This is the first of a three part series about planning for college.
Graduation season is coming. It's an exciting time if you’re a high school student. Maybe not so much if you’re the parent of a high school student.
Planning for college is hard.
Tuition rates have outpaced general inflation and wage growth for years. And that doesn't seem to be slowing down anytime soon.
Add that to the fact that these college planning years coincide directly with valuable retirement savings years, and you can quickly find yourself cash flow poor. Not to mention, kids are expensive before you even consider college tuition.
Cart before the horse?
One of the most common questions that financial planners get asked is "How in the world are we going to pay for college?" It’s a legitimate question. For a lot of middle income families, the cost of putting their children through four years of college is the largest expense they will face aside from buying a home and funding their own retirement.
But even though it’s a good question to ask, perhaps it shouldn’t be the starting point.
Think back to your own college experience (or lack thereof). There is a significant chance that this personal experience, good or bad, has profoundly shaped your opinion on what “college planning” should look like for your kids.
That might be a great idea. But it also might not.
Two spouses, two different experiences.
I'm constantly surprised when these conversations come up and the parents have totally different opinions regarding if and how they will save for these higher ed costs.
I shouldn't be. There are so many different methods for putting kids through school. Given our tendency to cling to our personal experience (or oftentimes the exact opposite), it’s no surprise that couples frequently don’t see eye to eye on this decision.
As a financial planner, I can say with certainty that there is no one-size-fits-all solution to the “how to pay for college” question. I can say, though, that every family should have ongoing, thoughtful conversations about the best strategy for their situation.
Chances are you’ll start some type of college savings account when your child is born. It’s even pretty common for grandparents to pitch in at this time with an annual gift to the new 529 plan. But just like with a New Year’s resolution, momentum typically fades as other expenses and priorities begin to emerge.
As with most things, moderation and balance are key. One of the most common money mistakes that young parents make is to drop everything related to their own financial future in order to ramp up saving for their child's college costs. The long-term impact of this can be devastating for the parents.
This is where the “ongoing” part comes in. Planning for a huge expense that has a due date in 18 years isn’t easy. You can guess at the projections of how much college is going to cost and how the investments will perform, but it’s still just a guess. As author and artist Carl Richards points out, “Don’t be committed to the guess, be committed to the process of guessing .”
It’s not all or nothing.
Loans. Scholarships. Grants. Work-study. AP or junior college classes.
As I mentioned earlier, there are many strategies when it comes to getting through college. It’s important to keep all these options in mind as the years go by. If you make the mistake of sacrificing your own well-being in those early years while jumpstarting the college fund, there’s a real chance that your child will eventually be the one to pay the price.
The key, once again (and I can’t say it enough), is to find balance among your financial goals and to know your priorities. You’ll be much happier (and in better financial shape) in 15 years if you’re close to meeting those education goals and on track for your retirement, rather than vice versa.
“So, don’t even try?”
No, that’s not what I’m saying! A college education is one of the most valuable gifts you can give to a child. It just needs to be evaluated like every other financial goal, and not solely with guilt and obligation.
As a financial planner, it’s not my job to tell clients how to spend their money or prioritize their goals. It is, however, my job to help them spend their money intentionally and understand the consequences that their choices today can have on their future.
There’s a good chance that after all of your conversations, budget evaluations, and goal prioritization, your family will either start or continue contributing to your child’s college fund. In part two of this series, we’ll discuss some options for doing so.