Financial conversation with S - makes me smile, and sigh at the same time

Parents Forum
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<p>Interesting discussion tonight. Spouse and I have been saving (first in UGMA, then 529) for college for our two since birth. Recent market downturn threatens what we had hoped to be four years' tuition each at private school. It happens; we're all in the same boat to some degree at least. This thread is not intended to complain about the market. We'll make it work, it'll just hurt a bit more than we thought.</p>

<p>High school senior S is applying to all schools to which there is no merit aid. Again, no complaints; I gave him the option. I suggested he throw a few merit-aid schools in the mix. I told him that any money I don't spend on an undergraduate degree from college savings he could use toward grad school. Merit-aid money is a real option for him, he is a superb candidate. But the schools he wishes to attend don't offer it. So I'll hope for a market rebound and plan pay out of income and savings at the end of the four years. </p>

<p>Tonight he told me that one of his schools would require him to attend a summer school like Middlebury's to attain a certain language proficiency. That led to a discussion of "how deep is the well, really." Even though I had been telling him what we, his parents, can and cannot do, all along, he still was of the impression that if he needed it, we would pay for it. </p>

<p>So I patiently explained - again - how this works. Yes, I have saved money to pay for college. Yes, most if it is in the market. The market has gone down. As it stands today, I will have to either borrow to pay the end of his four years or spend down some other asset. No, when that money is gone we won't qualify for financial aid. Yes, that means that you will have no money left over in an education account. if you want to go to grad school, you'll either have to get a merit scholarship or find a field that will fund your graduate studies. </p>

<p>Now, this is a very bright young man to whom I'm talking. But it reminded me that, no matter how intelligent, there is no substitute for the experience of balancing a household budget, establishing priorities, and doing without. The fact that spouse and I have made funding college for the two young'uns our priority has probably exacerbated that sense of entitlement and/or ignorance. For a while we shielded them from knowledge or worry about our finances. Now that we are facing shelling out over $550,000 in the next seven years, though, I think it's time to share that knowledge. </p>

<p>He doesn't see that our newest car has 125,000 miles on it, that I just stacked three cords of wood to heat the house this winter, that his parents haven't taken a serious vacation or traveled abroad since we were married, that they get new clothes and sports equipment annually while we do not. </p>

<p>I know this sounds like I am complaining about S. I am not, or at least don't intend to. What I am experiencing is awareness that we are entering a very new and challenging phase in our relationship. Forever, we have been a bottomless pit of plenty. By the time he's out of college, he needs to understand that we have fulfilled what we believe is our commitment to his education, that he had choices to make all along, that they were fine choices, but he has to be ready to be on his own. And I believe the beginnings of that difficult transition are starting.</p>

<p>BTW, I was smart enough not to bring his sister's situation into the mix. We decided to allow her to attend boarding school this year - as a sophomore - which means we just bought the equivalent of 3 more years of college. I do not want the siblings comparing who got what.</p>

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<p>Please let us know if the list of schools to which he applies changes as a result of this important conversation.</p>

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<p>Wonderful. It has to start somewhere. For my S1, it started when he had a roommate with significant loans and a work/study program. It was truly underscored when he worked and supported himself last year, on two part-time jobs. It really taught him the value of money. He loves it when we buy something for him -- even something as exciting as underwear and socks -- because then he knows he doesn't have to pay for it himself.</p>

<p>Nothing like a little poverty to make them appreciate money.</p>

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<p>Does he have a safety school? And it too offers no merit aid?</p>

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<p>I do not expect that the school list will change. Frankly, putting money aside, I think his choices are excellent for him. And I sincerely don't begrudge him taking me up on my offer to pay for four years wherever. What I want from him is to take the journey toward self-responsibility. Tonight's conversation was a positive one. </p>

<p>His safety schools are not exactly safe. I am pretty confident he will get into one of the schools to which he is applying, and will be happy there because he has been very thorough and thoughtful in his vetting them. I think if he doesn't get into any schools he will take a gap year and try again. </p>

<p>VH, your anecdote rings true for me personally. I didn't realize how hard it was to afford college until I had a college roommate who collected garbage for the City of Torrington, CT in the summers to pay off his loans. I learned quickly that I was in the minority, those whose parents were willing/able to pay for their college. </p>

