Financial-planning experts argue that other financial goals might need to be prioritized
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For parents, saving for their children’s college education is a notoriously challenging goal. A 2016 survey conducted by Sallie Mae and Ipsos in the US found that only 57% of parents had saved anything for college, and the rest had saved an average amount of just US$16,380. And a 2017 Ipsos poll conducted for Knowledge First Financial found that 31% of Canadian parents had not saved anything in a registered education savings plan (RESP).
Some advisors are saying that given the sky-high costs of college nowadays, with six-digit tuitions forecast for some colleges in the years to come, parents may want to reconsider their expectations. “[I]t’s almost becoming unrealistic for many parents to think they even can pay for the entire cost of college,” said Erin Voisin, director of financial planning for EP Wealth Advisors in the US, in an interview with Moneyish.
Because of the continuous rise of college costs — Voisin said they typically increase by around 5% a year — the vast majority of parents may not have the financial resources to cover it all themselves. Or at least, they’ll find themselves deciding on a tough tradeoff between competing financial priorities.
Weighing in on the problem, Unified Trust Company investment advisor Angela Coleman told Moneyish that many parents are better off focusing more on goals like their own retirement, rent or mortgage payments, and necessities like food. “It is ok to allow our children to invest in their own futures,” she said.
Voisin agreed. “Your kids can finance college, but you can’t finance retirement,” she said, noting that college-age children can get student loans, apply for scholarships, and earn money through a part-time job. Another possibility is to have the children spend a year or two at community college, then transfer to a higher-rated school later on.
“[O]ne of the biggest favours you can do for your kids is to provide for your own retirement lifestyle and care, allowing the next generation to find its own way without the added burden of providing for parents with too few resources,” said Kimberly Foss, founder and president of Empyrion Wealth Management.
Of course, these decisions are extreme and should not be taken lightly. Given the significant impact it would likely have on the children — the burden of debt, struggles to maintain grades, balancing school with work, and so on — it’s important for parents to discuss such a plan with them before moving forward.
“Have that talk with your kids,” said Voisin.
