Your Retirement or Your Kid’s Education
Your retirement or your kid’s college education? Which do you choose to save for if you can’t save for both?
According to the U.S. Census Bureau, college graduates typically earn one million more in their lifetime than workers without a college degree making your children’s continuing education an important investment in your children’s future.
But what good will you be to your college grad if you have to spend your golden years sleeping on their couch?
A Shift in Priorities
College costs are rising sharply. Average tuition and fees for a private four-year college now run close to $24,000 a year, according to the College Board. That’s almost $100,000 to save in 18 years.
If you begin saving money the moment your child is born you will have to put away $300 a month, and average a 4% interest rate on top of that. Add saving for retirement, a house, furniture to fill that house, and the occasional vacation and you leave yourself virtually nothing to live on each month.
So what’s a parent to do? According to a recent survey by Country Financial the number of Americans who think college is a good financial investment actually dropped by 16 points from last year. Last year 80 percent of American’s believed college was a good financial investment, this year that number is down to 64 percent.
That 16 percent drop represents a shifting in American attitude about saving priorities. Last year 43 percent of Americans said that saving for their own retirement was more important that saving for their child’s college education. This year that figure increased even more.
More American’s are choosing to save for their retirement over their children’s education. And I agree with them.
While that may seem coldhearted, it can actually make sense for all concerned.
Put Yourself First
You are doing yourself and your children a favor by putting yourself first. According to that same study, Americans between the ages of 18-29, were the most likely to say parents shouldn’t have to finance any of the costs of higher education. These are college aged kids saying they don’t expect mommy and daddy to pay for all of their college tuition. Your kids are telling you its ok if you don’t pay for all of their college expenses. Listen to them!
In addition college is not the last major expense in your child’s lives. If you don’t pay for their college education you can help them pay for the other big expenses in their lives like a wedding or a down payment for their first house.
There are alternate ways to pay for an education, like scholarships or loans. In many cases, you can also qualify for tax breaks and student loan interest deductions. All 50 states have state sponsored scholarship programs for students enrolling in a public college. Collegescholarships.org/scholarships/states.htm provides a listing of scholarships offered by state.
Federal loans for college offer the most flexible payment options and lowest interest rates of any type of debt. So instead of shouldering the whole cost or selling off stocks pre-maturely, teach your children to dig for scholarships, grants, and loans, and to manage debt wisely.
As soon as your child is accepted to college, phone the school’s financial aid office. There is only so much financial aid available you need to be proactive in your approach. If you experience major life changes like job loss or a steep loss in equity let them know that as well. In some cases, schools will work to find additional sources of financial support even after the start of the school term. Believe it or not they want to keep your children in school and keep receiving money from you to pay for it!
Help to the extent you can, but not at the expense of your retirement savings. You do your children no good if you pay for their college but then must spend the rest of your lives depending on them financially. Let your child make up the rest through scholarships, low-interest loans, and part-time work. Paying for college expenses is not an all or nothing type deal.
In the future if all goes well for you, you can consider helping to pay off their loans later on. The Country Financial survey reported that only 18 percent of Americans believe parents should foot the entire bill of their child’s college education.
Most of us face trade-offs in saving for retirement, especially if we have kids. By contributing the maximum amount to your retirement accounts you can help yourself and your future generations. Not the least of which is lowering your taxable income, which means your child could be eligible for a higher amount of financial aid.
Remember that you can always borrow to pay for your child’s college expenses; you can’t borrow to pay for retirement.
Until Next Time,