By Greg Sullivan

The college admissions scandal has shocked the country with the extreme measures some wealthy parents have gone through to get their kids into chosen colleges. But does it really surprise us?

The intention is well known. Parents have a deep desire to protect and support their kids. From birth to adulthood we want to set them up with the resources and skills to be healthy, happy and successful in life. We want to protect them from life’s hardships. For some of us, we may have struggled to get through college or had a hard time in our early careers due to a lack of education or connections. We want to avoid that pain for our kids. With the increasing competitiveness of jobs, we are afraid that this generation is playing on a much tougher field. Stories of the increasing competitiveness of schools Harvard only admitted 5% of applicants last year adds fuel to these fears. The desire to help give our kids a leg up is understandable - even if the extremes seen in the recent scandal are not.

Good parents want to help their kids but what are the consequences of excessive support, both for us and for them?

As a wealth advisor, I have spent much of my time with clients, not in talking about market returns and investments, but in addressing emotions and fears, both internal and external. In investing and major money decisions, it brings comfort (and better outcomes in the long run) to have a clear-eyed inspection of the facts, to make rational decisions based on those facts, and then steer ahead despite the storm of news and social commentary. In my recent book Retirement Fail I called out the “Harvard or Bust Syndrome” as a real risk to both the financial and interpersonal wellbeing of clients. In this article I would like to give a financial rational approach as you look at the college decision.

• Start with your values. Is legacy and family tradition truly important or an outside pressure? Do you want to treat each child equally? Do you value self-reliance? Giving teens even a small portion of responsibility for the cost of college helps them to appreciate financial trade-offs and personal responsibility.
• Help your child start her journey. Any parent knows that each child comes with her own unique skills, talents and dreams. What are the resources and education your daughter needs to be a successful young adult? Does she look like she is headed to a STEM career? non-profit work? The arts? Or has no idea. This time marks the start of the journey into adulthood. You will walk alongside, and support your child, but give them the joy and personal challenge of doing it themselves.
• Consider Return on Investment (ROI). College graduates do earn approximately $1 million more than those without a bachelor’s degree. Beyond this statistic, higher college costs (and prestige) do not equate to higher earnings. While fit is definitely important for each student, there are often many schools that will provide a good environment. Recent reports on the ROI of specific colleges can help you objectively weigh the trade-offs of one school over another.
• What “investments” are really best? You only have so much to give to each child. If you save $30,000 per year over 4 years, you can use that money to help your kid with later needs such as graduate school, a down payment on a house, or a savings account.
• Don’t sacrifice your own future (or your retirement). As my colleague Gary Ingram tells his clients, “There’s no scholarship for retirement.” Your kids can get grants, loans, and/or scholarships that will help them cover the cost of their education, but there’s no way you can generate need-based or scholarship-based income in retirement. Your kids also have a lot of earning years to pay off any debt they may incur in paying for college, but you will have a limited number of years to make up for the dent in your retirement savings that can come as a result of footing hefty bills for your kids’ schooling.

There is no right or wrong answer – what’s important is that you clearly understand the impact and trade-offs of your desires. More importantly, help your children to understand the impact and trade-offs for reaching their hopes, dreams and desires.

Cheers,
Greg

To learn more about Greg or want discuss retirement visit, SBSB Financial Advisors.