Lesson 4e: College Education (continued)

The time that your child is in high school and college is a transitional period for him.  It is the time for him to start learning about living on his own and making his own financial decisions.  High school and college represent a key time for children to learn healthy money habits.  Suzi Orman wrote a book, "Young, Fabulous & Broke," in which she discussed the strain that young adults are in, burdened with student loans and credit card debt.  I believe it is even more important to focus on teens before they reach college, in terms of influencing their spending habits.

Young adults will be in debt if they learn that money can be freely spent.  Many teens are working for their spending money.  Yet, how much of this is going to savings for college?  If you drive by a high school, how many new cars will you see in the student parking lot?  This is where teens learn spending habits that they will carry through to college and the working world.  Because many of them do not learn to save and control their spending in high school, it's no wonder they are broke or need to live with their parents after college. 

The news of teens learning to save for college is mixed.  Per a Fidelity survey, 75% of teens considering going to college have already started to save.  However, if they were given $500 and asked how they will spend it, 58% would spend some or all of it on a large purchase, like a car, while only 47% would save some or all of it for college.  The most telling statistic is that 64% of college bound teens do not really know nor have any idea how much college will cost.  So where is their focus, on spending or saving?

Some may argue that this is just how some teens live.  In my mind, this is how we teach teens to live, by not challenging them.  A major learning experience with money will be how you deal with their college finances.  The key is to discuss with them the costs of college and find creative ideas to motivate your child to help you save for his college education in order to learn the value of saving rather than spending:

• College match - This can work just like a company that matches contributions to a 401(k) plan.  This is where you match your child's contribution to his education.  So if your child puts $100 in a (529 or other) savings plan that you set up for him, then you match it either at 50% ($50) or 100% ($100).

• Basic education - You can provide your child a basic 4-year in-state public education.  If your child wants to go out-of-state or to a private school, he will need to save, work, or get a scholarship for the difference in tuition.  Here is where the motivation for scholarship money really kicks in because private schools tend to give more scholarships.  So if your child wants to go to a particular school, he should be motivated enough to get the additional scholarships and loans needed to finance it.

• Scholarships - As mentioned above, you can motivate your child to apply for scholarships by making him responsible for earning scholarships to afford his desired school's tuition.  In addition, if your child does get a full-ride, you can reward your child by using your savings for his college tuition as a down-payment for his first house.

  Note, if you give the responsibility to your child to get some scholarship money, make sure they own up to their responsibility.  And, if your child does not follow through, then hold them accountable.  I have suggested to others that if a child gets a case of "senior-itis" (i.e., laziness the last year of high school) and does not fill out the application forms, then it is better to defer his college admittance for a year and let him spend the year working for the extra money and filling out the scholarship forms.  An alternative is to let him have the money for the first semester or two and let him know that if he does not get scholarships for the other years, then he will need to transfer.  You do not do your child any favors by rescuing him and filling in the gap between what you promised and what he needs.  If you do rescue your child, you teach him that he does not need to honor his commitments.

• Work - I think that we all know that work can be a source of income to pay for college.  However, some have used it as an excuse too, that college is too demanding to juggle with work.  I have interviewed many students who took it upon themselves to pay for school by working both during school and in the summer.  It is up to each student to decide how much he wants a college education.  Some have used work as an excuse for being too busy to go to school.  It is up to the student to decide how much he wants to go to school and to find the means to go.

  The flip side of work is spending and savings.  A key for high school students is to appropriately split their income (from work and allowances) between spending and savings.  If all their work money goes to entertainment, clothes and technology gadgets and very little for college savings, then they are setting themselves up for failure.  It will be a difficult adjustment to shift their income from spending on clothing and entertainment to paying for college because they have already set their lifestyle.  In the last few years, a cell phone and iPod become a necessity versus a want.  It is better to slowly increase your child's lifestyle needs, then to try to have them cut if something does not pan out (like scholarships).  If someone told you to immediately cut your spending by 20% (let alone 50% to 80%), would you be able to do it?   Now, how do we expect teens to cut their spending on cloths, iPods and music downloads in order to pay their way through school?

The financial skills your children learn by learning to pay for their college education not only helps you but gives them the skills that they will need in the workforce when they graduate.  When I interviewed job candidates from college, I paid close attention to their work ethic (both in studies and work experience) while in college because that told me how they would benefit our office by determining if they would step up or not (e.g., had the work ethic) when the pressure was on.

It is also important to start educating your child about the cost of a college education when they are in middle school because by the time they are a freshmen or sophomore in high school, their performance for an athletic or academic scholarship is being monitored and spending habits have already being ingrained.

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