Tag: paying for college

Talking to our kids about money

smbaccari

Talking to our kids about money…

There is extensive evidence on how people’s emotions and feelings around money are shaped by the actions we see, hear, and feel pertaining to money when we are kids. Our fears, our habits and our anxiety around money usually comes from experiences we had as children. No pressure here on us parents! Like our job as parents is not hard enough! Ok so let’s break it down.  Perhaps we need to put some rules in place like trying not to argue about money in front of the kids when they are young? Easier said then done…

When money is tight, it’s stressful, and the kid’s associate money with a tense situation and learn to “fear” money or think they just need more money and it will all be ok, right? As adults we know this is not always true. More money does not make all the problems go away, if the habits don’t change and we spend more than we make.

So how do we fix this? We know we need to slow our roll, create budgets, and cut back on the non-essential items… Ya, Ya, Ya…We all know what we NEED to do.

The issue is how do we not create kids that have fears or bad habits around money?

Money does NEED to be discussed and it should not be hidden from the kids. They do not need all the details of course but we do want them to appreciate money, respect money and understand the “value” of money. We also need to teach them money is earned as well, which I think makes it have more “value”.  When you “work” for your “cash” and you think you want a new toy or something, usually that toy is taken better care of when the kids pay for it themselves. Trust me, I have witnessed it firsthand with my own child over the years.  I’m not saying they have to work for ALL their toys. 😊These are the things our parents probably did with most of us as well. Sometimes as parents we “give” too much to the kids, even if we don’t have the money. It’s OK to sometimes say NO, or not at this time.  We don’t need the kids to think there is no money, just that money is not like a faucet that has an endless flow of money.  Social media has played a role in kids thinking they need to have what everyone else has! You can just say NO.

Maybe it’s Ok to show the kids the bills, like the electric bill and why we shut lights off when leaving the room.  Opening a savings account for your children say between the ages of 7-12 or so is always fun. Make sure they are with you when you set up the account and the rule is they MUST put 15% of any money they earn or are given as a gift, into the account first. Then they can do what they want with the rest. This will help them get in the habit of “paying themselves first”. Not a bad idea to also encourage them to donate some of that money to a charity here and there.  Once the kids are in high school or have a “paying” job, lets play it safe and for this conversation, they have a W-2 job working part time, you could consider opening a custodial ROTH IRA for the child. Keep in mind once they are 18 or 21, depending on your state laws, it’s their IRA now, so do go over the rules with them in detail. Custodial Roth IRA: Your guide to Roth IRAs for kids | Fidelity

Once they start high school. And college is on the horizon, you MUST talk about money! College is expensive! Even state schools can run as high as $35,000 per year! As parents we want to do everything for our kids, including paying for college. But it’s not always possible and this again is a time when it’s OK to say NO to some things. Maybe it’s NO to the most expensive college they picked, due to little or no aid. The budget is important here. If college debt is going to be more than what they will earn the first year out, might want to re-think the school choice…. Student loans are ok but keep it LOW! Show then the online calculators and how interest calculates! It’s 4 years of their lives, do they want to pay for it for 10+ years. Student Loan Calculator | Bankrate

 If we talk to the kids throughout their lives about money and make it an open conversation maybe when it comes to large expenses like college, it will be an easier conversation? Discuss not spending more than you make, discuss paying yourself first, aka the 15% in the savings account, discuss investing and retirement accounts, show them your retirement account statements… Let’s talk money with our kids!

The price of college

smbaccari

Paying for college….

If you’re like most of us parents, figuring out how you will pay for your kids to go to college is stressful! Back in the 80’s a full-time college student could work part-time during the school year and full time all summer, to pay for a year at a state college. If you lived on campus, maybe you had to work a little more or get some help from your parents, but most of us did not have huge loans hanging over us when we got out.

If you went to a private school, you probably had some loans, but unless it was something like medical school, your loans were “manageable”. I did not know anyone that had to take the full 10 years to pay for those loans, and the loans were at 8%.  The average student debt in 1983 was about $5,500. The average starting salary for a college graduate that same year was just under $18,000.  In 2023 the average federal student loan after graduation was over $37,000, according to the US Dept. of Education, in this article published by Best Colleges; Average Student Loan Debt: 2024 Statistics | BestColleges  Additionally private student loan debt was just shy of $55,000. The interest rates can be anywhere to 4%-15%, for a private loan with a low credit rating, but on average is at 5.8%. The statistics tell us on average it takes most people closer to 20 years to pay off their student loans, vs the ten years you are given to start. This tends to be due to things changing in your life, like the loss of a job, starting a family… The student loan “crisis” IS a crisis. BUT, does it have to be? Look we all want the best for our kids and for them to have all the things they want and more than we had, but come on, its four years of their life, that they might end up paying for 10-20 years! College is a BUSINESS! They do not care that you have debt when you leave, they want you to drink the cool aid! It’s not about “oh this school, just feels right”! This is where I belong. No 18-year-old knows where they belong… and as parents we need to make sure they understand the financial side as well. Some student loan debt is fine, but not double what your first-year salary out of school will be.  Money math must be discussed. There are on-line calculators to show them how interest works. You know like when you buy a house and say you borrow $100,000 from the bank with that 30-year mortgage and then at the end of 30 years, you say “thank you Mr. Banker, here is your $100,000 and another $200,000, for letting me borrow that $100,000! Ya, that’s how interest works! The on-line calculator will tell you exactly what your monthly payment will be and what your total bill will be if you take the full ten years. No excuses! NO forgiveness! SORRY.

The plan has to be in place before the first tuition payment. Get creative, be an RA as an upper classman, FREE housing at most schools, is how they pay you, START paying the loans WHILE you are a student, vs allowing interest to add up. Pick a state college, meaning the state YOU live in, not another state. When you get your first job, they will not pay you more than the other guy, because you have more debt. And parents, we CAN NOT use our retirement savings to pay for college. You cannot finance your retirement. College is an investment and, in most cases, very much worth it! But be smart about it. You’re paying for an education, don’t get lost in the amazing campus.  Schools are pricey now, because of the “facilities” not the education. Make smart choices, school was fun back in the day when we had no all-night dining halls and amazing gyms. We met lifelong friends, played sports, did everything else that college kids do, and got a great education that allowed most of us to move out of our parent’s house 6 months later. Preparing for college is a giant step into adulthood, managing money and understanding how it all works, is part that process.