Why Saving for College Isn’t One of Our Top Priorities
Photo courtesy of Will Folsom
Here’s a list of things that my wife and I have prioritized over saving for our kids’ college education:
- Retirement savings
- Emergency fund
- Life insurance
- Disability insurance
- Liability insurance
- Health insurance
- Setting up wills and a living trust
- Saving for a future house down payment
- Saving for a future car replacement (which actually just happened)
- Traveling to see family
- Saving for things like car maintenance and health care
- Starting businesses
It’s not that we don’t care about our kids having the chance to go to college. We do.
Both of us were incredibly fortunate to have great college educations completely paid for. We don’t take that for granted and we would love to be able to do the same for our own children.
Sometimes the fact that we’re not saving more for college makes me feel like a bad parent. But the reality is that we have limited funds that force us to make decisions about where to put our money and where not to put it.
And when we make the effort to remove the emotion and look at things objectively, it just makes sense to us to put those other priorities first.
Why is saving for college such a low priority for us?
At a high level (and I’ll get into some more detail below), each individual choice to prioritize one of those things over saving for college comes down to three things:
- It’s something we feel is important
- It’s something that could really only be handled by saving or spending now, and
- There are MANY options when it comes to paying for college beyond saving a lot today.
Let’s tackle the last one first.
There are many routes to a college education
Now, before I get into the alternatives, I’ll start by saying that if we had unlimited income we would absolutely be putting away as much money as we thought was necessary to 100% fund our kids’ college education, wherever they wanted to go. It would simply be the responsible thing to do and it’s what we would like to do.
But that isn’t the reality for us, or most other new parents. So we have to make some choices.
So, just how important is it to save money for college? It’s definitely important, but here’s just a partial list of ways that college could be paid for, beyond whatever we have saved up:
- Cash (maybe our incomes are higher by then and we can budget some or all of the cost)
- Student loans
- Scholarships
- Grants
- Work-Study
- Our kids getting jobs
- Attending a lower-cost school
There are plenty of other strategies as well and people can get very creative with it. But just from this simple list alone, it’s pretty clear that there are a LOT of options when it comes to paying for college.
While we’d love to save all the money needed to pay the tuition bill, we know that there are a number of really good backup plans.
Those other priorities? They require our money now.
The story is different for those other priorities listed above. Each one of them either requires our money now or has fewer options for handling later, which places a premium on saving for them today.
Let’s take a look at a few so you can see what I mean.
RETIREMENT
Beyond Social Security (which should provide something but likely not enough to fund our desired lifestyle), our retirement is completely dependent on whether or not we save enough. There simply aren’t other options. We can either save or face the very real possibility of a long, difficult financial struggle in our old age.
And since we know how powerful it is to start investing as early as possible, we put saving for retirement right near the top of our list of priorities.
And here’s the other thing: it’s not selfish to prioritize saving for retirement over saving for college. Because you know whose burden it becomes when retired parents start running out of money? The kids’. I would much rather my child have to take out some student loans than support me financially in my old age.
If you want a simple way to figure out how much you should be saving for retirement, check out this retirement calculator.
INSURANCE
I’ve written before about how much I love insurance. I think that getting good insurance is one of the best financial moves you can make as a new parent.
We have life insurance, disability insurance, health insurance and liability insurance. These things cost money, and that cost lessens our ability to save for college.
But to me that tradeoff is absolutely necessary. If we didn’t pay for the insurance, our family simply wouldn’t have the kind of financial security we think is important. Forget paying for college. One unfortunate mishap and we might be struggling to put food on the table.
This is the kind of thing we have to either pay for today or go without (wills and a living trust fall into the same category). Those are the options. So we choose to pay.
TRAVELING TO SEE FAMILY
This is one where things get a little less black and white.
My family lives in New England. Casey’s family lives in Florida/Alabama. And we’re extremely close with both sides and want our kids to grow up knowing all of them well. That’s just a value decision, but it’s one that’s important to us.
So we have to choose whether it’s more important to spend the money today so that our kids can see their family on a regular basis, or save that money so that we can pay more towards their college education.
And again, for us it comes down to the idea of alternatives. There are plenty of alternatives when it comes to college. When it comes to visiting family? The alternatives are either not visiting or visiting less. Otherwise we have to spend the money. And since we place such a high value on those family relationships, we spend the money happily.
