Friday, September 18, 2009

Financial Planning For Our Kids College Education

A reader asked....

How are you planning financially for college for your kids?

Oooh, that's a good one. This one involves a practical response as well as the unveiling of some beliefs I hold. I'll start with practical because that's easier.

First, I'm a firm believer in kids learning the value of setting a goal and figuring out how to accomplish it. As much as I love my children, I know from my own experience that I value things a whole lot more when they haven't been handed to me but when I've had to put my own drive, passion and efforts into getting them. For example, the car I was given at the age of 16 and killed out of carelessness because I had no invested interest in it. Compare that experience with the one where I had to take out a loan and hold down a job to make payments. That car, I treated like a baby.

Or with my 14 year old son who wanted a dog and decided to get a job, earn the money and do the research. He doesn't even complain about scooping poop. The dog we handed to him for Christmas when he was 10? Nobody claimed ownership or responsibility for that dog. She lasted 18 agonizing months before we found a new home for her and finally got the yard cleaned of all that poop.

So the thought of just handing my kids $50k or more for their college education? Do I really think they are going to respect that education as much as the one they work hard for and are determined to get? I'd be robbing them of a whole passel of life lessons. So no, we don't feel that we need to provide for their college education.

We do have a savings account for each kid though. We haven't decided what we'll use it for or when they'll get it. I think for each kid it will be different and we'll know when the right circumstances are presenting themselves for us to unveil it.

And this is how it works. Every time the kids earn some money or get a monetary gift they are given the choice to save part or all of it. Whatever dollar amount they choose to save, we match. So if they choose to save $20, we match the $2o for a total of $40 going into their accounts. Then we explain how Dad invests it for them and in 10 years their $40 turns into $400 dollars. Pretty good incentive for saving. They are a part of the process of tracking the growth of their investment as well, so they can see what is happening with their money and learn the concept of investments.

Now, for the college education thing. I'm a questioner. I don't do something just because everyone else does. I don't believe that public education is the best place for my kids just because that's the normal thing to do. I don't believe that college is necessary just because everyone says it is. And I'm not placing that expectation on my kids either. (Notice I am applying this to my kids, not yours. This is what we believe in our family and I'm not saying that your beliefs are wrong if they differ from mine.) What I do believe is finding my children's passions and learning to turn that into something that they can use to support themselves. I want to fan that flame and help it to grow into something they will want to do the rest of their lives. I don't want them to work a monotonous job that they hate for all their lives just because they need to pay the bills. Life is too short to be trapped like that. And money isn't near as important as a full life and a healthy family.

My job is to help them dip their toe into every area of interest, see if it's something they have a talent and passion for, and then feed and nurture it.

Now if my children's passions lead them to a career where a college education is a must than I'm fully supportive of that goal. But if a trade school, apprenticeship, or just plain hard work and motivation is what's needed, then I'll support that too.

And that's our financial plan for our kids education.


Iris said...

What a well-thought out response! As someone who's been to college, grad school, and is now going back to school AGAIN now that I've finally figured out what I want to do, I think school is very important. But I also know the value of figuring out what makes you happy and not just going to school because "that's what you do." And I also know that a traditional school is not always the right path to everyone's dream career.

Anonymous said...

I agree with you 100% So many people think that College is the only way, and it just isn't. People need to realize that there are other options out there. My younger brother is a prime example. He has no investment in going to college, but my parents told him that he has to go, no options,that is what he has to do, he is now a Jr. and has failed all but two of his classes. All because he has no interest in being there.

Adminswife said...

Great post! We have had four children go through college. They each had to pay for their own way (either by saving or borrowing). They all graduated with honors. They all have GREAT paying jobs that they love, in a field they enjoy. Throughout all four years of college, we invested $1,000 to each child. That didn't make a dent in the one that chose a $40K a year college. My husband wants all our children to go to college, so to college they go. We will see what the next two children do with their college choice in the years to come.

Amy @ Finer Things said...

Ah, what a refreshing post. We lived the same and feel the same about saving for our kids.

In this day and age, there is no guarantee that a college education = a stable, well paying job. Vocational education, apprenticeship... we've got to get creative.

We won't be handing our kids a check for college, either.

