Saving Money for College?
Financial success is not taught in school. My peers and I bemoan this all the time. The truth is that financial success is the study of the obvious. Think about these common sense college and retirement account planning points...
Financial success is not taught in school. My peers and I bemoan this all the time. The truth is that financial success is the study of the obvious. Think about these common sense college and retirement account planning points.
1. Saving money for college may be less important than saving money for retirement
College kids have all sorts of help to pay for their college: loans, scholarships, financial aid, grants, waivers, among others. Colleges have all sorts of ways to be creative helping their institution grow, with new students. I believe the rapid (scary) pace of tuition inflation is worsened by all the bandages we put around the problem, including student loan debt. These ways of paying for tuition may enable colleges to keep inflating their rates. Some parents and grandparents pay for their schools, entirely, but statistics show they are few and far between. I believe that if something cannot continue, it will not.
2. We get emotional about college savings accounts
When we think about tucking money into college savings accounts we feel relieved and stressed, angry and sometimes, jealous. We feel a little relief knowing, “Whew! At least I have money tucked away for that big expense!” But we often feel angry when we think about where else that money could go, the costs of college, and then we ask (and rightly) is college worth the cost? We feel stressed about the investments—are they earning enough? And then, when the markets take a tumble, and our college accounts decline (even a little bit), we feel doubly stressed out (and more angry) because we’re falling behind! I’ve also noticed that we often feel a little envious when our kids, or grand kids, get a post-high-school experience that seems substantially easier than our own experience. I know I had to work 2 or 3 jobs, and I remember the mom of my best college buddy calling our fancy Connecticut undergraduate school “Club Wes,” instead of Wesleyan, because she was (understandably) envious of our collegiate lifestyle.
3. We get emotional about retirement savings accounts
I beat this drum repeatedly, as you loyal readers know, but we cannot hear it often enough. Everything financial is emotional, and it’s almost never a rational decision that we’re making. So if you ever feel a stressor about your retirement accounts, or are considering a difficult decision between funding the college savings or funding your retirement account, I want you to reverse a few of the facts.
Imagine that you must fund your investment account in full, by a certain date, and that you know with certainty that you will spend it down over a certain number of years. These facts accurately describe the college account savings. Fund it by age 18, spend it down over 4 years—that’s our hope at least, for our college-bound children!
Imagine that your retirement account had the same specificity—fund it in full, by a certain date, and spend it down over a certain number of years. You can never have this, of course, but you can pretend. So give that some thought this week. If you knew for certain how much and when you needed money; if you had a date-specific and dollar-specific retirement savings plan, would you fund it?
Ask your financial planner, if you have not already, because by avoiding the question you’re avoiding the obvious. Success requires getting the answers to the obvious questions; we’ve only got so much time and money to save, so we’d better get busy.