None of this has to be quite so black and white
I’ve presented everything so far as an either/or decision when of course it’s not really like that. You can save for college and still do some of these other things, and in fact that’s exactly what we do.
Gift money for our kids goes straight into a 529 plan we have set up for each. A couple of years ago we used a big tax refund to add some more money into those plans. And until recently we were saving $50 per month towards college. It certainly wasn’t enough to fully fund a college education, but it was a small contribution that would mean something down the line.
But with all of those things listed right at the top of this article, we either spend more on them, save more on them, or would cut out college savings before them.
A lot of parents feel like they have to put college savings at the top of the list of financial priorities. They feel guilty if they don’t, like they’re letting their kids down or they’re not fulfilling their responsibility as a parent.
I get it. I have those same feelings from time to time. But much worse than not saving for college is the habit of making emotional decisions with your money that distract from the real long-term priorities.
You’ll have your own values and your own priorities, and they’ll be different from mine. I’m certainly not trying to force anything on you, and it may make perfect sense for you personally to put college savings higher on your list.
But I do hope this provides some perspective as to why you don’t HAVE to overly stress about college, and why that doesn’t have to make you a bad parent. It might actually make you a really good one.
How have you handled saving for college? Where does it fall in your list of priorities?
I can understand your logic. We’ve got a lot of other priorities above saving for college too. If you can help it, you should go back to putting aside something small again every month. My wife and I have been doing $100 per month for college for our kids since they were born and we’ve got over 5 figures saved up now.
Oh we’ll definitely start those contributions back up soon. Right now we’re just trying to use every dollar to get my business up and running though, so saving for college is taking a temporary hiatus. But I liked making those regular contributions, no matter how small. Every little bit helps.
I hope to be able to cover my maybe kids’ education, but first I will have them apply for scholarships and find a part time job. If they really move around and still need a little extra to go to a great private program or study medicine which is hard to combine with a part time job, then I would pay for it in order not to close any door.
I paid for my full college and it was not affecting my grades much, like the majority of students, as we only had 20 or so hours of class per week.
I think you make a great point, which is about having the option to help your child afford an opportunity they couldn’t otherwise, where scholarships or working part-time aren’t really an option. I think that’s an excellent goal and really a good argument in favor of potentially putting college saving as a higher priority.
Yeah I agree college funding shouldn’t be number one. There are a lot of other important items that need to take presidence over college fund. But I’m also not saying it should be completely ignored 🙂
No I definitely don’t think ignoring it is a good idea. It just needs to be prioritized based on logic rather than emotion. I think it’s easy to get caught up in the emotional aspect of it.
I’m pretty much of the same thought Matt. I do struggle with feeling like a bad parent at times, but there are so many other competing things out there and there are many ways you can pay for college, assuming they even go. We have custodial accounts for all of our kids and have on the plans to start 529s for them this year.
I’m with you John. Will you guys get a state income tax break for your 529 contributions? If not, is there any particular plan you’re looking at yet?
Like they say…you can always borrow for college, but you can’t borrow money for your retirement. While saving for college is important, there are more options when it comes to taking care of college costs. We also opened a 529 plan and NY offers a tax deduction which is nice. Like you guys we put in gift money and contribute $50 a month.
The NY deduction is extra nice because those taxes are HIGH!
I think you’ve prioritized well. I’d list all your items as more important issues than saving for college. As your income grows I would still begin to put small amounts into an account. Time is your friend and if you can start now the more you will have saved to help. As MMD said it doesn’t take much. We’ve been saving for some time and plan to fund a part of our kids college. My goal is to bless them with a debt free, post-college beginning to life.
Your goal is a great one! I’d love to be able to get there too so we’ll definitely be making efforts to increase our income and then be able to increasing the saving. That’s actually exactly why we’ve temporarily halted our contributions. Our money is going into trying to make my business a success, which will hopefully give us more financial options down the road. But those things aren’t easy choices and definitely aren’t guaranteed. We shall see.
Prioritization is one of those messy bits that my wife and I hate doing. We don’t like having to choose between either/or because “both” is, well, it’s the easy way out. It saves us from making decisions. But I figure if you’re not making these kind of hard choices, there’s probably a gap in your spending plan because most of us don’t have enough money to take that approach.
