Protect your nest egg when paying for kids’ college
Balance. That’s the word I think about when contemplating how families need to think about education funding.
It’s important to strike the right balance between funding a child’s near or long-term future and your own financial independence.
When children are toddlers, that might mean whether your family can afford to have one parent stay at home. When faced with this choice, you need to account for the loss of potential earnings (and retirement contributions) and the cost of day care or babysitters.
As children get older, the case for putting their education needs first is compelling. According to research from the Federal Reserve Bank of St. Louis, the amount of money earned over a career increases with education.
On average, those with more education are able to retire earlier and they are consistently less likely to become unemployed during their careers.
According to the research, average lifetime earnings for a high school diploma are $1,777,152. For a bachelor’s degree, it’s $2,683,824.
These numbers might encourage you to pull out all of the stops when it comes to funding your kids’ education, but the tricky part is that you still need to take care of yourself. After all, there are myriad options to help fund college: financial aid, scholarships and loans. But none of these are available for your retirement.
So where to start? As always, the best bet is to create a game plan that incorporates education and retirement funding with other cash flow needs. You may want to plug in some numbers for college, but prices vary dramatically.
As you begin to investigate the options, note that there is a big difference between the published price of tuition and fees and the price after grants and scholarships have been applied.
Schools now use “net price,” which is the average price students pay, including tuition and required fees, books and supplies and room and board, after accounting for grant and scholarship money received. The national average net price for a public school is $12,272, while the national average net price for a private school is $21,778.
With that information in hand, you may joyfully discover that you can fully fund both education and retirement, but it’s more likely that you’ll need to make tough choices. Your research should also be able to reveal whether education decisions will saddle young graduates with debt burdens that prevent them from buying a house or attaining other goals.
With the money plan in place, it is also important to communicate with your kids.
According to Beth Kobliner, author of “Make Your Kid a Money Genius,” the conversation should start early.
“Talking with your kid about college when he’s a freshman in high school — or even at the end of eighth grade — may seem premature. All that stuff will work itself out in a couple years, right? Think again. The financial aid and college admissions process will be stressful no matter what, but waiting will only make it worse. By not talking about your kid’s college possibilities and your own expectations now, you could end up disappointing him (and let’s face it, yourself ) down the road if he’s thinking one thing and you’re envisioning another.” Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com.