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Will I pay for my children’s education?

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This might be an odd topic, but I’ve been to 2 friends’ weddings in the last 3 weeks and all of a sudden I’m thinking of weird stuff. Anyway, I was watching Suze Orman’s show the other day (I love it) and two separate people called in asking about how to get out debt; they were drowning in bills from credit-card companies and car loans. Yet both of them were dutifully saving money towards their children’s college education.

This made me do two things: First, I took my burrito and almost hurled it at the TV. But I had covered it in a wonderful blend of 3 hot sauces so it was too delectable to let go. Also, it made me think about what I’m going to do for my kids’ education.

No, I don’t have kids and probably won’t for a while. But I think there are some interesting philosophical decisions behind how we treat money and our kids. It seems like the common American sentiment is, “Of course I’ll pay for my children’s education if I can.” I’m not sure it’s so simple, though. Maybe some parents can weigh in the comments, too.

First, let’s distinguish between if you can pay and if you can’t: The people on Suze’s show were wrong. They should have been taking the money for their kids’ education and using it to pay off their high-interest debt. Being financially responsible means being able to take care of yourself in old age. So if you can’t afford to save money for your kids, then this is a simple question! The 1st category of people, then, are those who can’t afford to help their children with educational expenses.

Then there are the people who can afford to help with all of their children’s education–and they do so. They cover it entirely. This is the 2nd category.

The third category is the one that interests me. It’s somewhere in between–maybe the parents are middle class and can contribute a little towards it. Maybe the parents are wealthy but want to teach their kids the responsibility of paying for part of their education.

Lessons from Stanford
Maybe it’s my ignorance, but by the time my kids go to college, I expect to be able to pay for them (don’t we all?). Let’s just assume that’s true for now. What will I do?

I was thinking back to my time at Stanford. Ok, so contrary to popular belief, Stanford students are not a bunch of rich kids driving BMWs around and flaunting their wealth. That’s USC. Yes, there are lots and lots of students from wealthy families but, interestingly, it’s pretty hard to tell from just looking at the student body: Everybody wears similar clothes and, somehow, the culture has developed so it’s just not cool to flaunt wealth. I felt right at home eating buffalo wings for dinner.

But one thing struck me: Most of my friends had parents who were contributing 100% of their educational expenses. It wasn’t an anomaly–it was extremely common. Now, part of this is understandable: With a price tag of $47,011 per year, hardly anybody could be expected to shoulder it themselves. And over half of Stanford students receive some kind of financial aid. But (at least from my anecdotal observations), it was almost always paid for by parents. And what interesting is that a lot of the students couldn’t imagine it any other way.

Stanford is an anomaly–that’s not how it is at most other colleges. In fact, “The average college senior graduated [in 2006] with more than $19,000 in debt” (more from USA Today). And from talking to my friends at other schools, many of them are paying for it themselves.

This disparity between Stanford students and others made me realize 2 things:
1. We take the cultural assumptions around us for granted, assuming that if it’s true for our friends, it must be true for everyone. There’s a psych term for this, but I can’t remember. Anyone?
2. I don’t know what I’ll do for my kids’ education

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The idea of “if you could afford to pay for your kids’ education, why wouldn’t you?” is pretty compelling. And just because lots of people have their parents pay for their education doesn’t make them irresponsible, nor does paying for your own education necessarily make you responsible. But then I think about my family and get a different perspective.

I was 1 of 4 kids in my family, and we’re middle class. I think back to how many activities we were all involved in and I can’t imagine how my parents had the time to take us everywhere–or the money. That’s why when college time came around, our parents told us plainly that we’d have to get scholarships to afford it. So we did. My mom and dad taught us to worry about money last–“First, get in, then the money will take care of itself,” they always said. And when college-application time came around, we each applied to dozens of scholarships.

This strategy (“wait and it’ll work out”) is plainly opposite of the stuff I talk about on this site. I write about planning, investing for the long-term, making a budget, and more. But my parents’ strategy (if you can call it that) worked, too. By the time we all finish our education, the retail price tag will top well over $1 million, but we won’t have paid nearly that. Our parents helped out where they could, but we used scholarships and grants and loans to cover the rest.

“I walked to work, through the snow, uphill…”
Assuming that I will have enough to completely cover my kids’ educational expenses, will I? At this point, I’m thinking…probably not. Honestly, I think part of it may be for the same reason as your parents say, “When I was your age, I walked 15 miles to work, in the snow, uphill…” Maybe I think that earning scholarships, grants, and even taking on loans makes us a little more responsible. This isn’t saying I’ll stick them with all the bills, but maybe some (most?).

With that said, I don’t claim to understand how I’ll feel as a parent. God knows I still have a lot to learn about kids. The other day, I was at a BBQ and I turned around from talking to someone and knocked this infant over. Seriously, though, do you look at your feet wherever you’re walking? I felt bad and apparently so did the little boy, because he immediately started crying (of course). As I bent over to pick him up, every single person at the BBQ stopped to look at us: the shrieking child and the confused, rapidly retreating guy. Not knowing what to do, I tried to give him watermelon to quiet him down, but he just preferred to cry. Perhaps I met my match in persuasion on that fateful day.