Right now, we’re skating by because the kids aren’t here yet.
While we have this surplus, do you think it’s wise to set up a 529 w/my wife as a beneficiary, capture the power of compounding, and then change it to the kid’s name once he or she arrives?
Prioritizing is actually something I find really hard to do as well. I don’t really think it’s something you can do well in one sitting, or at least I can’t. It usually takes me some time to think about it from different angles and get some different opinions. I actually wish I was a little more decisive at times.
I think that if you’ve got your other priorities handled in the way you’d like and that you want to start putting money away for your kid’s college (and you’re pretty sure you’re going to have a kid), then opening a 529 like you say could be a good option. The big warning would just be that if you don’t have a kid, then the money would probably be subject to penalties at some point (unless one of you used it for education).
We are putting money into a 529 plan for each of the girls, but with that being said, I agree with you, Matt. I believe every parent would love to be able to pay for their child’s college education but you do need to take step back and look at the big picture too. The truth is there are options to fund your college education that you don’t have to fund your retirement or to replace a solid emergency fund, etc. Even though we hope to fund our girls’ college education, I would still expect them to apply for as many scholarships as possible, choose a school wisely based on a ROI (and yes, that will probably be more Mom’s doing but it still something that needs to be done and too many parents skip this step) and to contribute with a part-time job.
I really like the idea of having a part-time job in school, or replacing that with involvement in some kind of meaningful activity. I worked part-time only my last semester at school and I wish I had worked more. I think it’s a good way to not only help pay for school, but to learn what it’s like to work AND what it’s like to balance multiple responsibilities.
With that said, I’d love to be able to fund the entire cost if we can. We’ll see.
We don’t have kids, but I love reading about these discussions since Mr PoP and I came from dramatically different backgrounds when it came to college funding. He was 100% paid for by parents, including off campus apartment and monthly allowance for food. I was 100% self funded, through scholarships, jobs (both during the school year and in summers), and a couple of smallish loans. We both ended college with a positive net worth, but got there in very different ways.
PS – did you see the discussion on GRS about this today? It got very heated!!
My wife and I were both in Mr. PoP’s camp, which was obviously a HUGE boon for both of us. Though I do think there’s a lot of value in applying for scholarships, finding a part-time job, etc. Ideally I think we’d like our kids to have a combination of the two.
And no, I hadn’t seen the GRS article but it was pretty interesting, especially the comments. Personally, I wouldn’t choose not to save for college simply because I thought my kids might not use it, or I might not get the best ROI, or whatever. If money wasn’t limited we would absolutely be saving enough to cover 100% of the cost. But when money IS limited you’re forced to make choices about priorities, and in that context I think you have more flexibility when it comes to college than some other things.
That’s very reasonable. We’ve probably got that same list except for starting businesses. College savings is a priority for us over that. We’ve been doing $500/month every month for each since each was born.
Wow, that’s awesome! Your kids are going to have a lot of options when it’s time for them to decide what they want to do.
I totally get your approach. We didn’t prioritize college until it got closer. When my kids were young I knew that the key to me paying for college would be my ability to earn more money. Therefore, I invested most of my money back into my business. This approach paid off handsomely. It’s a riskier road than putting money away, but if I can’t believe in me, who can I believe in? 😉 Now the twins are in college and we’re handling it fairly easily….something I never thought I’d write.
That’s awesome Joe! That’s really similar to my own thought process when it comes to starting a business. I think a big part of it is a mentality of “more”. It takes a long-term view, but sometimes spending smartly instead of saving is the best path towards long-term wealth.
Also, I love your quote “if I can’t believe in me, who can I believe in?” More of us need to take that to heart.
We don’t have a 529 for our kids for the simple reason that it can actually be detrimental if they need to apply for financial aid down the road. Not sure if the link will post, but Reuter’s has a very good article explaining this: “Don’t let that 529 college plan hurt your financial aid”
http://www.reuters.com/article/2013/04/29/us-column-feldman-idUSBRE93S0LZ20130429
I think the thing to keep in mind here is that while, yes, having 529s can hurt your eligibility for financial aid, the reality is that it’s still better to have the savings available.
