It is the time of the year when Mardi Gras is in the air and college kids and teenagers are dreaming of days on the beach. Whether or not you believe your kids should be enjoying spring break this year at home working or in a resort town is Mexico is up to you. However, this is the perfect time to talk to your kids about traveling and the costs that go with it. I find myself wondering if my children actually realize just how expensive it can be to travel, especially at spring break.

It is because of this lack of understanding of the costs that I sat my children down and looked at some of the costs associated with traveling during spring break this year. We worked on creating a basic list of expenses and estimated the costs for each of them. I wrote out a list I thought was accurate while they worked on a list of their own, estimating the costs along the way.

Here is what the two lists looked like. First, look at my own.

• Airfare costs: between $250 and $300 a person
• Hotel and lodging: $90 to $200 per night, depending on where they stay
• Meals for a week: $400 on up, depending on the types of meals they were eating
• Travel throughout the city: $100 to $300
• Shopping and spending money: $200 on up

Now, look at my college kid’s estimates:

• Food: $350 (not too bad!)
• Flying: $89 (she thought she saw a sale on air travel, but after looking into it, we found out these were one way tickets only)
• Hotel: $40 a night
• Shopping: $400

As you can see, there is some difference in what my kids thought it would cost to take a week off and spend it lying on the beach. So, this got me to thinking a bit more about spring break and what options our kids have for affordable, but fun travel.

Consider Less Expensive Options

As I sat with my kids going over these costs, I asked them if they could find a few ways to save money and they immediately suggested different types of travel that would be less expensive however, just as fun for them.

Here are some ideas that we came up with along the way.

• Rather than going out of the country (we didn’t even figure on the cost of passports and extended travel), stay in the United States. This in itself will save half the cost of travel. Instead of Cancun, try Fort Lauderdale.
• Even better, consider less expensive beach cities if you are heading to the beach. For example, it would cost $200 approximately to fly to Miami for spring break, but if my kids drove a few hours instead to Myrtle Beach, they would save considerably. Not only is the city less expensive, but they do not have to fly to get there.
• Go camping. Camping, especially if you have the equipment already from family trips, can be a very inexpensive option for teens for spring break. It allows them to get the experience they need of being on their own, but it keeps things far more affordable.
• Choose charity work locally. Our family does a great deal for charity right now, but when my son heard that we were talking about ways to spend your spring break, he mentioned that he hoped to help with another Habitat for Humanity home building project. It may not be the typical type of spring break activity, but it does offer some key rewards including a feeling of helping someone in need.
• Indoor water parks are another great choice. At this time of the year, most amusement parks near us are closed for the winter months. However, there are a few affordable indoor water parks nearby which make for a lot of fun during the cooler spring months.
• Check out local national parks and their offerings. Depending on where you live, you may be able to go skiing and stay at a cabin. You might be able to go on a backpacking trip through the mountains or even spend some time whitewater rafting.

After a good deal of time talking about these options, it dawned on my kids that they could do much more if they choose one of these activities rather than spending all of their savings on the traditional spring break. Even more importantly, one of my children mentioned that it would make them just as happy to stay home and work rather than taking the time off.

This is PART 2 of a two-part series, designed to teach kids about what the President was talking about when he spoke about investing in education. There is nothing more pertinent to a teen or college student.

Last blog post I delved into what President Obama had to say during his first State of the Union Address–specifically the education issues, because it directly affects both teens and college students. I zeroed in on college tax breaks.

Now let’s move on to student loans. This is an important money lesson, because kids come to understand that taking out a loan is one thing, but paying it back is another entirely.

There were eight education-related points Obama addressed, and four of them were about student loans. So half of what he talked about was student loans and the affordability of college. That sounds like an important issue. Discuss the four student loan issues with your kids. They won’t forget the lesson, and they’ll pay more attention next time that tuition bill arrives.

For review, before we get into the student loan issues solely, here are the eight education-related topics Obama urged Congress to:

• Renew the Elementary and Secondary Education Act
• Revitalize community colleges
• End taxpayer subsidies to banks for student loans
• Award a $10,000 tax credit for families for four years of college
• Increase Pell Grants (need-based Federal grants for low-income college students)
• Reduce compulsory student loan payments to only 10% of income
• Legislate that all student loan debt forgiven after 20 years, after 10 years if they choose a career in public service
• Cost cut at colleges and universities

The third item, ending taxpayer subsidies, was covered in the last post (LIVE LINK HERE) in detail. The most important thing for kids to remember about it is that families who need student loans shouldn’t help foot the bill for offering student loans.

Pell Grants, the fifth item on the list, are Federal government grants designed to help low-income families afford college. They are very important loans that need more funding. Go to the website and take a look, discuss with your kids what income levels qualify for these grants. Give them a sense of how impossible it might be to try to pay for college with that level of income, if there aren’t grants available.

You can do this by talking about household expenses: rent or mortgage, monthly food, utility and insurance bills. They’ll get the idea quickly.

The 6th and 7th items are perhaps most pertinent to kids in college, who might already fear the stress of having to pay back loans.

The 6th item means that when kids are out of college, and have a full time job, they won’t have to take too big a chunk out of their paychecks to pay back student loans. It’s hard enough to get started as an adult, working and paying living expenses on starter salaries, without having debt hanging over your head. By limiting the amount they have to pay to 10% of what they’re earning, it helps reduce the stress.