<p>I want to point out something important about my kids. Son has lived a privileged life. We have indulged his passions and allowed him to travel to the Mid-East to study Arabic, twice. At the same time, though, this past winter he gave up the ski team to work long hours bussing tables in a local restaurant. We did not ask or require that he do so. He did it on his own. And this summer, rather than asking for another trip, he has been working two jobs in restaurants. He comes home after he day job, changes his clothes, and goes to his night job. </p>

<p>Younger daughter is the same - she found her first job last year at a local business at age 14 and banked $2500. This summer she was taken back as a supervisor -at 15 - and banked over $3000. This while her friends were going to the beach, attending sports camps, and spending their weekly allowance from their parents. So somewhere along the way they picked up a healthy attitude about work. D understands that while we have agreed to pay tuition at BS, any trips - like to Florida with the LAX team or Colorado with the ski team - are on her dime. I think maybe she gets that even better than S does. And, in participating in my conversation with S, D said she would be happy to go to a state school if we moved somewhere that had a decent one! Funny girl.</p>

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<p>I would STRONGLY encourage your son to apply to just a few more "good fit" schools that might have merit aid available to him. The cost of of application is small and the gains can be very large - and it is LOVELY to have some good options to consider in April.</p>

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<p>AM, from your mouth to S's ears!</p>

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<p>I honestly believe that it takes years of working for anyone to understand just how much money you have to make to be able to "save" $200,000. My adult kids just can't get their arms around this no matter how hard I try to explain it. So set an amount that you are willing to fund and let him know the number. It's really hard to say "no, I can't do it" but it beats having to later ask him for help because you have no retirement.</p>

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<p>Good point, Sax. That is consistent with my plan.</p>

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<p>My kids are in a similar situation with finances, laxtaxi. If they don't need all their earnings for school, they should consider opening a Roth IRA with some of the money. Now is the best time to start saving for the future!</p>

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<p>I had son apply to 12 of top 50 schools. His merit aid went from $0 at the top ranked to full ride at lowest ranked. He had many great choices and I was glad he applied to all of them. I would suggest this approach to anyone.</p>

<p>I do not believe the economy is coming back anytime soon and really believe that there will be little growth these next 5 yrs.</p>

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<p>Sax, are you in the field of finance? Why do you think there will be little growth for the next five years? Specific signs? Leading indicators? I'd really like to know.</p>

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<p>Definitely suggest your son take on the apps of some financial safeties, just to have an option in spring. My DD had choices that were very expensive or a UC, she did not apply to anywhere with merit, it was all "top" schools.</p>

<p>With my other two we went for merit aid and I would recommend at least having the choice later- you can find schools for about $40k COA and $10-12K in merit, it might be a better choice or it might help him make the best of his expensive school if that is the choice.</p>

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<p>I expect a very low-growth era for stocks for up to 20 years (the customary amount of time for a secular bear market). The reason is that the excesses of the past have to be worked through and this takes time. The housing market has massive excess inventory and it appears that it will be growing for a while. Those houses either have to be bought or destroyed so that the housing market supply and demand balance can be restored.</p>

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<p>We created the same sort of "monsters". We not shower our kids with every privilege and entitlement under the sun, but we made it very clear that education was a top priority in our household, which it was. We bought homes in good school districts, and chose private schools that best fit our kids. We did without many luxuries that our financial peers and neighbors had and have so that our kids got the best in terms of educational opportunities.
So, of course, when it came time for college, they expected the same.</p>

<p>In the meantime, things occurred in our world too, that made it questionable as to whether we should make education as our singularly top priority. Though we are well off, we do not have the money to pay for private college without feeling the financial impact. It's going to be tight for us to do this and maintain the lifestyle we now have which is not as upscale as the college choices my kids are given. Other family situations have also crept into the picture including the low growth of assets, house depreciation, credit crunch, and more importantly health issues within the family and two aging grandmothers who now need assistance from us. Throw in some business problems and other family issues, and we have a lot of important problems vying with college for our money. It is not the choice between a nice vacation and college, but ensuring grandmom has the care and choices she deserves over college. Or that H can address some of his health concerns. We had to have this talk with our second one, who responded maginficently initially but is having a hard time now with financial restraint, and found the third on a bit incredulous that his educational choices could be compromised by lack of funds. It was our upbringing that brought this state of mind, I realize.</p>

