Honestly, in my family, it varied kid by kid because they chose very different schools and are very different people.
We made no financial demands on our son, because he went to an inexpensive school which also gave him a merit-based scholarship. He distracts easily, so we discouraged him working during the school year – we wanted him to be able to devote 100% of his time to school.
Our daughter went to a much more expensive school. We told her we expected her to pay for her books from her work-study money. She was a science major, so some of these text books were quite expensive ($200+) Her summer savings went to whatever she wanted. With both kids, we paid all of their tuition, room, board and travel expenses (both went out of state.)
We worked to instill financial literacy fairly early. When our financial situation was better than it currently is, I observed that the trendy thing to do was to pay children for their good grades. While initially, I thought such an idea ludicrous, I decided to use that a springboard to try to teach my son financial independence. We decided we would pay him for his As (in academic classes only.) However, once we started doing so, all non school related expenses were his responsibility. If he wanted new running shoes, he had to pay for it. If his friends wanted to do dinner and a movie, he had to cover it. When he got his one and only grading period B, he had to rethink his budget. And when he started to drive, his car insurance would have to come out of that (effectively cutting his income in half and forcing him to start really questioning which expenses were worthwhile.) While these were (mostly) things we would have paid for, giving him the responsibility to do so made him more invested and taught him money sense.
That is why when my husband got laid off last year and we were no longer in a position to do this, he found a job as a tutor and continued to cover his own expenses - in some cases, including school related expenses that we would have covered in the past.
Your daughter sounds like she already has fairly decent financial literacy if she was able to pay for a vacation on her own.
So I think the real question, for you - since you wish to avoid loans, is how much do you want her to work during the school year? A full time job for the summer (using our minimum wage - YMMV) would be $3480 for 12 weeks before taxes and expenses (ie gas) or any “fun money” To get to the $5000 contribution you initially floated, how much more would she have to work? Rather than having a specific number in mind, would it be reasonable to discuss how much you expect her to work and what percentage of that income you expect to be spent on school related expenses?
We don’t pay for grades, but we do pay allowance on chores. My kids have tasks each week and get paid for them, but that’s all the money they get. If they want to go to a movie, meet friends for dinner, that’s the money they have to use so they have to plan accordingly. My son’s first semester of college he didn’t have a 3.0. No 3.0, no good driver discount on car insurance. He had to pay us the $400 a year difference in his insurance. That was the last time he didn’t get a 3.0.
We don’t pay for grades or chores. We expect our children to do the best they can academically because they want to learn. And they do chores because they’re part of the family. If you pay them, how do you justify the expectation that they’ll continue to perform when you can no longer afford to pay?
I agree with austinmshawri, who put it concisely and wisely. But again, consistency in parenting is important most of all so I respect others’ methods, particularly since I don’t know your kids : )
Alfie Kohn writes excellent books on the topic of external versus internal motivators, if anyone is interested. Emphasizing internal motivators is sort of the “high road” of parenting but sometimes, for some kids, isn’t practical. Still, I personally think that the internal motivator works better over the long term, even if external ones may seem to work better in the short term. (Of course grades are one big external motivator and I tried not to emphasize them because I knew who was working hard.)
We didn’t do allowances or require chores but everything did seem to get done and perhaps the experience of working out who does what was valuable for future careers. Of course we also had one bathroom for five so that may have been good preparation too!! Negotiation skills? Patience? Cooperation?
While certainly a possibility, as I stated, in our case when we could no longer pay, he found new avenues for income. His grades were unaffected. The expectation was always that he score as well as possible in school. This was just a structure to teach budgeting to him for items we would have otherwise covered at that time.
As such, I am confident that he will leave for college with a strong sense of financial literacy. Likewise, stories OP gave inclined me to believe she also has a good money sense. There are lots of ways to teach this. I was merely giving my example. Was it an unusual one? Yes, but I didn’t want him getting a job for incidentals (which might have affected grades) and I don’t pay for chores. On the other hand, I don’t consider it incredibly eccentric. GPA requirements for merit scholarship incentivize grades. As such, the notion that he will continue to have to achieve high grades is not one that will be new to him.
A child that you have to worry about not being able to budget does lack financial literacy and that can be a concern for some. But one I am personally glad was addressed prior to college. It is a separate issue specifically than the initial question - however, OP did mention it in a follow up which is what I was addressing.
Much like @compmom we support long term outcomes the best we can. Overall, we pay for school, food, housing, books, car insurance and cell phone. They pay for their own personal expenses, gas and auto repairs. We pay for them to come home for long breaks. If they want to go elsewhere they have to pay for that.
If an unpaid opportunity comes along we try to support that as long as it makes sense. Our middle wants to go into sports or sports radio and has the opportunity to do an unpaid internship this summer. We will have to pay for his housing in order for that to work. We are willing to do that. He will work a paying job as well as the internship which is 3 days a week. Last summer he worked at the Nashville minor league baseball team and they want him back this summer.