Anyway, clearly I still have a lot to learn.

But I’m still kind of unsure what I’ll do. From a strictly financial perspective, in a few years I might want to start saving money for my kids’ education. That would be the smart thing to do. But my own experience growing up tells me, hey, assuming limited resources that we all have, maybe I should focus them on today and help guide them with scholarships and other ways of funding later on down the line.

Are the two mutually exclusive? Is this a case of the best decision vs. the financially smart one? I don’t know. But just like when I wrote that buying a used car isn’t the only smart choice, I’ve realized that this seemingly common sentiment of “We must save for our kids’ education!” isn’t the only way to go. So maybe the big takeaway for me is that, hey, if you have a very salient personal experience with something, then no matter what the objective personal-finance advice is, your decisions will be colored with that experience. This is the availability heuristic at work.

Parents, I’d be interested to hear what your thoughts are.

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  1. For my college (and other expenses growing up) my parents helped but made me pay a large portion of it.

    What is the goal of making your kids pay for things themselves growing up even if you can afford it? I believe it is so they understand the value of money and what it takes to earn it.

    Give your kids everything and they don’t respect money and just assume it will drop in their laps throughout life.

    Don’t give your kids anything (when you can afford to do otherwise) and I believe you will build a lot of resentment.

    While I was growing up my parents always put me in a situation where I could afford the things I needed and often wanted, but they made sure I felt enough pain to understand what it takes to have nice things.

    I paid cash that I had earned for a car a week before my 16th birthday, but they helped with the taxes, plates and other junk fees. They paid 1/3 of my college but I had to pay the rest… which was enough for me to always have a job and work two fulltime jobs the summer before my last year of college so I could be out of debt when I graduated.

    So keep in mind the goal of what you are trying to teach your children… if it’s the respect for money, find that line of making sure they realize what it takes to earn money and buy things.

  2. Dude, that USC slam was SO fresh. Seriously, I’d say the percentage of spoiled rich kids at USC, UCLA, Stanford, and Cal is about even. And while USC may have, in the 70’s and 80’s, been all about the money, they are now academically way more selective and competitive.

    Its time for the “University of Spoiled Children” jokes to go away, they haven’t been true for about 10 years.

  3. I think this is an interesting discussion. My parents paid for all of my college expenses (although nothing in the way of extra spending money, I had to work summers for that). It worked out well because I graduated as a chemical engineer from ucla in 4 years (which really ended up saving money).

    Point is, when my dad was giving me all this money he questioned whether or not he should do so. I assured him that I would pay it back by, essentially, paying it forward. I promised to pay for my kids college education. So, for this reason, I feel obligated to pay for my children’s education. I guess maybe that means that I should just have 1 😉

  4. I think a lot of Stanford parents (and Berkeley and Harvard parents, an unscientific sample of my friends) felt that they wanted their children to concentrate 100% on school and personal development through college. Both of my parents paid for their own educations entirely on their own, and wanted to give me the gift of four blissful years being self centered developing an identity and focused on studying. It made studying abroad possible where otherwise I would not have been able to go, it allowed me to participate in many clubs and student groups I might not have had time for, and when job interviews and exam times stressed me out, at least I had time to cry.

    But seriously, I think a lot of parents have the same attitude…they see college as some of the best years in life, and want their children to have as much freedom as possible to take advantage of those opportunities.

    My parents took a similar attitude as Tim’s towards buying me things I wanted when I was younger. They made it so I had to feel some of the pain of saving and sacrificing, and tried to teach me about money. I think you can make your kids learn to be responsible and still pay for their education, it’s not necessarily a tradeoff…in fact, some of the least fiscally responsible of my friends are the ones that have had to work all their lives, had to get scholarships for college and still emerged in debt. They figure there’s no point to saving money cuz they’ll never get out of debt, or the idea of how much they owe is so daunting that they’d rather just close their eyes to it. No 401k even though the company does a match….your worst nightmare Ramit. I don’t think paying vs not paying for college is the difference between knowing how to manage money vs not.

  5. You also have to consider that some prepaid college plans lock the cost of tuition. I don’t know the statistics, but I’m quite sure the cost of college will greatly increase between my child’s infancy and high school graduation. Also, if your child gets a scholarship, it’s not like you’ve lost any money. I still intend to encourage my children to work towards scholarships. Of course, this whole issue feels very much like the idea of life insurance. I never thought it was a remotely good idea to spend money “just in case” something bad happened. And then you have a wife and children and a mortgage… I think having a family really changes your mindset.

