College

How to Create a Parental Financial Aid Package

How to create a parental financial aid package

There are thousands, if not millions of books, on parenthood. Many have lots of good information and valid points, but one thing I have discovered is that “doing” isn’t always easy when it comes to our own children. One area that I have seen countless parents struggle with is cutting the financial cord. This tends to become readily apparent when children are college-bound, standing at the crossroads of Mom and Dad paying for everything and becoming an adult who manages their own money.

Plan for the Day Your Child Becomes Financially Independent

One of the biggest mistakes I see parents make is not planning for this moment. When you don’t plan for it and have not been preparing your children for their financial independence, it becomes increasingly harder for you to stop bankrolling their lives. And then you become the one thing you never wanted to be in your children’s eyes—their personal ATM. You’ve been raising your children with the hopes and dreams of them being successful and independent, not reliant on you to pay their bills well into adulthood. If you want to increase the likelihood of your dreams happening, then you need to teach your kids how to manage their money with confidence.

College is often the bridge from childhood and adulthood and now is the time to help your kids transition from being taken care of by you to taking care of themselves. This begins by setting clear expectations with them on what assistance you will provide at college.

4 Steps to Preparing a Parental Financial Aid Package for Your College-Bound Kids

I’m not focusing on the different ways you can save money for your child’s education. For more information on paying for college, please read How To Save for Your Child’s College Education and A Step by Step Guide to Help Your Child Finance College. Instead, we’re going to look at how you should earmark those hard-earned dollars.

1. Determine How Much Money Can You Reasonably Provide

Many parents automatically want to cover all college costs, but that’s not necessarily realistic and somewhat hard to plan for as well since you have no idea what your 2-year old will want to do when she’s 18. Your children’s ambitions and dreams may extend farther than your wallet can take them. You need to recognize this and be okay with it.

A better approach is to take a holistic view of your entire financial life. What can you reasonably set aside to help your child(ren) pay for college without jeopardizing your financial foundation and goals? That is the number you aim for and communicate. As the years go by and your salary increases, you can always adjust that number upward.

2. Qualifications to Receive For Parental Financial Assistance

Many parents spend years saving for the children’s college education and when the time comes, they just silently pay the bill. Please don’t. Just as your child needs to qualify for financial aid, the same should hold true for parental financial aid.

Now is the time to figure out the parameters for your help. Some considerations for you:

It’s important you know exactly what your children need to do in order to qualify for your assistance before you sit down and talk to them. Make sure you and your spouse are in 100% agreement, so that you present a united front. Your child can negotiate terms with you, but hold firm as much as possible, especially with the amount of money you can offer.

3. Your Children’s Financial Responsibilities and Obligations

Now that you know how much money you will provide and the stipulations your child must meet in order to qualify for your financial assistance, it’s time to think about what their financial responsibilities will be. Right now, too many kids head off for college with little firsthand experience on managing their money. They learn by trial and mostly error. Do not let this happen to your children.

Even if you plan to fund the bulk of their college education, they need to learn how to make smart financial decisions. Perhaps you will pay for tuition, room and board and they will be responsible for everything else. Great, now how will they pay for those things? Don’t assume they will figure it out by themselves. Help them. You don’t want them to rely on a credit card to pay for their drinks at the bar or even their phone bill. Work together to create a reasonable budget and how to earn the money for the things they want/need.

4. Planting the Seeds Early about College

Lauren and Taylor are now 10 and 8 years old and we have been talking to them about college in generalized terms for the past few years, without getting into the nitty gritty details on what we plan to provide yet. We want to plant the seeds now that even though college is a privilege, not a right, we would love to see them attend college and have been saving to help them do so. Lauren, in particular, understands the correlation between getting good grades now will help her get into college, which will help get her a good job afterwards, so she can buy a nice home and travel.

When the girls enter high school, we will have a more formal conversation with them about what their parental financial aid package looks like, so they can keep that in mind as they start considering colleges to attend. On Wednesday, we’ll talk about more presenting the parental financial aid package, the importance of return on investment when choosing a college and the end of parental financial support.

