Having “The Talk” with Your Kids About College
It seems like only yesterday they were in the sandbox and you had all the time in the world to plan for college. But in the blink of an eye, they are teenagers and college and its costs loom large. There is a lot to think about. With realistic expectations and a solid plan, everyone can be less stressed about the future.
Below we will outline some steps on how and when to start talking to your kids about college so everyone can move forward with a plan. The more (and the earlier) you start talking to your children about their education, the better prepared everyone will be.
Did you know?
70% of parents report worrying about paying for college.1
The costs of college have increased 213% since 1988.2
27% of college graduates end up working in a job related to their major.3
Student loan debt has exceeded $1.5 Trillion dollars and is climbing.
Step One: Start Young
A lot of families only really start talking practically about college right before the application process begins. But it’s best to start talking about college much earlier. When a conversation regarding future careers or going to school for a particular profession (medicine, law, engineering) comes up, use it as an opportunity to discuss the importance of working hard and getting good grades in order to achieve that goal as well as being honest about the cost associated with those achievements.
Opening a 529 plan when your kids are young or having a grandparent or relative open one on their behalf and contributing to it regularly can help build their education fund.
Teaching them about saving and investing by encouraging them to put some of their allowance, birthday money, and part-time job earnings into the fund will also help them to understand compounding and goals-based financial planning.
529 plans are a wonderful option as they grow tax-free, have no income restrictions, and no official contribution caps. Unfortunately, only 29% of families take advantage of them. 4
Talking openly and honestly with your children about what they want for their future will not only help you to understand each other better but can help them get on the right track. Discussing their interests, what they like to study, where they want to go to school, and the type of college atmosphere they want will be invaluable when the time comes to seriously start looking at schools.
Being open about how much you, as parents, will be contributing is also important. The earlier a child knows what portion of their higher education they will be responsible for, the more realistic their expectations will be when the time comes to start applying.
Step Two: Don’t Touch Your Retirement Savings
It may be tempting, but experts say over and over, to leave your retirement savings alone. Your child will have upwards of 40 years to pay off their education debts before they retire. If you are not in the financial position to continue to contribute the maximum amounts to your retirement and pay for your child’s college, then you must choose your retirement first. As lifespan and the costs of living continue to rise, so does the expense of a long retirement.
Did you know?
The average retirement is 18 years and the average cost is $848,000. 5
Better to make yourself secure first and then, with any surplus, contribute to your child’s education. Like anything, the earlier you start saving, the better off you will be. Make sure you are taking advantage of and maxing out any workplace saving/retirement match like a 401(k).
Experts recommend putting away 10-15% of your annual earnings toward your retirement. Having a 529 education savings plan for your children and setting up a monthly, quarterly, or annual deposit can help to be actively contributing in an out-of-sight/out-of-mind way.
For more information on Ohio’s 529 savings plan visit:
Step Three: Look at All of Your Options
The sooner your children know how much you will be able to help them pay for college, the better. There are so many options for schools and they run the gamut in price as well--From community college, vocational schools, public universities, state schools, and private colleges and universities—it is important to weigh the pros and cons of the schools that ultimately make the list of possibilities for your family.
Understanding what your child values, what they are passionate about, and exploring scholarship opportunities be they academic, athletic or both can help you determine where there may be funding sources outside what you have saved or would take out in loans.
Every family regardless of income should apply for financial aid in order to determine how much, if any, they can receive toward their degree. Completing the FAFSA will also provide them with information on subsidized loan options and other potential financial resources. Make sure that you and your child go through the application process together from start to finish as there are so many teachable moments along the way.
The conversation about college shouldn’t just be about money. Considering campus size and atmosphere, distance from home, student population and class size, social engagement and community opportunities are among a myriad of considerations for college selection.
Encourage your child to look at the job opportunities for specific degrees and the average annual earnings for entry-level positions in those careers. College will be just one step into their adulthood, but the choices made there, as far as debt and career path can have lifelong ripples.
When the average American graduate walks away with nearly $30,000 in student loan debt 6 not to mention any other debt from vehicles or credit cards and the job market is not as expected, next life steps like buying a home, starting a business, or having a family, may be postponed. Helping your child to make prudent choices about their future is, in some ways, a better gift than a blank check toward schooling.
Talk openly about your own experiences with loans, college, and career. Giving your child the gift of financial knowledge is priceless and making them a more active participant in their education will empower them through college and beyond.
For advice on planning for your child’s future and keeping on track with your own financial plan contact us for a complimentary consultation and review.
About the Author
As co-founder and Chief Investment Officer, Mike brings real-time investment management experience to clients. Prior to forming FC Wealth Solutions, he spent 15 years working on Wall Street as a trader and portfolio manager for some of the industry’s most well-known firms. His previous experience at Morgan Stanley, Royal Bank of Canada and Hutchin Hill Capital gave his valuable experience in institutional money management. His focus on continual research helps him identify macro trends and strategic investments for client portfolios. His research has enabled him to develop many of the rule-based investment strategies the firm uses for managing client assets and monitoring the markets.