Never A True Aggie said...

We have a pretty lame plan...My husband is a college professor. Right now he is at an Arts College (He is an Illustrator), but our plan is for him to get some more years in of teaching experience and then transfer to a job at a 4-year college and our kids can get either free or reduced cost tuition. I know...lots of ifs and buts there. Sooooo, our plan B is we have a small savings for them and they can work for college as well. When I went to school, my parents helped with rent and tuition, but I had to pay bills, books, food, transportation and for fun stuff. So, I got a job sewing car seats. It was great. I could work around my class schedule. I didn't have to buy any work clothes or anything. The money wasn't perfect, but it suited my needs. So, I think there are solutions, you just have to get creative...and now I know how to make a car seat cover to boot!

Annalisa said...

My parents had the means and the savings to pay for the college tuition and books for each of my 6 siblings and myself. Because of this gift, I was able to work less during college and focus more on learning and excelling. I ended up graduating with honors at the top of my class, spoke at graduation, and had over 10 high-paying job offers at graduation.

I thank my lucky stars (and my parents) all the time for the sacrifices they made to help me through school. And I never took one cent for granted.

My husband and I are only 25, expecting our first baby. But we've already got a 529 college savings plan and a Upromise account in place for our child. We want to give her the best we can and are starting to save for it while we are financially able.

I do love reading all of your comments, though. Just because I didn't take my parents generosity for granted, doesn't mean my child won't. I guess my husband and I will have to figure that out when we get there.

Anonymous said...

I agree with you on not paying for my kids college education. We have a daughter who is a junior in college this year, she was fortunate enough to get a scholarshihp that pays half her tution. Her freshman year she had enough saving bonds (gifts from grandparents while growing up) that paid the other half plus, books and room and board. Had she lived at home those bonds may have covered 3 years of tution and books. So with that money being gone she's had to take out student loans to pay the other half as well as work part time to pay her rent. I honestly believe she values the education she is getting more because she is working to pay for it herself. Don't get me wrong we do help her out, we pay her health and car insurance, cell phone bill and give her money here and there for gas, food and clothing.

Charlene said...

Thanks for sharing. Wasting time in college the first time, because my dad said I had to go. And now at 38 going back to college to become a teacher, my views of college are mixed. I am saving a little money for both my children. But, when the time comes they will be able to choose when, how, and where their future will go.

Tiffany said...

I think you are absolutely right about appreciating what you work for! My parents did not pay for any of my college. They always said they felt bad not being able to support me but I never saw it that way. I got some great experiences making my own way and I studied a lot harder because it was my money paying for it. On the other hand my parents paid for almost all of my little sister's college. She spent most of her time partying and had to retake classes she failed. She's now graduated and supporting herself, but she doesn't work in the field that she earned her degree in. She also has problems budgeting her money and making wise financial decisions.

Because of my experiences I want my kids to pay for their own college but I want to help them start saving early. I only had a tiny amount saved when I headed to college and it certainly put a strain on me. If I had been prepared financially I could have worked part time instead of full time. My husband and I plan on doing a matchng plan like yours for savings when our kids are a little bit older.

Diane said...

I have to agree with Annalisa. My parents footed the bill for nearly everything (excluding my 1/2 tuition scholarship), and because it was their money, I felt even more motivated to do well. I really think it depends on the person. I am personally much more likely to fritter away my own money than someone else's, but I know many other people are the opposite.

On the other hand, my husband had to foot the bill for most of his college education, which meant that he didn't have as much time to focus on his studies because he had to work so much, and he's still paying back student loans and will be into the future.

Having experienced both ways of doing it, I personally am hoping to pay a good chunk of our kids' college tuition. I do see the value in being invested financially in the process, and would like to see my kids invested in their own education, but not to the point that they have to work thirty hours a week or more while going to school full time and still taking on thousands of dollars of debt in the process.

College has become so expensive that it's very difficult for a student to pay his way through these days without taking on significant debt. (Notice I didn't say impossible, just very difficult.) Most colleges and even Uncle Sam expect parents to help foot the bill, and the financial aid process recognizes that. It's just something to keep in mind.

I do agree with you that not everybody needs to go to college. I wouldn't trade my college education for the world, though, and I sincerely hope that all my children desire and earn college educations as well.

