Fund Your Kids' College and You May Ruin You and Them

By Rick Kahler

NEW YORK ( AdviceIQ) -- Do you want to give your children the best possible chance to do well in college, earn higher salaries and save more for their retirement? Then don't pay for their college education.

One of the most popular money beliefs I encounter is the notion that good parents should pay for their child's college. Many parents do this at the expense of taking care of themselves in retirement, which is a very high price to pay.

The most popular reason I hear from clients for funding children's' education is empowerment. They want to spare kids the burden of repaying school loans after graduation. They also want them to focus on their studies without the distraction of working to pay for college, so they can make better grades and then get good jobs. For most parents, allowing students to concentrate on classes is a sacrifice worth making.

There's just one problem with this scenario: It's a myth.

In most cases, parents who fund their kids' college education are ensuring they will actually do worse in school than those who have to pay their own way. This is the finding of research by Laura T. Hamilton, published January 2012 by The American Sociological Review. Titled More Is More or More Is Less?, her study shows that students whose education is funded by parents or through student loans actually have lower grade point averages than students who work to put themselves through school.

Hamilton finds that students who have to "do something," requiring them to take personal responsibility for funding their educations, do best and carry higher GPAs. This study includes those who get grants, scholarships or veteran's benefits, or who participate in work-study programs.