We all want the best for our children. Sometimes that means giving them less — not more. That’s the case for many parents when it comes to paying for their kids’ college education.
Outrageous, you say? Not at all. Let me explain.
Parents today are under incredible financial stress. We’re expected to fund the best-possible lifestyle, save for our retirement, send the kids to college, and, in many cases, help support an elderly parent. For many people that’s an unrealistic tab, so they borrow too much money to pay those tuition bills. The too-frequent result is that mom and dad are left with an under-funded retirement that is further drained by lingering academic debt.
Bottom line: We parents must set aside emotion and prioritize their own financial health when deciding how much support to provide their aspiring collegian. Here are some things to consider, via Money magazine:
Set priorities. Saving for college is a noble intention, but it shouldn’t be your first priority. Saving 20% of your gross income for retirement should come first – after you’ve set aside an emergency fund containing enough to cover six-months of living expenses. Next, you need to pay down any credit card debt.
Then and only then should you draw from whatever is left over to save for college. If you can put just $70 per month in a tax-deferred 529 college savings account starting at your child’s birth, you’ll have $25,000 socked away when she hits campus, assuming a 6% return.
Let it go. You may have long expected to pick up 100% of the college tab. But that’s very unlikely to happen. Just 12% of students graduate debt-free. Accept that reality and devise an achievable plan to cover something less than the full freight.
Establish expectations early. First, ask the hard question: Does my child really need a four-year degree to build a fulfilling career and life? Maybe not. If so, begin the conversation with your kid about which schools are financially realistic, and how much the young scholar will be expected to kick-in via part-time work, scholarships, et cetera.
Don’t be shy about this talk: 62% of kids expect mom and dad to pick-up the tab for college. If that’s not the case in your house, you need to send that message early and often.
Put it on them. College kids have their entire lives to pay off school loans. Their parents, on the other hand are hurtling towards retirement and grappling with other obligations. For that reason, students – not their parents – should take on any debt necessary to earn that sheepskin. Of course, they should be encouraged to minimize the need to borrow by pursuing grants, work-study programs, et cetera.
If this sounds somehow hard-hearted, remember the words of singer Nick Lowe: “You gotta be cruel to be kind, in the right measure. Cruel to be kind is a very good sign. It means that I love you.”
While a college education is a great gift to a child, keeping yourself financially healthy is equally important to your kids, lest be saddled with meeting your needs and bills just when they are starting to build a life and family.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.