The “HUGE” Disconnect

Posted by Gary Abely, CFP®, AIF®, CPA

“Have you and your child had a frank conversation about college costs and responsibility for payment of tuition, fees, books, room and board?”

In the past, I would ask the above question to individuals attending my “Financial Basics for Life” workshop.  This workshop is designed to teach young adults the basics of saving, investing, debt and general financial management in a two-hour cram course.  What I found: Less than 1 in 3 had discussed this topic with their teenage child.

New research by T. Rowe Price found some alarming statistics.  The highlights of the survey:

• 62% of children expect their parents to cover the cost of “whatever” college I want to go to.
• Two-thirds of children thought their parents were saving for their college.
• 42% of parents said they lost sleep worrying about college costs.
• Nearly half of parents said they would allow their child to take on student debt of $25,000 or more, and 14% would let them borrow $100,000 or more.
• 20% of surveyed parents were still paying off their own student debt.
• 42% of both baby boomer and Gen X parents were saving for their children’s college in a 529 account, compared with 22% of millennial parents.

The key takeaway from the latest research is that parents and children are not communicating well about who will pay for college expenses.  This lack of communication and expectation gap can lead to stress for both parents and children when Johnny and Sally leave for college.

Another point raised by recent research is that parents are often confused as to when they need to start saving for their child’s education and where to save the funds (529 account, IRA, child savings account, etc.).

Advice for new parents:  Start saving early in 529 plans offering low-cost, highly rated mutual funds.  Click here to access a great website to get you started.  Having two daughters heading to college next year, I can attest you will wonder where all the time went.

Advice for soon-to-be empty nesters: Communicate what you can afford to contribute towards your child’s education, if anything, with your child as soon as possible.  Meet with a financial planner to discuss the pros/cons of student debt and how much debt is reasonable based upon the field of study. Many colleges offer reduced tuition and even free tuition to students who enter a work/study program.  Finally, remember you should not put your own retirement at risk by assuming debt you cannot afford no matter how much you love your children.  Guiding your child toward low-cost, low-debt options in cases where little money has been saved for college will likely be the best course of action.  Community college options, living at home while attending school, and part-time employment may be a better alternative to student debt.

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