By J. David Lewis
I am writing to recommend a The New York Times, ‘Your Money’ column for anyone who expects college savings plans to provide all their children need to become independent. In financial planning, we see college savings plan discussions everywhere.
One of the more curious things I see is families who start paying for kindergarten with full expectations of funding the best in private schools through college – maybe graduate schools. While they are paying for the beginning steps, they often express concerns about saving specifically for college. It doesn’t seem to occur to them that they are on a steadily escalating annual education expense, with college only one more step on the long set of stairs. In my own case, when my son went from Webb School of Knoxville to The University of Tennessee, the annual direct cost of his education went down. His total support remained about the same, primarily because he moved out of our home.
Through the years, I have tried to convey these observations when discussing college savings. I remind people what they say on airplanes, “Put the oxygen mask on yourself before helping others.” People struggling with their own wealth accumulation, or even their monthly expenses, display considerable guilt that they may not save enough for their children’s first college pick.
These observations support my understanding that a sufficiently large and well structured net worth is much more important than saving for specific purposes. If you have a solid Net Worth Statement relative to your expectations; college, retirement, big weddings, travel and many other amenities of life are simply not problems. This is why we work to focus our client relationships on building assets (particularly investment assets) and reducing debts. Strong and growing net worth mitigates many financial concerns. Paying attention to its trajectory helps consider whether things we want are necessities, amenities or luxuries we really cannot afford.
With my observations as background, I came to an excellent ‘Your Money’ column by Ron Lieber of The New York Times – “From Parents, a Living Inheritance.” This quote, on helping adult children, really got my attention; “The parents of adult children don’t have good answers to this question; they simply write checks, if they can. Patrick Wightman, a postdoctoral fellow at the University of Michigan, points to data showing that nearly 60 percent of 23- to 25-year-olds report receiving some kind of financial assistance from their parents.” If you are worried about saving for your ten-year-old’s college, how does this feel?
Many times, clients have mentioned financial support for their children or grandchildren, with very little elaboration. We see evidence of support that is not mentioned. Again from the column – “Most people don’t like to talk about it, but the people you spend a lot of time with, the stories come out over lunch or a drink.” Apparently, something like 60% of young folks receive help from parents who rarely mention it to their friends. I wonder if parents would feel less lonely on this subject if they just talked as openly about it as they talk about college expenses.
Conversations about education funding have been silently replaced with supporting adult children. Ten years ago, these parents probably thought college expenses were an event on the horizon. How long should people expect to help their children? Another quote reads; “When they get in trouble, I don’t want them to go so far downhill that they’ll never get out.” How should we think about this issue when talking to young parents, who will have adult children someday, that may or may not need family assistance beyond college? How much should we warn them?
I asked Chris Brown, who is a Senior Finance Major at The University of Tennessee and a part-time employee of Resource Advisory Services, what he thought of Mr. Lieber’s column and “60% of twenty-something’s” receiving help from parents. He responded:
“I would say it depends on the capacity of the family’s financial ability to help the kids. If you’re talking mainly about parents who have the ability to help, I would think that 60% number would be higher. But I think that 60% shows how many parents CAN help as opposed to how many parents DO. In my experience, if they can they usually do. My generation seems to be spoiled more than most. That being said, I’m in the same boat as the 27 year old high school teacher. Being a first generation college student, my parents don’t have the means to help me and both my brothers. Like Ms. Wilson, I don’t resent those who do get help from their parents. I actually have a sense of pride in being independent and 100% accountable for myself. I feel like I’ll be better prepared in the long run. Probably a longer response than you were looking for, but you can imagine this is kind of a big dividing line between peer groups in the college atmosphere.”
A cynical view is that parents who can afford those “best schools” equal adult kids who get/need parent support for years after those schools. Parents who cannot afford those schools equal kids who live on the edge. Who knows who is better off? A short while before my mother died she said, “We just did the best we knew how to do raising you all. If we messed up, you have a long time to straighten it out.”
My 28 year-old son works freelance on video crews. I asked what he thinks his friends get from parents. He doesn’t seem to know much about the assistance they get. Generally, his friends don’t talk about these issues either, even with the parents supplying the aid. A conversation he described involved a young man who didn’t know how his health or car insurance is paid. The friend had reasonably steady work. All this failure to talk about these issues seems “out of whack.”
If the aid is given, without talking about what it means and where it is supposed to lead, the risk of helping the children remain dependent seems almost certain to increase. How can they become independent? A couple of years ago, I met three generations of a family on a remote Nebraska ranch. I bet those parents help their adult children in hundreds of ways and they all know what it all means to them.
When I have considered the tough decisions on assistance for my son, I have paid attention to how hard he works at making progress. I have been his business consultant over many lunches. This has kept me convinced his aid is probably moving him toward independence. His “gigs” keep getting more complex and frequent, with higher daily rates. His progress from two years ago is impressive. If he had a “day job,” he couldn’t develop the network so critical to this profession. He volunteered a few days on a movie, which lead to a series of his best paying jobs. Collecting from someone who didn’t pay an invoice was probably one of his better learning experiences. I hope he has time to straighten out whatever mistakes I have made.
It seems to still come down to the same fundamental solution. Build a strong Net Worth Statement, with ever increasing assets (particularly diversified investments) and decreasing debts. Along the way use tools like tax deferred retirement and tax advantaged education savings plans for efficiency. Be careful about burdening your enjoyment of life with “specific saving-purpose guilt.” All the while, find ways to enjoy your life. Make this philosophy the example for your children, so they can fix whatever you did wrong.
The Resource Advisory Services Mission Statement – Developing relationships that help people build and enjoy wealth, through our commitment to excellence in comprehensive financial planning services, where we gladly accept fiduciary responsibilities for understanding and serving each client with an exceptionally high level of ethical integrity.
Mr. Lieber finished “From Parents, a Living Inheritance” with mention of a family loan fund he more fully described a week later in another column titled “Borrowing From Your Family, by Design.” I look forward to meeting a family that wants to establish one of these resources for the future of their family and wonder if it might fit into my estate planning. We have five grandchildren now and who knows what they might need years from now?
Click here to read “From Parents, a Living Inheritance.”
Click here to read “Borrowing From Your Family, by Design.”
Contact J. David Lewis directly with DLewis@ResourceAdv.com. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 61283