Involve Children in College Planning Process

You have skimped and saved since your child was 12 months old. You have contributed as much as you can afford to 529 plans for your child. As your high school junior starts the college selection process, you congratulate yourself on having met your long standing goal of saving enough to pay for four years of state college.

What happens, however, when Johnny decides that state school isn’t part of his plans? What will happen when he decides that Exclusive University is the best place to begin preparing for his career, at an annual cost of three times what you are prepared to pay? Of course, we know the decision is driven solely by the quality of education at Exclusive. Has nothing to do with the fact that his new girlfriend has just been accepted at EU (with a full scholarship). “Honest, Dad, I’d be applying there even if I weren’t going out with Mary!” Uh-huh.

You can explain that the family cannot afford Exclusive’s tuition, but will Johnny really understand this, and accept it? Will he understand the impact that his choice will have on his sibling’s college opportunities, as well as his parent’s ability to support themselves in retirement? Will he understand the huge impact of student loan debt on his personal finances after graduation? The answer to these questions may depend on how actively engaged Johnny has been over the past several years in his family’s financial planning process.

Most high school age children are largely disengaged from family finances. Most are not actively involved in the budgeting and savings decisions which ultimately determine how much money is available for their own college education. Although they may understand how much is in their college savings account, most kids believe that there is always some additional untapped source of parental wealth which is available should they really need it. This can frustrate parents, who often complain that their teens don’t understand the value of money. But in truth, teens who have not been involved in the family’s financial planning can not be expected to fully understand the impact of the college decision on their parents, siblings, and themselves. They also have trouble understanding what a burden excessive student loan debt can be following graduation. Remember that to the 17 year old high school junior, the “real world” seems as distant as Pluto. From his perspective, taking on additional debt to pay for an expensive college has little downside risk.

It can be difficult for many parents to have a family financial planning discussion with teens on their own. Many parents have difficulty comprehending their own complex financial situation, much less explaining it to their teens. In addition, there is a tendency for parents to want to do everything they can for their kids, even beyond what they can reasonably afford. Saying no has always been a problem for us boomer parents.

It should be no surprise to anyone that, as financial planners, we encourage parents to engage a financial professional in the college and retirement planning process. At Frontier however, we have begun to encourage our clients to go further by including their college-bound children in the process starting in the 9th grade. We believe that children who are involved in the planning process will have a more realistic understanding of what is financially possible. They will actually understand that there is no bottomless pit of parental wealth from which they may draw, if only they complain loudly enough. They may even come to understand and appreciate the very real and painful sacrifices that you are making to help them pay for their college education.

Through involvement in the family’s financial planning, your teen may also learn valuable lessons regarding the dangers of debt and the importance of planning ahead and saving to meet life’s goals. Many young adults learn these lessons the hard way by digging themselves into a deep financial pit with credit cards and installment loans. Wouldn’t it be better if they could learn from your past mistakes, and thereby avoid repeating those mistakes themselves!

Even if you are not currently using a financial planner for your college or retirement investing, there is value to retaining a professional financial planner on an hourly basis. Fees for a two hour planning session typically will run between $300-400, easily cost justified the first time they reconsider calling home to request $1000 for a new laptop computer. “Honest, dad, it’s not for gaming – I need the extra power to surf the net for my research papers” Uh-huh.

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