butler of Orlando, Fla. "I bought my house to live in and paid what I could afford for it and got the size I wanted. I found the lowest rate available at the time and refinanced to an even lower rate a few years later. Although I am single with no kids, what was important is being able to pay off the loan before I retire. It did help to have the deduction, but right now my balance and rate is so low that the deduction is of little or no benefit to me."

"We would not have bought less expensive, but, it would have delayed when we purchased our new house," says Ted Ying of Laurel, Md. "We were in a smaller house that was a little tight for us but which we had mostly paid off. Without the mortgage deduction, I would have had to save longer to get 20 percent for our down payment on the new house and would have waited longer to build up more cash reserves to afford the new house and mortgage payment. The mortgage deduction meant that we could move into the newer larger house earlier than expected because we knew that the income tax return amount would ensure that we were not depleting any of the regular cash reserves so we could afford to move earlier."

"Absolutely, yes it would have made a difference," said Maurita Coley of Washington, D.C. "Probably for the price of the house but not the timing of purchasing of house."

Alan Homer of Portland, Ore. said, "I believe the mortgage interest deduction is a big incentive for people to buy homes. If you take that away completely, the tax burden on the middle/lower class will surely increase. With the tax benefit, the effective interest rate you pay on your home is approximately 1 percent lower than the stated rate."

Upcoming Events

Join me next month for an informative panel discussion, "Behind the Headlines: A Discussion on Race and the Recession in Metro Washington." The free event will be on Wednesday, Feb. 23 from 6:30 p.m. to 8:30 p.m. at The Rennie Forum, Prince George's Community College, 301 Largo Rd., Upper Marlboro, Md.

The panel will cover the recession's impact on local black families and will look at how economic policies in Washington have affected African Americans. The forum will also look at the first of three groundbreaking public opinion polls on issues facing the black community, conducted by The Washington Post, the Kaiser Family Foundation and Harvard University.

I'll be moderating what will be I'm sure a dynamic discussion. The panelists will include Rep. Emanuel Cleaver, chairman of the Congressional Black Caucus; Michael A. Fletcher, a Washington Post national economics reporter; Jeff Johnson, a Black Entertainment Television journalist and motivational speaker; Dr. Julianne Malveaux, a noted economist and educator; Cecilia Rouse, a member of the White House Council of Economic Advisers; and the Rev. Al Sharpton, president of the National Action Network.

To RSVP and also to submit a question for the panel, please e-mail behindtheheadlines@washpost.com.

Tia Lewis contributed to this e-letter.

You are welcome to e-mail comments and questions to singletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

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