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<p>Very happy. Sent you a pm.
Cptofthehouse: Great job explaing all the external factors that can come into play. I keep telling my kids that I have the money right now for college (not any college of their choice either) but that doesn't mean things can't change. </p>

<p>It is so hard not to allow yourself to get swept up in the excitement of all the great choices and say "we will make it work". It just isn't wise.</p>

<p>Laxtaxi: Just have him apply to a number of schools. it's a great start.</p>

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<p>laxtaxi- just want to reasssure you on three points:</p>

<p>1- even if his current peers aren't where he is in terms of the finances, once he gets to college that will change. There will be kids who grew up with less, whose parents are sacrificing more, and who are working twice the number of hours that he will be-- and it will give him perspective, and make him even more grateful to you for what you've been able to do for him.</p>

<p>2- do not even think about grad school. My kids grad school options have ranged from fully funded academic path to huge loans for professional school in a lucrative field to fully paid grad program by employer, as long as kid returns to said employer after getting the grad degree. I don't get to vote as to which is the better or best path- but I'm also not contributing so that's as it should be. The bank of Mom and Dad was not an option and the kids seem to do just fine anyway. I'm sure writing a check from a trust fund is an easier way to go... but my kids (and nieces and nephews, by the way) seem to have no trouble putting together a grad school funding plan that works. We insisted that the kids be either financially independent or on their way to it within 3 months of graduating from college which really helped- by the time they applied to grad school they had worked, paid the electric bill, had contributed to an IRA, had to choose between an HMO or cafeteria style health care plan, etc.... so they were financially savvy when it came time for grad school decisions. Nobody was taking a 2 year Master's in something or other just to have something to do in September after finishing their BA- not when they were on the hook for either paying for it, borrowing it, or finding the funding for it. If you deplete the 529 for undergrad... that's what it's for. Many posters on this board insist that they want to be able to help their kids with grad school- which is great- but that flies in the face of reality which is that it's easier to pay for grad school with OPM (other people's money) than it is undergrad.</p>

<p>3- Agree you should throw a merit school in the mix, even if he's reluctant. We know kids at Brandeis who turned down Ivy's, Case who turned down top-ranked private and public engineering programs, and at a bunch of other fine institutions when they could have been at Need Only schools for four times the price tag. Come April you can all make an educated decision based on his options, but he can't elect to attend a school he wasn't admitted to- and he may feel differently in 9 months than he does now. If you are lucky you won't need to consider the finances at all; if you are like the rest of us, you will need to make trade-offs between optimal fit and best financial choice, and if you are downright unlucky (like many families were this April- caught with negative home equity, stocks in the tank, uncertain job prospects, retirement plan down 30%, and that doesn't include health problems, etc.) you will all be hugely grateful to have a financial safety in hand.</p>

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<p>Update. We had another conversation with S last night. Thankfully we, and he, handled it well. I think he understands that he has the choice to attend a 4 year, $50k school - but that doing so has consequences. This is a first for us and for him - reframing the discussion from all-providing parents to a more realistic one of what we can- and cannot- do. </p>

<p>One of his questions was an interesting one, and understandable from his POV. If FAFSA says our EFC is more than the cost of his tuition, why can't we afford it? We explained that affording something is a very personal decision, and that we don't see "fat" in our lives that we choose to cut. The real answer, though, is that we can "afford" the EFC, but if we do pay it, we have no money left over for the "extras" he will want to do. For example, he mentioned "needing"/wanting to attend a summer school program in languages. I had to explain we wouldn't be able to pay for that if we are paying full boat for his undergraduate private school. </p>

<p>He said this made it all very confusing and made him uncertain about what to do. We told him, gently, welcome to the real world - where people make choices of how to allocate limited resources on the basis of imperfect and necessarily incomplete information. </p>

<p>This has been a very important step for our family. I hope it helps someone else start their own financial discussions with their kids.</p>

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<p>laxtaxi, thanks for starting this thread. Our financial situation is similar to yours and it's good to read how things unfold in other families.</p>

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<p>There is another lesson here - asset allocation. As you get closer to needing the money you are saving you must move it to more conservative investments. The OP did not do this (they left it in the market) and they got burned. </p>

<p>This applies to retirement money even more.</p>