Continued from [1]

The problem with is that education has become so costly that it is often one of the top three most expensive undertaking in our lifetime, along with retirement and buying a home. I know many people living in Ohio who end up paying more for their child’s educations and they do for their homes. Education assistance programs often mean that we will use up virtually all of our assets on our children. But smart individuals will protect themselves at the same time they are saving and investing for their child’s education.

No matter what your financial situation is, planning for education costs as a family is an invaluable way to teach money values to your children. Your children should not expect you to foot the entire tuition bill yourself – if you do, you may still be paying off education loans after you retire. It only stands to reason that if a student knows he is paying for part of that 8 a.m. class or the books for the history project, he will take school more seriously, cut fewer classes, and get better grades.

I know a family of six living in suburban Akron Ohio with four children and to parents who made it a family goal to provide a college education for whichever children wanted to go. In fact, in my opinion these parents win top prize when it comes to raising kids with the right attitude about financial responsibility.

From the time the children were young, they knew they would be expected to work part-time through their school and contribute part of their college money themselves. In return, the parents sacrificed many of the comforts of the usual middle-class dream (such as traveling and luxury items) because they made it a commitment to help as much as they could.

At the same time, these parents were aware that they needed to protect their own retirement, so they were making full contributions to all the retirement plans they could afford. What I asked them to sum up how they would manage to accomplish all of this, they said that they decided early on that there was two ways to pay for college: “you can either have your pain now or have it later.” Remembering the time value of money, they said that the pain of scrimping and saving was easier before the college expenses hit because what they set aside would grow in value and the money set aside would have less overall impact on their standard of living.

Also, they said it was easier to develop frugal spending habits early in their married life rather than later on. They figured the dollars taken out of the budget when their children are very small would hurt less than the $1.50 or two dollars (increased due to inflation) when the kid’s reached college age. Of the four children, three have graduated from college, and the fourth has a college education put away for him when he is ready to go. The three that graduated from college took their studies very seriously, and it showed in their excellent grades.

Even wealthy families which pay for college many times over, with money to spare, can use the education financing experience as a way to instill in their children a good work ethic and an understanding of the value of money. The worst thing you can do for your child is which, on the surface, looks like the best thing you can do – paying every penny of tuition, room and board, books, and extras. When I hear a wealthy parent express concern about making it too easy for their offspring, I know this is a parent whose heart is in the right place when it comes to raising responsible children.

Another couple I know (this time from Columbus Ohio) have a solution for the problem of having a lot of money (a problem we all would love and have) is one I have recommended over and over again to people with wealth. This family’s wealth was acquired not by inheritance, but by running a savvy business in Columbus for over 30 years.

They worked very hard to maintain a rock-solid business for the family, and because of this they were extremely comfortable. When it came time for college, Carol and Julie paid for tuition, books, and other costs payable directly to the school, but the children were expected to work during the summers and holidays and use their earnings for any personal expenses. I’ll never forget these parents marveling at the fact that their daughter made ATM withdrawals of $10 or $20 a time to make it last as long as possible (and always at ATMs that have no service charges).

Another reason it is difficult to save for college is that these days we start paying for education costs for our children at a much younger age. For example, in 1970, only 37% of 3 to 5 year old were enrolled at nursery schools which almost always charge tuition, some as high as $10,000 a year) by 1991, the number had jumped to 56%. Furthermore, with continuing concerns about public education, more more parents are opting to use some of their valuable education dollars for private elementary and/or secondary school tuition.

Like any other financial goal, planning for education costs is a multi-step process and the amount of your education costs will likely be tens of thousands of dollars. The bad news is that those numbers are in today’s dollars; your actual need will probably increase with inflation (and then some).

Most people cannot afford to pay as you go the year their child becomes a college freshman; how many of us have $15,000 or more left over after expenses, taxes, and loan payments? The way to meet any financial goal is to break it down into monthly our annual savings goals, and then to see what other scholarship, loan, or work-study funds may be available to reduce the amount you actually will have to provide.

End of part one for Financial Aid and Student Loans [2]