Somewhere along the way college became a taboo topic in most households. I’m not talking about the idea of attending college; rather I’m talking about the costs involved, whose responsibility it will be to pay for it, and the coordinating plan to go along with those intentions.
College planning is an on-going active conversation we need to have with our children.
I speak to so many clients who are taking on the burden of paying for college for their kids (more often than not that means financing and not actually paying for…) without ever actually TALKING with their children about the cost, the course of study, and the mutual responsibility involved in the whole process.
That is not a recipe for success for either party. College costs are, frankly, astronomical compared to the value of most degrees, in today’s world. Over the past 30 years, the consumer price index (best measurement of inflation) has risen a cumulative 115%.
Over that same time period, college costs have increased by nearly 500%!
Most colleges offer a combination of grants, scholarships and other forms of financial aid. Unfortunately, one of those forms of “aid” is DEBT. (Reminder: we FLEE from debt around here.) Colleges include student loans as a type of aid. I disagree whole-heartedly, but that will be the subject of another conversation.
Here is my recommendation to all parents: communicate with your children about college and the associated costs. Now. I MEAN IT. My oldest is 10 years old, but he and I have already had high-level conversations about why he would go to college, what it costs, and how we are going to work together to pay for it.
Get practical with your children. They are smart. I have highlighted the idea of “give, save, spend” in various posts and conversations on this site and that is the same methodology I use with my children. The “save” part gets a little more complex and nuanced as they get older, and their future needs change.
My 10-year old knows that at age 12, 50% of everything he earns goes into his college savings account. As he gets older, that percentage will increase, depending on the balance in his savings accounts, his future earning potential, and his chosen course of education/training. This conversation is an on-going conversation as we design the best plan for funding his future earning potential together.
Depending on each child’s situation, the college-funding conversation will adjust a bit. The point is to have the conversation. Don’t ignore it and don’t wait until your child is 16, 17 or 18 and then talk about it (or just assume they will FEEL what is the best way to make this major life decision)!
Teaching work ethic, purpose, and determination, will only increase your child’s capacity as he ages. It will not hurt your children to work, save money, and cash-flow a good portion of college, if not all of it.
Below are some brief numbers to outline the possibility of this to show that it isn’t outlandish.
- Age 14: work 16 weeks at 20 hours a week for $8/hour = $2,560
- Age 15: work 18 weeks at 24 hours a week for $10/hour = $4,320
- Age 16: work 20 weeks at 26 hours a week for $12/hour = $6,240
- Age 17: work 24 weeks at 26 hours a week for $13/hour = $8,112
- Age 18: work 24 weeks at 28 hours a week for $14/hour = $9,408
While in college, kids will have at least 20 weeks of zero classroom time, where they should/could absolutely be working 35-40 hours a week. Assume $15/hour and each college-aged child can earn $12,000 without ever working a single hour during each semester. Of course, we know that college-aged kids can easily work 12-14 hours each week during the semester without too much trouble. That would equal an additional $6,720 of earned income. This totals over $18,700 each college-aged year of available income to CASH-FLOW college costs.
Perhaps, your conversation with your child could be that for every $5,000 of earned income your child makes, you will contribute $350/month of spending money/incidental costs. If your child earns $15,000, they will likely be able to cash-flow the majority of college costs, especially if you are contributing $1,050/month so the child in college has plenty of spending money.
This is a simple way to encourage good financial behaviors (and excellent work habits) while not breaking the bank or time clock for anyone involved. Plus, neither party will bury themselves in a mountain of unwanted and unneeded debt.
The sooner you start this conversation, the better off all parties will be.
Kids absolutely can understand money, as long as you are HAVING CONVERSATIONS with them about it at an early age. Get to it.
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.