Welcome to MainStreet's newest series. Each week, we will answer a real question from readers on education costs and how to pay for college. If you have a question, feel free to send it to firstname.lastname@example.org.
Q: "My wife and I are in our mid-30s. We have a high school sophomore, a two-year-old and a nine-month-old. We do not have a college savings plan in place, however, and I am still paying off my grad school loans. That said, we can finally start setting money aside for the future. What's a better approach: Save for the younger kids with a 529 type deal, or put money aside for our retirement first? The financial planners we’ve spoken to argue both ways."
-Joseph, Spring Lake, Mich.
A: Joseph, some financial planners like to draw an analogy from the air safety briefing: Put your own oxygen mask on first before assisting children with theirs. But this analogy is weak at best. Parents are told to put their own masks on first because hypoxia can quickly lead to confusion or unconsciousness. A parent who puts the child’s mask on first might not complete the task correctly, causing both parent and child to pass out. The real goal of the air safety briefing is to ensure that both the parent and child survive.
There’s also a big difference between an emergency situation and long-term planning. It may feel like there’s not enough money to save for both college and retirement, but careful planning can allocate the money effectively.
For example, if you choose to borrow instead of saving, it may ultimately cost you more. Consider that if you are earning 2% on your bank savings account but paying 12% on your credit cards, using the money in the bank to pay off your credit card balance actually helps you save in the long run.