The Biggest Mistake Parents Make When PLANNING for their Kids College.Submitted by Eight Oaks Financial on September 27th, 2016
The Biggest Mistake Parents Make When PLANNING for their Kids College.
*This is part one of a two part post. This post is about the biggest mistake parents make when planning for their kids college. The second post will be about the biggest mistakes parents make when funding their kids college.
I’m in that stage of life - two kids in college. Here’s proof, we just took our second oldest and dropped her off for her freshman year:
Yes, it was incredibly heart wrenching!
I feel pretty good about how we as a family are managing college life, we’ve been preparing for it for years. We’ve been talking about what schools we like, what it will all cost, and what my wife and I are willing to do to help our kids financially.
The biggest mistake I see parents making when planning for their kids college - they have no plan. This is a terrible approach for many reasons. Financially it means you will most likely be using your daily cash flow, or debt, to fund college expenses. Mentally and emotionally it means you won’t be prepared. You’re setting yourself up for an incredibly stressful time personally, with your spouse and with your children as well.
My advice - start planning now.
The younger the better.
Either on your own, or if you’re married with your spouse, you need to come to an understanding on what you plan to do regarding your kids college experience. Here are the top four things I recommend you tackle:
1. What schools are you going to recommend?
As you research all the options you need to start nudging them early. Buying them school sweatshirts, taking them to games, pointing the school out to them in the media over the years, it all makes an impression on your kids. This will help guide them to think of ‘your’ school when it’s time for the admissions paperwork. It doesn’t mean they will choose it, but it lays the groundwork for the next things you’ll be talking to them about.
2. How much of their schooling are you going to fund?
How much will you be funding: one hundred percent, fifty percent, or zero? Everyone has an opinion on how much a parent should spend on their kids education, but you need to crystalize it and be able to communicate it - the earlier you do this the better. Without a reference your kids will just assume you are going to do the same thing their friends parents are doing. They may think you’re going to provide 100% of everything and that they have nothing to worry about. Many of the youth today have an entitlement attitude. If you don’t talk to them about school finances, why wouldn’t they simply expect you to pay for all of it? Be brave, have the finance talk early and explain to them just what you are willing to do to help them. Even if you can’t help them at all, you need to have the talk.
The second biggest mistake I see parents making is to over commit to their kids education. In my initial meetings with clients I often have them prioritize their goals: retirement, kids education, providing for the family at death, etc. It’s not uncommon for clients to say they want to provide 100% of their kids education - ahead of any other goal. They say this even though they haven’t saved a penny for it, and will have to save money for their kids college instead of saving for their own retirement. I strive to help them understand how detrimental that would be to their future. I have them go through this exercise, “Imagine your child is an adult. Now imagine having a conversation with your child about how you plan to provide 100% of their education costs. Now imagine you letting them know that because you are providing 100% of their education they will most likely have to help you in retirement when your money runs out. How do you think your child will respond to that?” When they think at this objectively, they often switch gears and are open to having a direct and honest discussion with their kids about how best to finance their college expenses.
In our household we firmly believe it is our duty to instil the desire for our kids to go to college. We also believe it is not our job to pay for it. We worried if we handed college to them on a silver platter, they wouldn’t appreciate it. But that’s just our kids, yours will be different. You’ll have to determine what you can afford and how much skin your kids need to have in the game.
Here was our approach. We had a target school we wanted them to go to, our alma mater, it’s a large private university. We explained that we desired them to go there as well. We helped them understand our ‘goal’ to provide 50% of their education expenses. They would need to take AP courses in high school, work during the summers and potentially at school to pay for their half. If this wasn’t enough, then they’d need to look at other methods of financing. Talk to their grandparents, look into scholarships, research loans. Again, we worried that if our kids weren’t personally engaged, they wouldn’t work hard enough or appreciate it.
3. Know what ‘the deal’ is.
What exactly are you going to be paying for when your child goes to college? Are you going to pay for everything? Will you pay for just tuition, or tuition plus room and board, or even more? Are you paying for your kids mobile phone now? Will you continue to do so when they are in college? Are you going to send your kids to college with a car? Are you going to pay for the gas, insurance, and upkeep of the car? Will you provide them spending money for dates, parties, concert tickets, etc? You really need to spell out the details. It’s a good exercise for you and your up and coming freshman to work through these details. This will help them gain an understanding of their budget, and hopefully gain an appreciation of how much it will all cost.
4. Look into financial assistance.
Your income may be too high to qualify for traditional financial assistance, but our high school offered 2,000 different scholarships - TWO THOUSAND! Most had nothing to do with household income. Every organization under the sun offered a scholarship: FHA, minority groups, businesses, local charities, people who had passed away and left money to support a special group of people, etc. My oldest daughter won a scholarship from her elementary school. The parent club that supported the elementary school offered a $500 scholarship every year to a male and female graduate. All they had to do to qualify was graduate from the elementary school and write an essay about their experience at that school. I highly recommend you go to your high school financial aid office and obtain the list of available scholarships. There’s a good chance your child will qualify for a number of them. If you don’t do it, you’re leaving free money on the table.
You should also look into financial assistance at your university of choice. Our second oldest wasn’t interested in going to the school we were nudging her toward. We made it clear the amount we were willing to put out for tuition. If she wanted to go to a school that cost more than our choice, that was up to her, she would have to figure out how to finance the difference. She looked into an out of state school my in-laws had graduated from. The out of state tuition was twice as expensive as our school of choice, initially this looked like a deal breaker to all of us. As we dug deeper into the school we learned of a family alumni scholarship. Since my daughter had close family (her grandparents) that had graduated from the school, the university was willing to give her in state tuition for all four years. This was a significant discount. She ended up applying and going to that school.
We’ve been at this college thing for about three years now. It’s not easy, we are struggling through the process. It’s hard to let them spread their wings and fly away. It’s been really hard for my wife and I to move onto the next phase of life too, in only five years we will be empty nesters. It’s amazing how quickly the kids have grown. All of this has been easier though, because we started planning a long time ago. If you have children, now is the best time to start planting those seeds.
If you’d like to have someone to talk to about your family’s education planning, if you’d like to have someone to talk to about your overall wealth management, don’t hesitate to reach out to us. Click here to see if we would be a good match for each other: Who Are Our Clients?