In that article, they give the example of a parent having $20,000 in a 529 and therefore having their potential financial aid decreased from $1,100. That can definitely be frustrating, but I would much rather have that $20,000 in savings than the $1,100 in financial aid. The $20,000 affords a lot more college.
I would also keep in mind that financial aid doesn’t mean free money. In some cases it does come in the form of grants or work-study, but often it’s in the form of loans. Even federal loan with strong terms are more burdensome than being able to pay from savings.
And one more point is that if your kids are young, it’s hard to know what financial aid will look like when they’re actually ready for college. This is a situation where I would much rather have the savings that I could do with what I please rather than rely on governmental policies that I have no control over.
With all of that said, there are certainly planning opportunities in terms of how to best save for college without penalizing you or your child. I think that article you linked to brings up some good points to keep in mind in order to maximize your opportunities. But in the end, saving the money will still come out ahead over relying on financial aid, if you can afford to save.
Saving for my kid’s college education isn’t a priority because…I don’t have kids and don’t plan on having them for 5-8 years! Seems like you have your priorities (and reasons for those priorities) straight, which I think is the most important thing when it comes to personal finance-related decisions like this.
Haha, yep, definitely not a priority if kids are still a long way off.
Matt, I totally agree. We are in a similar situation right now where we’ve got some other things on our list that have to take priority over saving for our kids’ college. We figure that we will benefit our kids far more by being financially stable than we will by saving money for them for college. However, one thing we are doing for them is teaching them to create their own side hustles so that they’ll have a steady stream of income at an early age to help fund college or whatever else they want to fund.
I love that Laurie! The side hustle approach will not only help make college more affordable, but it will give them real-world business experience that will help them really get the most out of their college experience (if that’s what they end up choosing to do). That’s an incredible foundation that most children don’t get. I think you’ve got me inspired!
Perhaps it would be a good idea to emphasize how much the children can fund their own college education. First, you can help them set up their own savings account for college and encourage them to keep at it as they grow up. You can also help them become well-informed about the numerous options and cost-benefit implications for their education. For example, they could learn about starting at a community college and then transferring to a more suitable four-year institution. You can also help them discover other avenues that will help fund their education such as through government service programs and military service. Going to college part-time while working is another option. Pursuing a technical or para-professional occupation in another strategy. The point here is that well-informed children can make good decisions which may not include the same choices as their parents. Active participation in the process is more likely to produce productive results than just children wait while/until mom and dad do it all for them.
“The point here is that well-informed children can make good decisions which may not include the same choices as their parents.”
I think that’s an incredibly important point and I’m really glad you brought it up. Personally, I think I’ve spent a lot of my life being really good at following directions, but not as good at self-starting. It’s something I’ve been intentionally pushing myself on recently and it doesn’t take long to see the rewards. What you’re talking about here is really powerful in helping children develop those self-starting skills from an earlier age, which, much like I said in response to Laurie’s comment above, is not only like to make college more affordable but also more productive. Someone who’s made intentional choices to get where they are is more likely to make the most of the opportunity, so I couldn’t agree more with involving them in the process like you’ve talked about. I still think there’s a place for the parents to save the money, but the two can certainly work in conjunction.
I’m late to the party here – but I wholeheartedly agree! When the time comes, the hubs and I will probably give our kids some money, but we will also not overly prioritize paying for a college education.
My parents worked hard and put us through some expensive private schools growing up. We took out student loans and worked and applied for scholarships when we finally went to college.
I think it builds character in kids and forces them to grow up if you’re not covering their entire cost of education. I know that I value it more because I worked hard for it.
My youngest sister is in college now – and I’ve encouraged her to apply to scholarships and work in order to cover her expenses. That hard work ethic and focus that she will gain from her experience is worth its weight in gold.
Very interesting topic. I’ve been going back and forth with this and am currently on the side of 529 accounts not being a huge priority. I fully funded them up to the state tax deduction level for 2 years, but I’ve stopped now and realized it’s more important to get my student loans out of the way and accelerate our retirement savings. The tax savings from the 529 isnt much and that money would be much better used to get rid of debt.
I definitely think retirement should be a much bigger priority than college savings. Debt is a little bit more dependent on the circumstances, but I certainly think that attacking your debt first can be a great strategy.