Brassy said...

Wonderful post! I put myself through college as well and you can bet I worked my hiney off and appreciated being there. Many of my classmates had their schooling paid for by their parents, and it really did seem like they were less invested in their actual education (and more invested in cutting class early on Fridays during ski season). Obviously, that's not always the way it works out - some kids DO appreciate what they've been given, but I just don't see paying for college as a parental necessity.

Heather said...

Great post! I agree 100%

Maria D. said...

I suppose a lot depends on the child who is going to college. There are people who truly value being educated and will make the effort to excel, regardless of who's paying for it, and I see nothing wrong with helping them out.

I just earned my Bachelor's degree a few months ago, footing the entire bill myself. My husband will graduate this coming spring in the same situation. Not surprisingly, in this economy, companies are not actively seeking to hire inexperienced college graduates for the big bucks, so I'm working at a grocery store to make ends meet right now. Let me tell you: I'd love to not be spending a huge chunk of our earnings every month to pay back student loans! It would be nice to be able to spend that on other things, like.... Health insurance. Dental/vision checkups. A Roth IRA. Being able to visit family for Christmas. Saving for a house. Starting our own family.

So, I guess I'm encouraging you to help your kid-- if you can. I'm not entirely sure that withholding available funds and letting your child be in heavy debt for a decade or so is the best way to teach a character lesson. College is VERY expensive these days. Even though I received scholarships/grants that paid over half of my entire education, I still owe tens of thousands of dollars!

All right, I'm getting off my soapbox now. :-P I really like the idea of matching funds, Gayle! I'm sure your kids will be very thankful for that in the future!

Sandy (Grannie) said...

Sure do like your philosophy for saving and your thoughts for further education--excellent. If there was one thing I wish we could have done for our children, it would have been to be able to give them a sizeable downpayment on a home.

Working Mama said...

I understand a lot of what you said and continue to have mixed feelings about the whole subject. I was lucky enough to have a little support from my parents, but received a full academic scholarship for tution - but worked all the way thru college. I now have a decent paying, enjoyable job. College was never my husband's cup of tea, now 12 years later he is going to a tech school because he has had such a hard time finding a good paying job without some type of additional education.

We have a 529 plan set up for both children which we put the minimum in every month and take Christmas and Birthday money and put in there as well. I like the 529 b/c they can go to college, trade school, beauty school, whatever - just some type of higher education - and use the earnings with no tax repercussions. However, should they decide not to go to school, they can still have the money but will have to pay taxes on it.

Whatever they decide they will probably have to work for it on top of what we are able to provide and hopefully they will appreciate everything!

beth said...

I went to college at 25, paying my own way. Every time I was tempted to skip class, I thought of the three hours of work it took to be there for that one class. It didn't take much of an effort to resist that particular temptation.

Wendy said...

Oh, I'm so, SO glad that you shared this. This is exactly the same plan that we have for our four kids. It's just nice to hear someone else articulate it ;-)

Halfmoon Girl said...

Good thoughts here Gayle. We do have an education savings plan for your kids, but also see the value in earning your way as well. I guess we will have to see where each child is at when the time comes. I like the idea of money matching.

The Mangerchine's said...

I really like your thoughts and practices, thanks for sharing!


Anonymous said...

great post! we have a 2 year old and 2 month old and have been setting aside their birthday and christmas money into savings for college. but i love your idea of matching what they decide to save when they're older, thanks for sharing it!

we would love to help as much as we can with college as both our parents paid for our college tuitions (but i worked part-time all 4 years to pay for books and spending money). on the other hand, i have friends with teenagers and they're so stressed about paying for their kids' college tuitions - i don't think it's something that should cause parents that much strain/stress and that the children can play a part in the responsibility.

Heather said...

Amen. And again AMEN!

We have somewhat similar views. I paid for my education and took it seriously. Turns out that maybe I didn't need my degree. I'm glad I have it and am grateful for my *very* expensive 4 years. I graduated debt free which I am very proud of!

We want our little guy to do what he loves and figure out how to earn a living doing it, as his Daddy does. It is a wonderful thing to see. And basically I get to do that too, but being a mom doesn't really pay a salary, but its a great living :)


Amber said...

