…Or more specifically, how do you strike that delicate balance of providing financial support for college so that your child can take advantage of opportunities without encouraging irresponsibility?
My education and professional finance experience guides me competently through most aspects of family finances. But, how to appropriately arrange to send my children to college is one plan still tenuously un-finalized. I’m certain that I want to at least provide some sort of support, so I’ve started 529 plans for my youngest and eldest tax deductions. What confounds me is how much do I want to contribute? Without a goal in mind, saving is extremely difficult.
Here are some of the considerations that keep me from making a decision:
Would a Free Education Encourage Poor Career Planning?
Only 54% of those that start a four-year degree attain that degree in six years. On average, college students spend only 3.6 hours a day working on educational activities. With the average cost of public school tuition being $14,000 per year, that’s a lot of money to front when the success rate is only 1 out of 2.
As parents, we’d like to think that we will financially educate our children to a point where they are certain of a college education and desire to go on to a professional career, yet there are a lot of young adults who fall to the wayside. Do college students need skin in the game, to ensure that they take their college opportunity seriously and finish what they started?
On the other hand, covering the costs of college is one of the most commonly cited reasons for why young adults opt out of college. The advantages of college, like the fact that it can be a 15% return on your investment, has been well documented in studies. I want my children to take college and their career prospects seriously, but I don’t want to throw up barriers either.
Saving for My Retirement Versus Their College Education
Sallie Mae has found that the percentage of families willing to stretch their budgets to send a child to school has plummeted from 64% to 51%. The current economic distress that the country is suffering is one of the biggest factors. Clearly as a whole, parents are putting parental finances before college savings.
A wise personal finance sage, my father-in-law, has suggested that retirement comes first and a college education for children, second. I don’t disagree with this, but how do I strike a reasonable balance?
Retirement plans like 401Ks and school savings plans like 529s don’t easily convert from school to retirement to school without dramatic penalties and loss of hard earned investment gains. With my children’s prospective college enrollment more than a dozen years away, I feel the need for flexibility. But, flexibility like a regular mutual fund means that I must forgo the large benefits of 529 plans and retirement plans. Thus, my ability to save as much as possible for either goal is hindered by my inability to set a straightforward goal.
Encouraging Children to go to College Versus Pushing Your Children to go to College
Parents who nudge their children to go to college have a large impact on whether or not children find their way to college. In fact, one study showed children were 16% more likely to attend. It makes me wonder if this nudging is directly related to the poor 50% graduation rate.
You don’t need a college degree to be successful. Some financial experts have shown how easy it would be for a high school grad to outperform a college grad in retirement savings even with the lower income range. About one out of seven high school graduates out-earn those with a four-year degree and I’ve known several who have managed incomes much higher than the national median.
I don’t want the fact that I’m saving for my children’s college to become an expectation. But, I do want my children to go to college.
Where I Stand Right Now
I have some college savings put away, but I’m not yet leveraging the 529 plans to the ability that I could. My wife and I are sure we want to at least contribute something to their education and I’ve been using this minimal comfort level as my current guidance. However, my hope is that the vast, collective knowledge of the personal finance blogiverse might bestow upon me some options and ideas.
So I’ll send this question out into the void of the blogiverse: how do you plan to save for your children’s college education?