The following scenario is more typical than anybody would admit. Parents are paying for their children’s private university 4-year degree, and the children come out unemployable because they do not possess any types of skills that are worth anything in the marketplace. When the children graduate, they have a hard time finding a decent job, so they end up living with their parents. For much of the time the children are in college, parents provide for their children’s expenses, and when the children move back, the same pattern repeats. For parents whose kids already graduated, chances are that their house was bought when the prices were not as high as they are today, but in the past 10 years, many parents probably moved into a very expensive house they bought to have their kids attend a school in a so-called good school district. And of course, the price tag today is much higher than it was 10 years ago for a 4-year private university.
A typical family with both working parents (which in many cases means that the second parent is a part-timer or has a low paying job) has very little savings, since most of the money goes towards the house and college payments, and everything after that is spent to help their kids stay afloat. Even if the kids have a half-decent job, in many cases the parents are providing down payments for their children to buy often over-priced houses that the children couldn’t afford by themselves. This pattern of behavior repeats time and time again. You hear it everywhere. Parents put their toddlers into expensive daycares, pay for their private school, move into an expensive school district, pay top dollar for a liberal arts degree for several children and pretty much ensure that they have nothing saved for the time when the layoffs come and they are not needed in the workforce anymore, and they’d be lucky if they last in their jobs until they are 65. Then, all of a sudden they end up on fixed income, without much savings. The children are not always doing much better because they are repeating the same mistakes their parents did, the only problem is, the costs today are much higher, so they get into debt that much faster. The salaries have been stagnant in the past 10 years, while expenses rose dramatically. Even if the children are making six figure salaries, their expenses are so much greater than those of families making median salary that the advantage disappears very fast. Then there comes the time when the parents actually need to rely on their children for support, and if both are broke, the parents can expect a rough retirement. The future of social security is not very certain. Nobody knows what would happen to the payout rates in the future as the country is running out of money and the will to spend is diminishing. Medical costs are skyrocketing, and some procedures will simply not be performed and some drugs will not be given unless you can pay for them.
How does one break this endless cycle? Parents need to first realize that today their resources are not enough to do everything that their own parents did for them. This does not mean that they do not love their kids. On the contrary, there are very good ways for giving their kids a head start, and paying for their college is not it. Think of a college degree as an investment. If you make a bad investment, you can lose money. What if you know that the investment you are making is bad even before you invest? This is the situation here. If kids insist of getting a degree that costs $200k plus interest which only pays $30k a year, they better be prepared to take the burden themselves. Your children’s happiness for all of 4 years (until they realize that they have to go back to school to get a real degree) pales in comparison to how unhappy both of you would be for many years in the future. First and foremost, the parents must think of their own financial wellbeing first. When there is a breach on a plane, you do not put the mask on the child first – you put it on yourself. This is to ensure that you are able to take care of your child. If you pass out, your child will have nobody else to take care of her. To help your children, you need to be well off yourself. Helping your children now and running out of resources fast will all but ensure that they get no help in the future. If you are not paying for their college, your children will be much more likely to make a better business decision regarding their career choice since they will be on the hook to pay for it.
There are many good solutions to this problem. One of the best ways to approach this is when kids are young. Getting them to find summer jobs is the best way to have your kids to learn to fend for themselves. Show your kids what you do for work or have them help out in your business when they are in the early teens. Living in the best school district does not have to be expensive. Finding a rental that costs a fraction of the cost of buying a house can save a lot of money. The best way to save money on college is to have your children go to a community college for a couple of years, and then to transfer to a private university which can provide scholarships and/or financial assistance. How many times do children end up dropping out after a year or two? Community college is the best way to take care of the mandatory coursework while not spending very much money. Saving on costs by commuting, as well as getting side jobs can all work towards minimizing college costs. Unless you can truly afford it, paying for your children’s college is not a good idea. College is not when they really need your help. In the future when they have a family and kids they may have much higher need for your support. Of course, teaching your children about finances can go a long way. They should learn to live within their means and not spend more than they can afford. While this is not for everybody, another way to minimize housing costs is by homeschooling. This would potentially sacrifice the second income, but it can save on daycare costs and on costs of renting in an expensive school district. You can live anywhere, and you are much more mobile in case one spouse has to move for another job. Running a business from home can be one way to make homeschooling happen.
The parents have to be frank with their children. They should openly discuss finances, and they need to make their children understand that there are limits to what type of support they could expect in the future. From the early years the children should be expected to take care of themselves. While education is important, self-sufficiency is even more important. Making good business decisions is also extremely important. If your children understand the value of good business decisions, they will beg you NOT to spend money on them, because they will realize the value of compounding and of minimizing the risk to your own retirement by not spending all of your savings on something that can be obtained cheaper if the children are highly motivated and well-prepared. While college education is said to increase the wage-earning capacity for some careers, the question that has to be asked is, at what cost? If the parents have to bear this cost, then this deal is not as good as it is made out to be.
