As a wealth advisor, I work with dozens of clients every year to create plans that will one day fund their children’s education. As a father to four boys myself, I know the weight the responsibility of paying for college carries. There are a lot of ways to fund your children’s education, but you can’t borrow money to retire. So, start discussions with what you need to live comfortably during retirement, and work backward to appropriate savings for college from there.
It is a reality, however, that paying for college is getting more and more difficult. Today, cost of living increases at a rate of roughly three percent while the average college tuition increases at a much higher rate–approximately eight and a half percent. Here are my four top tips for being financially prepared to send kids to college:
1. Start when your kids are born. Even if you can afford only $50 per month, the difference in what you accumulate starting from day one compared to four or five years later is substantial. Many savings plans require only a $250 minimum to open, and once you set up that $50 automatic deposit, you’ll hardly miss it.
2. Do your homework – figuratively (and literally for any of you kids reading!). It’s important to set a goal early. Most universities offer estimator tools that calculate average in-state and out-of-state costs adjusted for inflation.
Once you’ve established a target tuition, research all available ways to fund it. Scholarships have a significant impact on the final cost of education, and there is tremendous support available if you take the initiative to prepare for and find them. For my 16-year-old son, Wren, we’ve had the pleasure of working with Ann-Clore Duncan at Duncan College Consulting to identify the classes, test-taking preparations and extracurricular activities that give him the greatest chance for success. With many scholarships tied to test scores, she wisely advises investing the couple hundred dollars now in tutoring and prep classes to secure thousands of dollars annually in scholarships. When one point can make the difference, there is no better return on investment.
3. Create and communicate a plan. Your children need to understand what schools you can and can’t afford, whether they will be required to contribute and whether student loans will be their responsibility to pay back. As Ann-Clore encouraged us, “If ever there was a time to talk openly with your children about finances, this is it.” You can’t jeopardize your financial future because your student chooses a pricey school. That doesn’t mean they have to pass up the opportunity of an Ivy League, for example, but it does mean the whole family must participate to do that responsibly. Don’t wait to have these conversations when your kids are seniors; the discussion should start when they enter high school.
4. Involve the kids. I believe children should help financially with college by working when they are able. It’s an important part of teaching successful habits and holding them accountable for their own excellence. There is never a time in their life when they will have more free time and fewer responsibilities than college. For my own sons, I will require them to work a minimum of 10 hours per week while in school. Paired with 15 hours of classes and 10 hours of studying, that’s still fewer than 40 hours per week. Personally, I did much better in school when I had a job, and I’d hate for my sons to miss the valuable lessons my college jobs taught me.
As we’ve prepared for college with our oldest son, I’ve become even more passionate about modeling, teaching and requiring the successful habits that produce successful kids. Being financially prepared for college is about more than opening a savings account and applying for federal student aid. It’s about equipping your student with the tools they need to be financially independent, so they can reach their potential and leave a meaningful legacy.
Kyle is the father of four boys: Wren, Jace, Liam and Alex. He’s also the CEO of Wymer Brownlee Wealth Strategies in Oklahoma City.