Shannon

Photo courtesy of www.FreeDigitalPhotos.net.

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May 19, 2014  •  31 Comments  •  College

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  1. Monday, May 19th, 2014
    This is such a difficult topic. I know every parent wants the absolute best for their children, and many times that leads to contributing more than they should to college (of course, depends on who you ask...). I think it's an important thing for parents to prepare for because you need to take a hard stance on how much you will be helping your kid out once they reach college - and beyond.
    • Shannon Ryan
      Monday, May 19th, 2014
      It is a difficult topic. We want to give our kids the best and it is harder to say "no" than we think. But at some point we need to cut the financial cord and college is a natural bridge. It's important we are clear with our kids when our financial assistance will end and most importantly—prepare to thrive on their own. Now that's real success to me.
  2. Monday, May 19th, 2014
    Nice post. I have only one concern. You write that Lauren understands that she needs good grades to get into college to get a good job and buy a house, etc. That seems to me just about impossible these days. The unemployment rate for recent college grads is staggering. When they do get a job its menial. I don't want to be a downer. Ten years from now will surely be different. But I think it will be different in ways that we can't imagine and hanging onto an '80s dream might not be the best thing to do. I guess we have to plan and save. But I'm not sure what it is we are planning and saving for.
    • Shannon Ryan
      Monday, May 19th, 2014
      Graduates are facing a very tough job market, and the reality is that this is not the first nor the last time unemployment will be high. This is why it's so important to me for the girls to be financially literate and able to smart decisions for themselves. I hope when they graduate from college that they face a strong economy with low unemployment, but if they don't - I want them to be ready to know how to make it through tough times too. Doing well is school nows gives Lauren a higher chance of earning scholarships and the understanding that she needs to work hard to get the things she wants.
    • Monday, May 19th, 2014
      I think it's important to educate our children about what types of jobs are out there and which ones you can reasonably expect to earn a living with. Right now, where we live, chemical and petroleum engineers can name their price if they aren't picky about where they want to live. Medical careers like nursing and physician assistants are going to be in great demand with the way health care is changing. Getting an expensive degree in art and wanting to live in LA would not be a good use of student loan money in my opinion. I think we have to encourage their dreams but also be realistic about what jobs are worth taking on loans or spending years in college for.
  3. Monday, May 19th, 2014
    It's so true that college has become a privilege and not a right, which is sad that it has gotten so expensive that this is the case. Our son is 8 and we speak a lot about this and the financial burden of a college degree. When I was his age, my parents said "You are going to college." Now I feel as though parents have to say something different and it's best for you to start saying that sooner and preparing your kids along the way.
    • Shannon Ryan
      Monday, May 19th, 2014
      It is unfortunate that college is becoming out of reach for more families. This is why it's so important to save early and work with your kids to figure out whether college makes sense for them and creating a strategy together to pay for it.
  4. Monday, May 19th, 2014
    This is such a very good topic, especially that the school year opening in my country will start next month. I'm totally hit by your blog, my parents before was financially stable BUT then unexpected death of my father came. He was our bread winner and our family is a single income. Now that my younger sister is in college now, I need to work hard just to help her paying her tuition fee and other school projects. Our eldest brother, support her also with her studies.
    • Shannon Ryan
      Monday, May 19th, 2014
      I'm sorry to hear about the loss of your father and it's even harder when he provided much of the family income. I'm sure your mother and younger sister appreciate you and your brother helping out financially.
  5. Monday, May 19th, 2014
    "...not been preparing your children for their financial independence..." I can see this really being a problem. Parents who can't let their kids go or aren't training the kid to let go are really headed for trouble. If I was a 20-something and mom or dad was still bankrolling my entire life, what incentive do I have to work? In relation to college, I think it's important parents share with their kids the expectations for college and who is paying for what. I plan on helping our kids but also placing a portion of the responsibility on them. College age needs to serve as that final piece of the bridge where we help them become independent...because I won't be paying for their every need at 25.
    • Shannon Ryan
      Monday, May 19th, 2014
