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.
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.
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.
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.
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.
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.
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.
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