Many of us will be concerned about paying for college tuition during our lifetimes; with the American economy in its current state, education more and more is becoming a family affair with grandparents, aunts, uncles, and other relatives pooling their funds to help deserving children. The problem is that too many of us are jeopardizing our own retirement in order to put every penny we can toward college education. It’s like a mad dash or fly-by-night panic to meet some financial short-term goal, and is usually not an effective way, or a safe way, to approach a college education for your children.

This is not the way many of us were raised. We learned (as we watched our parents do) to sacrifice almost anything to give our children a chance to get ahead with a college education. But college costs have risen much faster than inflation, and employers are not providing retirement plans that are as generous as they were in the past. The combination means that many of us may have to make a choice between paying for our child’s education or paying for a secure retirement for ourselves.

A 2005 survey showed that the median amount parents expect to spend on a child’s college costs is almost $70,000. But the median amount of these parents had saved was less than $9,000. Parents face the double whammy of funding education shortfalls and retirement shortfalls at the same time. The “education versus retirement” dilemma is by far the most common financial
planning issue for Americans these days.

We have already talked about how a good investment strategy is like a balanced program of any kind; but in addition to balancing investments, there must also be the balancing of goals. Fortunately, for both retirement and education, there are government and private programs (Social Security; company pensions; and government, college, and special financial aid) to make the balancing a little easier.

In our lifetime, we have seen a fundamental shift in the way we view our generational responsibilities. As we have touched on lightly in the other posts, our grandparents may have sacrificed everything so that our parents could have a better education and a better way of life. In return, our parents supported them in their old age. The problem is that this is just not happening anymore. I’ve seen too many retired people who have spent every penny on their child’s private college and graduate school expenses, with disastrous financial and emotional results.

The parents feel resentful because they have spent everything on their children, and the children feel guilty because they see their parents struggling at the same time they themselves are struggling. There can be a bad feeling on all sides if the children do not (by their parents standards) take full advantage of a college education or immediately get on a proven career track.

Many times once education costs are over, parents realize exactly how little they have left to use for their own retirement and how early in the retirement they may have to turn to the children for help. I am not talking about giving up your responsibility to pay for your child’s education so that you can have a vacation home or a boat, but you must make sure that you will have a basic retirement income in addition to Social Security before you put up any money toward college.

End of Financial Aid and Student Loans [1]