      I'm sure you saw shades of this in your classroom too with some kids not really have a sense of money or how it works. I certainly can't imagine feeling very motivated to earn money and take care of myself if my parents are willing to pay my bills. It is SO important for parents to be upfront with their kids what they can, if any, pay for college and their expectations. Sometimes there is a lot of assumption that happens between kids and parents, which just leads to problems later.
  6. Monday, May 19th, 2014
    What I love most about this post is how it encourages discussions and communications about money. I think this is invaluable because there's nothing better than raising kids who are financially independent.
    • Shannon Ryan
      Monday, May 19th, 2014
      Thanks, Natalie! There is nothing better than raising financially independent kids and generally speaking - that doesn't happen on it's own. Parents need to help make that happen by setting clear expectations with their kids and preparing them to be successful adults, which includes managing their money wisely.
  7. Monday, May 19th, 2014
    Great guidelines on a difficult topic. Money matters between family can be hard, especially if it's more of a "loan" than a gift contribution. I owe my parents money but I'm trying not to make them feel less important than my other debts, I don't want to leave them for last. But the other thing that's hard it that they aren't charging me interest like regular creditors. I don't want to pay a ton of interest either so I'm trying to make everyone happy with a solution in the middle...
    • Shannon Ryan
      Monday, May 19th, 2014
      Money matters between family members can get very complicated and open communication is key. You certainly don't want to make your parents feel less important than your other creditors, but as you said, the interest you accrue on your other debts is a factor too. What matters is that you set clear expectations as to your debt repayment schedule.
  8. Monday, May 19th, 2014
    "Do your kids currently demonstrate an aptitude for college and not just for the fun and freedom..." A very important question and I understand it can be a tough one for parents. It seems that a college education is mandatory in many minds. I've mentioned to some people that college is not meant for everyone, sometimes high school grads would be better off with vocational training. This is not a knock on the students, it's just that people are different. I don't like it when people devalue vocational training...often times, those with this training can get well paid jobs...so why does everyone sweep this option under the rug? And I also agree with your other points. When I was growing up, I had the understanding that I had to contribute to my college education. It was one of my motivations to save at a young age since we're all told how important college is.
    • Shannon Ryan
      Monday, May 19th, 2014
      It is an important question, Andrew and a tough one for parents to always answer honestly. College has become mandatory in many of our minds, but as you said, it's not necessarily right for everyone. And it makes no sense to force your child to go to college if they lack the interest to go. I agree that vocational training has a bit of the ugly stepsister syndrome, which is unfair. In many instances, vocational training makes far more sense than a 4-year degree. It's important to sit down with your kids and really understand what they want to do.
  9. Monday, May 19th, 2014
    I agree not learning about how to manage money before I went to college was a main reason on why I crashed and burned - even though I knew loans had to be repaid, I took out more than I needed just because I was able to, regardless of the interest/consequences. I think setting ground rules for what the financial aid package is contingent upon is a great idea, as well as teaching kids about loans if it comes to that. I'd also advocate being resourceful, whether it's applying for scholarships no matter how small, or perhaps becoming an RA for the room and board (and reduced transportation costs!).
    • Shannon Ryan
      Monday, May 19th, 2014
      You're not alone, Anna. A lot of kids head off to college with little experience managing money and take full of advantage of the loans offered. Parents need really walk their kids through the loan process as it's completely unknown territory to them and they don't necessarily understand what they are agreeing to when they accept that loan. Being resourceful is very important too as people really overlook scholarships and even part-time jobs.
  10. Monday, May 19th, 2014
    YES! You know how I feel about parents having kids take a financial stake in their education. I love this and the idea of calling it a "parental financial aid package" and mentioning "We want to plant the seeds now that even though college is a privilege, not a right."
    • Shannon Ryan
      Monday, May 19th, 2014
      I do know your feelings and how your parents gave you strong guidance when it came to your college education. :) I think it's important to plant those seeds now too. The girls definitely want to college but they understand that they have to "earn" that right too.
  11. Monday, May 19th, 2014
    Very informative, Shannon! Your post reminds me that although parents need to talk to their kids about college and finances, I also think they really need to teach this stuff in high school. Sometimes teenagers need to hear information over and over and over again, before it really sticks.