I have to say my husband and I agree mostly with what you said. My husbands parents were well off and he immediately went to a University out of state. He lasted 1 semester where he pretty much squandered his time then came home for his girlfriend at the time.

I on the other hand had a single mother who couldn't afford to help me at all. I went for 3 yrs on a grant and did well. But sadly never finished after I got married and pregnant. I decided I didn't want to be in the work force.

However thankfully my hubby got a job at a major insurance company. Started with low pay but amazing insurance. Over the years he taught himself how to write computer code and now he writes software for that same company. He makes a great salary and still has amazing insurance.

As for my girls, they are 11 and 14 and both express that right now they want to go to college. We have talked about this extensively. We have a great Jr college very close to home. They have discussed living at home while attending, working part time and we will match their money invested in school.

Our 14 yr old is already planning a part time job at 16 and a savings account.

So we will see what the future holds! :)

Some_Area_Gal said...

Great! Couldn't agree more! I've seen too many people go to college, graduate, find a good job, and still expect mommy and daddy to help them pay for things like a home or vacation because good ol' mom and dad have always been happy to shell out $ for them! People really need to grow up and work for what they want.

I love the money matching idea! We accounts too for the kids, but they don't know about them. They will be given the money when we feel they are ready for it and have a good use for it (so they don't just waste it). I think we will match it when they get older!

Annie said...

I love the idea of matching funds! As a child/teen I HAD to save half of everything I earned. I didn't mind it too much, but it was sometimes a pain to hand over half to my mom. It came in handy when I wanted to go overseas for a few weeks in high school, and when I needed money for books during college.

I understand the idea of appreciating things more if you work for it, but that's not always true. My parents paid for tution room and board for 4 years. I knew that I had 4 years, but if I needed an extra semester or year it was on me. I was out in 4 years. I had friends who were "paying" their own way, with loans, and are on their 6th year, or dropped out without finishing. And my husband worked hard for his, paid his own way, and graduated a semester early.

I think it really depends on the student. But you also know your children and have to do what is best for your family.

Domestic Goddess said...

Absolutely love and support your response. You and your husband are such practical thinkers and loving parents! My husband and I both earned our own college "experiences" and bought our own first vehicles. I'm still driving that vehicle. :) Keep up the great work on the site, and thanks for providing such a refreshing alternate view!

Lalalauren said...

I went to college right out of high school. I had no idea what I wanted to do, I just went because that is what your supposed to do, or so I thought. It is now almost 8 years later, I have been to 4 different schools, racked up almost $25,000 in school loans and I am still not done. Yes I have paid for it all myself, with very little help from my parents, but when I started, like you said I wasn't "invested" in it. I still have a year or 2 before I will be done with anything, and even then I will only have a 2 year degree, one the took almost 10 years for me to get. A waste of money-yes, a waste of some time-yes, wish I would have thought about it more instead of just doing it because I thought that is what you are supposed to do-yes. There are many thing I wish I hadn't done in my younger days, mostly financial wise, but most of those things I did because I thought that is what you are supposed to do. My parents wanted me to go to school because they never could, but I think like you said just because that is what everyone else does doesn't mean that is right for you. I wish my parents had been more like that, but at the same time, if all those things hadn't happened, I would have never learned that lesson. God knows he can tell me this is what I am supposed to do, but he also knows I am too hard headed to do it unless I see the wrong way first. So thanks for your post, I think we all get blinded by what everyone else thinks we should say or do, and I think it is awesome that you can see past that!

Spendwisemom said...

The most important thing we did was to encourage our kids to do well in school. Several have had fantastic scholarships and that was a blessing for us as parents. We also taught our kids not to go into debt for an undergrad education. Our oldest daughter was accepted to many top schools, including MIT where she wanted to go, but went to a less expensive college instead. She is going to go to grad school next year, after getting a wonderful scholarship that pays all her tuition anywhere as well as $30,000 a year for expenses. My husband and I believe that education is important and that staying out of debt is important. We Give them $5,000 when they go to college that we have saved and they are pretty much on their own after that. If they can't make their tuition payment, we have helped up to the amount the government will reimburse in full.