We found it to be much less expensive for our kids to live off campus and cook their own food than to live on campus and be on the meal plan. After their first year they both lived off campus and went off the meal plan. They never ask for money although sometimes we gift them a little bit.
Our older two got merit scholarships and kept them. Our youngest did not get any aid. We may have him take some loans but nothing that will cripple him after he graduates.
Don’t count on saving money this way unless either (1) your child has a car at college or (2) there is a supermarket within easy walking distance of the off-campus apartment (close enough so that carrying a couple of bags of groceries is realistic).
My kids both moved off-campus. Neither had a car. Neither had a supermarket within walking distance of their off-campus apartments. They ended up spending MORE on food after they moved off campus because they relied on cash dining facilities on campus, convenience stores, and takeout.
@garvey I too would consider myself a debt phoebe when it comes to college but it might turn out that the amount you are short is the loan amount your student can take out. We too used the state flagship cost as a bench mark. For us it is $30K/year. Our son would prefer the private schools he is looking at. If the private he wanted to attend was $35/year and all we could swing was $30. Then I would be ok with him taking the $5k in loans. I am a firm believer that a child will thrive in a place they want to be and may not at a place you force them to go due to money. it is one thing if the top option cannot be done, but another if your only $5k away and he has not taken any fed loans yet. I draw the line there though. You have to stop the bracket creep. At some point you have to just draw the line.
I pay 100% of education costs. My kids (ages 22 and 19) with both graduate with grad degrees and zero debt. They both started working right around the time high school ended. They would have worked earlier but both played football and, in the case of the older one, ran track and was on the weight lifting team and I felt like that was enough.
They were lucky when it came to jobs.
The older one found a great job for a first job and his little brother was able to work at the same place when he was ready. Very fair pay for a 19 year old kid. I bought both of them cars and pay the insurance they pay the gas and R&M.
I look at it like this. I could spend my money on hundreds of things. But I choose to help my kids along in life and that is why I budget the way I do. They are responsible enough. I could burn through my resources to go look at the Grand Canyon or something and visit France or what not but that isn’t what I want to do. That is not where my values are. So, I help them along. I could wait until I die and pass it along to them later but, since that is the plan, why not do it now? I guess some would say I need to plan for my retirement. I do. Covered. No concerns there.
I don’t care if my kids come home after college either.
I don’t care if they live here for a few years to save up for a house which I will also help them with. And I’m going to do it in a very smart way. I’m going to buy the house and have a small mortgage on it. My house is paid off so I can do it. Lets say the house costs $350K for about 2,000 heated square feet. I might ask him to pay me back $650 a month until the debt is down to $200. That way he basically pays $150K for a $350K house. The house will be in my name. When I die the house transfers to him at a stepped up basis. He gets the same house. The bank gets nothing. Essentially I finance the purchase not the bank and we get the stepped up basis 40 years from now when I die.
I’m not sure if that makes sense or not but it makes sense to me. I’ll get him a better car as a grad present and the little one just needs to figure out a major. I’ll read the other replies now.
thumper1 wrote: “We had them take the loans because it eased OUR cash flow while they were in college. We always intended to pay the loans off ourselves. Always.”
Just curious - then why was it a surprise to them that you always intended to pay off the loans, if not to make them think they had some skin in the game?
GoNo- you need a lawyer— the tax implications of inheriting a house are not the same as inheriting common stock. And in some states, the inheritance tax kicks in at the first dollar (there is usually an exclusion of some kind but it is nowhere near as large as the federal estate tax.)
You may be a genius when it comes to college financing, but once you are dead there are no do-overs. I’ve been the executor for relatively modest estates and you’d be surprised how many nasty conversations I’ve had with the heirs when it turns out the parent wasn’t quite as savvy as he or she thought.
The house will pass to the heirs and there will be no estate taxes. Gift taxes can be avoided also. The house passes at the FMV at the date of death or an alternative date 6 months later but either way a stepped up basis. There is no IT in my state. And houses do not cost $900K in my state and college doesn’t cost $35K a year either which is probably how I’ve managed to get ahead some. I will double check but I’m pretty sure the plan I described above is a smart way to handle things. Again, he gets the same house he would have gotten had he tried to buy it himself but he doesn’t have to pay $350K for it. There seems to be some herd mentality that it is really smart for Junior to buy his own house and end up paying the bank $500K of interest over 30 years and then have Mom and Dad give Junior something when they die. There is a better way to do it and there will still be plenty left when I die.
ok - here’s a new financial agreement that hasnt been mentioned yet. We borrowed from our kid this year to pay his room and board!
we were in denial on college costs. our fault. Saved $60K total in investments (no 529s) to be divided between 4 kids. SO - both kids in college now were told to take the full-tuition scholarships their chosen schools offered. We would bank roll Room and Board. This fall with two room and boards due, we didnt have enough cash. We borrowed (with 5% interest) from our kid who’s worked and saved a lot- and paid his room and board with that! We’ve paid him back now. That was really strange.