Now, the stress reduction is only worthwhile in the long run when it’s combined with the 7th item on the list: The forgiving of the loan. Tell kids this means if you’re paying 10% of your income for 20 years, your obligation is over, even if you haven’t paid off the whole loan.

This seems like a long time, but if you go to an expensive school, and take out a lot of loans, your payment can be steep.

You see, you pay interest on those loans, so in some ways it’s not worth paying very little over many years. If the interest is accruing, the amount of the loan is actually increasing over the long term. So if your loan is never forgiven, you’re only sinking deeper into debt.

Having a cap on paying off the loan makes that low payment worthwhile. You need not take responsibility for racking up interest over your lifetime.  And if your teen is interested in a career in public service, it becomes an even sweeter deal.

If your kids have interesting comments about Obama’s call to Congress, please share them.

(This is a two-part series, designed to help kids understand what the President was talking about when he spoke about investing in education. There is nothing more pertinent to a teen or college student. PART 1 will address tax credits for college. PART 2 will address paying off student loans.)

Two weeks ago, President Obama gave his first State of the Union address. It is an historical occasion, and naturally what I loved best were all the teen money lessons crammed in there. My students are still moaning about having to analyze and write about what it all means.

Today’s lesson, about tax credit for college costs, is pertinent to our teens’ lives, so they’ll remember it, but it also can be generalized to understand taxation altogether. And it’s the most important–or at least the most exciting–aspect of taxation: the tax break.

First, have your kids watch the Obama State of the Union Address. Just Google it, and it will appear.

Second, hone in on the part of the speech about investing in the skills and education of our people. There were eight points Obama addressed. Obama called for Congress to:

• Renew the Elementary and Secondary Education Act
• Revitalize community colleges
• End taxpayer subsidies to banks for student loans
• Award a $10,000 tax credit to families for four years of college
• Increase Pell Grants (need-based Federal grants for low-income college students)
• Reduce compulsory student loan payments to only 10% of income
• Legislate that all student loan debt be forgiven after 20 years, after 10 years if they choose a career in public service
• Cost cut at colleges and universities

Third, ask them if they understand what the two tax items mean: Ending taxpayer subsidies, while increasing the tax credit to $10,000 for four years of college. Make note of their answers, whether they answer correctly or not. Understanding how they perceive these terms will help you explain other related issues later. Then give them workable definitions.

Subsidizing: Explain first that the word subsidizing means to help pay for something. As the recession hit, student loans became harder to get. People, otherwise known as taxpayers, had to help foot the bill to keep student loans available by paying extra taxes. The irony of that won’t escape your kids. What is the point of having the people who need the loans to begin with contribute to the pot of available loan money?

Well, not a lot of point, especially since there’s no way to guarantee that wealthy people, who could afford helping to subsidize the student loans, would be the ones contributing. So the call to end subsidies for student loans means that the tax burden, in theory, will be lessened for the average taxpayer.

On the other end of the tax problem: The average taxpayer needs a tax break, not simply being absolved of paying more. Explain that a tax break is when you get out of having to pay certain taxes. This either happens by lowering your taxable income by a certain amount, or by taking the tax you would be paying and subtracting a designated amount. Lowering taxable income tends to be for wealthier people. Actually getting a refund tends to be for people who have no more deductions to take and who already get a refund.

In Obama’s proposal, he is asking to lower the amount of taxable income a family pays by $2,500 per year for every student who finishes four years of college. So if a family has a taxable income of $120,000, it would be reduced to a taxable income of $117,500 each year for four years. The total after four years is $10,000.

Incidentally, families stop being eligible if they’re too wealthy. The tax benefits start to fade when the family income is $160,000.

But the tax credit also helps families with much, much lower incomes who need the cash back. If a family spends at least $4,000 per year on college, then they can actually get a refund of 40% of that $2,500–$1,000 back in cash. So the taxable income is lowered, but the refund is also real.

Have your teen or college student look up these Acts. They should be informed at a detailed level. The American Recovery and Reinvestment Act of 2009 included a scaled-back version of the American Opportunity Tax Credit as a modification to the Hope Scholarship tax credit. The legislation increased the maximum credit to $2,500 (100% of the first $2,000 in tuition, fees and course materials and 25% of the next $2,000) per year, expanded it to four years from two, and made the tax credit partially refundable.

In addition, the income phaseouts were expanded and the tax credit is no longer subject to the Alternative Minimum Tax (AMT). To date, these improvements are temporary, for the 2009 and 2010 tax years only. However, in his speech, President Obama has proposed making the improvements permanent in his FY2010 budget.

It’s important because of course it saves money. But it also shows kids how when we budget for life expenses, we have to look at the big picture to see what’s affordable. In some cases, this type of tax credit could mean the difference between being able to afford college and not being able to.

Also, there is a growing number of college students–many of mine included–that take five years instead of four to graduate. This is a thorny issue, because sometimes it’s very difficult to schedule needed classes on campuses where budget cuts are translating to fewer class offerings. (I will do a post on navigating the college and university advisor and registration system, to help ensure that your kids get the classes they need to graduate in four years.)

By pointing out to your kids that there is no tax credit for a fifth year of college, they will understand on a whole new level that it’s critical they register early and remain organized.

In his speech, President Obama said: “No one should go broke because they chose to go to college.” And he’s right. The tax changes are designed to live up to that message. So are the changes in student loans, which we’ll talk about in a future blog post. Stay tuned.