Are You Saving Too Much for Your Kids’ College? – Reuters

By Chris Taylor

NEW YORK (Reuters) – Modern parents are finding themselves in a tough financial spot, trying to juggle multiple responsibilities. They need to cover monthly expenses, reduce debt, assist aging parents, prepare for retirement, and save for their children’s college education, all while dealing with stagnant incomes.

Given the pressure, here’s a perspective that might be unexpected: when it comes to funding your children’s college education, you might be overextending yourself. Recent data shows that 42 percent of parents are increasingly anxious about college costs, up from 28 percent just two years ago, according to a survey by T. Rowe Price.

The survey indicates that 57 percent of parents are willing to incur at least $25,000 in student debt for their children, and 19 percent are open to borrowing $100,000 or more. Interestingly, 58 percent of parents have established college-savings accounts for their kids, compared to 54 percent who have retirement savings set aside for themselves.

"Parents are experiencing unprecedented stress regarding college expenses," notes Marty Allenbaugh, a senior marketer at T. Rowe Price. "Many parents feel guilty about not being able to offer more support and are prepared to take on significant debt." Their intentions come from a good place: the desire for their children to graduate debt-free.

However, prioritizing college savings over other financial responsibilities isn’t advisable. Not being able to completely fund your child’s education doesn’t mean you’re a bad parent; it simply reflects a realistic approach.

Similar to emergency protocols on an airplane, it’s crucial for parents to ensure their financial well-being before they can effectively assist their children. "Put your own oxygen mask on before helping others," advises financial planner Stephanie Genkin from Brooklyn. "This may sound harsh, but it’s essential for avoiding a significantly underfunded retirement."

Many parents need to reassess their financial priorities. Here are some strategies to help:

1. Acknowledge the Reality of Debt
While the aspiration for children to graduate debt-free is commendable, it may not be a realistic target for most families. Only 12 percent are currently on track to achieve this, as reported by T. Rowe Price. Instead of trying to cover all expenses, consider helping with specific costs.

2. Manage Expectations
Parents may find that their children have unrealistic expectations regarding who will pay for college. A staggering 62 percent of kids assume their parents will cover all college expenses. Open discussions about finances, options for part-time work, scholarships, and loans should happen early and frequently.

3. Prioritize Financial Goals
According to T. Rowe Price, retirement savings should take precedence over college savings. Aim to save 15 percent of your income or maximize your employer’s 401(k) match. After addressing debt and establishing an emergency fund that covers 3-6 months of expenses, then you can turn your attention to college savings.

Saving $300 a month from birth is an ideal benchmark, but even setting aside $70 a month can accumulate to about $25,000 by the time children enter college, offering substantial help for in-state public college expenses.

4. Maintain Financial Flexibility
Students have various options to fund their education, including scholarships, grants, loans, work-study opportunities, and potential gifts from family. However, parents who exhaust their resources trying to cover educational costs significantly limit their own ability to fund retirement.

Consider the case of a couple in their late sixties: they funded their four children’s college tuition but now face retirement with a substantial mortgage and minimal investments. "You might need to support yourself for 30 years in retirement," Genkin warns. "This clearly underscores the importance of prioritizing retirement over college financing."

Ultimately, financial balance is key to ensuring both parents and children can enjoy a stable future.