    Your daughters are lucky that they have a mommy that is so smart when it comes to stuff like this! :)
    • Shannon Ryan
      Monday, May 19th, 2014
      Yes, sometimes kids (or anyone for that matter) do need to hear things repeatedly before it clicks. And sometimes from various people too. :) I would definitely love to personal finance taught in schools or even a good workshop with kids and parents on financing college.
  12. Monday, May 19th, 2014
    I hope that by the time I have kids and they graduate high school, that the costs of education will be better managed. That's probably wishful thinking but I would think something has got to give one of these days. I know that when hubby and I get serious about starting a family, we will definitely be discussing the cost of college and what we *want* to be able to contribute. I think we will need the full 18 years to prepare : )
  13. Tuesday, May 20th, 2014
    "....the correlation between getting good grades now will help her get into college, which will help get her a good job afterwards, so she can buy a nice home and travel."

    This is the philosophy I grew up with and it is seemingly sound advice that I have found to be very misleading. Not only in my special circumstances as an actress, but even for friends and family pursuing "regular" careers.

    I'd have to say one of the biggest lessons I learned after college was that the formula no longer applies. You work hard and get good grades K-12 even in college and you get certain desired results. You work hard after graduation, there's not much guarantee of anything.
  14. Tuesday, May 20th, 2014
    More awesome info, Shannon. We just had an "incident" last night in where I had to reset some boundaries in this area. Maddie and her friends were heading into a coffee shop after a class. I gave her my cash card, she set out to the coffee shop and I talked with the other mom in the car. 30 minutes later she comes out. "How much did you spend?" I asked. "I don't know." she says. "I just bought the stuff I wanted.". AAAHHH!!! I gave her a quick lesson about how this is how her dad and I got into our debt mess, and reminded her about the importance of having a budget and tracking spending. Hopefully it sticks. :-)
  15. Tuesday, May 20th, 2014
    I think it's a great idea to start prepping your child for what's to come as college approaches. I think it's pretty harsh if one day parents just said, "that's it!" Although at some point I would HOPE a young adult would say, "hmm, continuing to take take take from my parents just isn't right." What's bad, and what I witnessed first hand with my brother, is the wishy washy approach. The threat of cutting him off, then caving to his begging and pleading, then cutting him off again...repeat cycle. Not good. Boundaries are incredibly important...as well as sticking to them.
  16. Tuesday, May 20th, 2014
    As others have said, this is such a difficult topic but one that is incredibly important to be on top of. I think it can be so easy to fall into that mindset, as a parent, that you're just going to cover everything when that is likely not the best option to pursue. There are so many variables that can come into play that you just don't know how they might play out which is why it's so vital to help mold and encourage your child as they get older so you can be in the best position possible - whether that be college, working or something else.
  17. Tuesday, May 20th, 2014
    Love this, Shannon! It is such an important topic/conversation in addition to the more regularly talked about "how to save for college." Interestingly, I'm reading this a day after having a conversation with a co-worker about private high school (private high school is very common in our area, but there are also top-notch public schools - one which they are zoned for). Her daughter just isn't making the grades and the mother feels that her investment really isn't paying off. This is just one example where "____ is a privilege, not a right" can be taught earlier than college. If this principle doesn't hold true for 18 years, then I wouldn't expect it to magically take root after high school graduation. So glad you mention "planting the seeds early"!
  18. Tuesday, September 23rd, 2014
    Love this! So important that children understand the privilege (not right) and that they share in the responsibility too as I think it makes them more accountable.
    • Shannon Ryan
      Wednesday, September 24th, 2014
      Thanks, Leah! It is a privilege and so many think it's a right. And so many parents don't take the time to have the conversation around their expectations. I'm pleased to be able to help my girls finance college, but I'm also not just going to "give" them money either.
Shannon Ryan SHANNON RYAN, CFP®
  • Meet Shannon

    "As a Certified Financial Planner, it is my passion to help individuals and families build a healthy relationship with money. I look forward to helping you raise financially confident kids.” - Shannon Ryan
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