  6. Don in Sugar Land Link to this comment

    My wife and I faced this not too long ago. We had our first child on Aug. 11th. We are a middle class couple with one income. And that income is being threatened with WFR’s. At any rate we decided to start a savings account for our daughter. We opened an ING Savings account with $5 and every pay period (bi-weekly) we contribute $25 as well as pay our selves $25 each. Our daughter without doing a thing has accumulated $461.43 with the interest rates she is making over $1.50 a month in interest. Time is on her side and I wish my parents would have done something similar for me when I was a child but this is my turn to make a difference. When she gets birthday money and gift money we will drop it into this account as well.

    When my daughter is old enough I hope to teach her what I have learned about finances and cash flow as well as how to obtain assets that will help her be financially free.

    As a parent I want to provide for my child but I want my child to be financially smart as well as have financial freedom.

    By the way, we may be classified middle class but with only 2 debts the house and 1 car that will be paid off soon I feel rich!

    Inspiring Authors that help me get where I am today are:

    Dave Ramsey
    Robert T. Kiyosaki
    Napoleon Hill
    Thomas J. Stanley
    Harry Beckwith
    Ramit Sethi
    Kyle MacDonald

    I know that if I lose my job I am not worried and look forward to the next opportunity that comes my way.

  7. Timely post — I was going to put some form of this as a QOTD on my site in August. I’ll be sure to link back to your post.

    My experience is closest to Katie’s above. My parents were probably upper-middle class (what you describe as Group 2), thought college was the best years of their life (in Taiwan), and my brother and I both had our colleges paid for (Northwestern and Caltech, respectively). This is more or less a very common Asian perspective, in my experience.

    I’m also expected to pass on this opportunity and fully pay for my children’s colleges when the time comes. And the corrollary to having had our education paid for is that when my parents are older, we’ll also be able to take care of them because our education allowed us to have good careers.

    It’s just a different perspective than, for example, those of many personal finance bloggers that I’ve read. I’ve read more commonly that people put their children’s education last after every other possible retirement, savings, emergency, house account, etc., and seen others responding that that was the right thing to do, because they didn’t want to have the burden of taking care of their parents when they got older. This seems to be the alternative. I’m not saying one is better, but they come from totally different perspectives.

    While I was growing up, I thought I needed to feel guilty about having had a trust fund put aside for my college, but I realized later that, you know, neither my brother nor I misused our funds or took our education for granted, and I ought to be proud and happy that my parents had thought so far ahead. In addition to the funds, they taught us the financial discipline to go along with having such a privilege.

    During grad school, I worked full-time while completing my full-time MA and later also paid for my MBA with my own funds. I count myself as fortunate for having been able to do this, but the financial discipline my parents instilled me, together with a quality college education certainly played an important role too.

    Certainly, there are students out there with trust funds who misuse them and take their education for granted. And there will be students from marginal situations in life who sacrifice a ton but will ultimately succeed beyond even those who were provided for.

    As usual in personal finance, there’s no one-size-fits-all answer to this because everyone’s situation and values are different. The important thing is to plan ahead with whatever path you choose to take.

  8. Nearly all advice on the matter correctly posits that a parent should tend to retirement before college savings. This much is certain, and its not a purely selfish motive. Self sufficiency well into life’s journey is a good gift to children.

    As for those who are properly saving for retirement and have the extra funds, there are a variety of motivations. A less spoken about reason is to give grandparents, who might otherwise purchase toys and baubles for Christmas and birthdays, a useful means to help the family. Contributions to a 529 plan aren’t as cool as toys to a kid, but in our land of plenty they are a great tool to deflect well-meaning family from lavishing kids with material goods.

  9. I’m a firm believer in the concept that “them that asks, gets”. I’ll never forget Awards Night at the end of my senior year of high school. They kept calling the same person up to receive scholarship after scholarship until it became a running joke. The joke, however, was on the rest of us. This student, who boasted a middling GPA and mediocre achievement in too many activities, ended up with so much money she had to give some back because her total expenses were covered. No one scholarship was extraordinarily large in itself, but they added up. There was no secret at work, though – she’d simply applied for everything available, and in many cases, competition was slim. I wish I’d followed suit.

    Of course, a lot of this can probably be ascribed to growing up in an affluent area. Nevertheless, so many of us fail to take advantage of available opportunities, even when the personal investment is minimal.

    My plan is to secretly save for my kids’ education, but encourage them to earn as much as they can on their own. A cop-out, I’m sure, but I can always impose new rules later.

  10. My family has a pretty simple solution for this, that I will carry on with my children:

    1. You go to a state school.
    2. You pay for it with scholarships, which we have found pretty easy to get.

    I’m not sure how 100% right this is, but we consider that a state school will give you just as good an education as an Ivy League school, for a lot less money.

    And, quite frankly, a lot of studies have shown the same thing.

    And state schools are a lot cheaper and easier to earn scholarships for.

    My own example for Arizona State:

    I managed to get enough scholarships to pay 100% of tuition plus an additional $10,000 a year which covers books, dorm costs, and food.

    I figure my kids will do the same.