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.

Parental funds or borrowing "provide the time, money and proximity (i.e., living on or near campus) necessary to delve deeply into college peer cultures," Hamilton notes. Student loans and parental funding provide the gift of time, but it isn't usually poured into studies.

Instead, students tend to focus that extra time on their social life. The average college student getting money from loans or parents spends less time on studies in college than in high school. Even though they spend about 28 hours a week attending class and studying, the research finds they devote a full 41 hours a week to social and recreational endeavors.

Put more succinctly, students who have to work to pay their way through college spend slightly more time studying and significantly less time partying.

The net result in this is a big personal and societal lose-lose. Those of you who sacrificed your retirement to help your children through college have potentially harmed your children and yourselves. Your kids probably did worse in college, thus getting lower-paying jobs.

This loss of potential income has downsides for children and parents, who in old age will end up turning to their kids. Previous research shows that parents with under-funded retirement savings will cost their children five times as much as the kids would have spent by funding their own college education.

Understandably, a few of you are now choking on your last sip of coffee as you read the last paragraph. This is not at all the outcome you intended.

The evidence is clear. Parents who take care of fully funding their own retirement instead of sacrificing to pay for their kids' education are not being selfish. Instead, they give their children something far more valuable than the cost of tuition: the gift of success and achievement.

-- By Rick Kahler, CFP and president of Kahler Financial Group in Rapid City, S.D.

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

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AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

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