The challenge of the Gen Xer(s) and our college bound children
We hear so much about Millennials and Baby Boomers that people tend to forget about us Gen Xers; those of us born between 1965 and 1980. We grew up with the Breakfast Club, Pac Man, Nirvana, the World Wide Web, MTV, the fall of the Soviet Union and much more. The pace at which technology has advanced during our adult years is, at times, overwhelming, simply because we didn’t grow up with it.
This is not only true of technology. It seems like everything we grew up with has gotten exponentially more complicated. College financing and selection is so much more complicated today that it was in the 1990s! The savings part is a challenge because many of us have advanced degrees, and with them, still carrying some student loan debt. We are in our top earning years, which means our children will most likely not qualify for any financial aid. And we are trying to max out our retirement savings because so few of us are lucky enough to have the pensions that our parents enjoy. Cash flow is tight, to say the least!
But we Gen Xers are determined. We do our best and save towards a projected target to help our children pay for a four-year public or private school. We pick a school, or range of schools that we want our children to attend, calculate out a total budget and then work backwards to decide how much we need to save each year. However, this is a foolhardy strategy because, once again, the world has changed the rules. The actual sticker price for the college is irrelevant! Often schools with extremely high sticker prices end up costing less than an in-state school. Financial aid is no longer for individuals who actually need “financial aid.” According to the National Association of College and University Business officers, about one of every five dollars of financial aid that the private schools distribute goes to students who don’t have demonstrated need.
How can we possibly plan for this unknown? We need to stop being reactive and instead be proactive when it comes to college planning. First, let me start with this: Do not pay for your child’s college by robbing your retirement! This is essential. Simply understand the trade-offs. You must balance college and retirement as part of a holistic planning process. Focusing on just one most often will jeopardize the other.
Next, gain clarity -- learn how to save on the cost of college, not just save for the cost of college. You must start saving early and often to plan for college, but do not over-fund a college plan, there are simply too many unknowns. At some point during your child’s freshman or sophomore year in high school, you will need to take a long hard look at the savings. At the same time, you will have a strong sense of your child’s academic prowess and talents to begin to narrow your selections. This is the time to calculate your “budget” AND to begin to evaluate the schools that are within your child’s grasp -- both academically AND financially.
Your budget encapsulates a few different items: your savings (529 plan, trust, other); monthly cash flow you will contribute over the four years (think of this as simply shifting the costs of having your child live at home, to their cost of living at school for four years); and other help (grandparents gifting etc.).
Finally, share this information with your child and in detail when they are in high school. College is the first major financial decision our children will face, and it is our job to ensure they view college, at least partly, as a financial decision -- this is an invaluable teaching moment. Their experience through this process, if done thoughtfully and deliberately, will help to set the foundation for their future financial wellness.
Stephanie Mackara is a Daniel Island resident and is president of Charleston Investment Advisors, LLC. Diversification neither assures a profit nor guarantees against loss in a declining market. All investing involves risk. Principal loss is possible. Charleston Investment Advisors, LLC is part of The Wealth Management Alliance LLC, a registered investment adviser.