Our kids work in the summers and use that for incidentals and books and travel. No loans so far. We are tightening belts and saving saving saving now for next fall! I think we’ll be borrowing from him again if we dont want to cash in non-liquid investments.
GONO- you need to use the house as YOUR primary residence for two of the five years prior to your death in order for the stepped up basis to kick in. You already own a primary residence- your son will be living in this house, which means it will be treated as an investment property. You are not allowed two primary residences simultaneously for tax purposes.
Like I said- get a lawyer. This is no time for DIY.
As a one-income family with significant medical issues, we could not afford to save nearly what would have been needed for our pups education. They wagged and worked their tails off and got into schools with fabulous financial aid, but they still had to contribute towards the cost of their education, by taking summer and work-study jobs. They understood this was out of necessity.
As parents who both paid 100% of our own college costs ourselves, including loans, our expectation when they were born was that we’d be happy to help if we could, but we knew we would likely never take loans to support their education. Then the medical issues hit, and we were forced to borrow from what their grandparents had given (initially hoped to be for their education) to cover some of that. So when it came time to apply to colleges, they were well aware of our financial predicament. We are broke, almost no emergency fund, and we morally “owe” them a sizeable amount that I don’t think we will be able to pay off any time soon - at least until we finish paying our mortgage in 11 years. Our retirement plan is paltry compared to our future needs. But we hold no credit card debt, and our 8 and 10 year old cars are both paid for.
Our pups will become self-sufficient out of necessity. S graduated without loans and is working in his chosen field. In our situation, we won’t be able to help him with a house downpayment. He understands.
To us, debating college “skin in the game” is a far-off luxury I would have liked to think about. Almost all parents want to put their children in the best situation possible to prepare them for future success. Life doesn’t allow that for some of us, but we play the cards we are dealt.
IRC Sec. 1014 says what is in the estate will pass to the heirs at FMV. The only property excluded is financial assets like stocks and bonds and mutual funds, which will TF to the heirs, but not at a stepped up basis.
There is plenty of discussion about what happens to jointly held property or property held in community property states. Sec. 1014 doesn’t say I have to use the second home as a principle residence. You raise a good point. I appreciate it. Are you thinking about the exclusion from gain that is disallowed on an investment property by chance? Or possibly a state law? If you are speaking about federal law on TF’s after death I think Sec. 1014 is pretty clear that what I intend to do will work the way I intend it to work.
garvey, I like your idea here but $5,000/yr seems to me like a considerable sum of money for a recent hs grad/college student to have on hand. If you don’t mind sharing, I’m interested in how you are planning to achieve this since my kids are younger and I would love to have them be in that position in a few years
It was a surprise because we wanted it to be a surprise. And we told,them right from the get go that we were asking them to take these loans because it helped OUR cash flow while they were in college.
I don’t believe helping our cash flow counts as “skin in the game” which quite frankly is a phrase I don’t particularly like.
If our kids had any “skin in the game” it was to maintain a 3.0 GPA and graduate in four years. Sort of like that was their job.
I just want to respond to one point that several posters have raised which I think is a false rationalization - essentially that they want the student to be able to have opportunities such as unpaid internships, networking, or working with profs in a college lab rather than spending time flipping burgers.
College students very often earn money in positions that put them in good positions for networking or future employment, and often are directly related to their majors or become the basis for other future, unanticipated careers (often particularly important for those who major in humanities or social sciences). Many of the on campus paid jobs involve working in support or research assistant positions to various campus departments or individual professors. Students might also take on jobs that are directly related to valuable work skills, such as working with the campus IT department or tutoring. Even jobs tilted more toward service work provided some excellent networking opportunities – my daughter’s job with student run catering agency led to connections with some very interesting and well-connected clientele.
My daughter also did have the benefit of unpaid summer internships and travel abroad, funded with grant money or funded with money earned during the academic year.
Students who take on paid employment gain confidence and workplace skills, and their earning capacity increases over time. Their work gives them valuable networking opportunities with faculty and with potential future employers. They understand the value of their own work and often are able to get paid positions rather than unpaid or low paid internships because of the work experience they have accumulate - including the fact that they just get better over time with the process of seeking employment and advocating for themselves.
The students who are working usually aren’t missing out on study time or some sort of on-campus academic opportunity. They just have less down time – less time for Facebook, less time to binge-watch Game of Thrones.
Bottom line: employment is a learning opportunity that confers its own educational benefits, with the added benefit that the student is getting paid to learn.
I’m not faulting the parents who choose to fund their children’s education and campus life 100%, and have the financial means to do so. Truthfully, that’s great - it meant that my kids had less competition for campus jobs & more opportunity. But for the parent who views a student job as entailing being a lifeguard or waiting tables – I think you are selling your own kids short. These are college students – they are smart and capable of all sorts of employment in all sorts of fields, particularly in today’s gig economy.