Most parents have a pretty good idea of what success looks like for their kids. They believe that a college education is the best and maybe only path to success in America. But many parents may not be aware of other options. They’re often going on myth and misguided advice about the value of college, how to pay for it, and how their children can best achieve a better life. Here are five of the most common mistakes parents make.
- They don’t save for college, or they wait too long to start.
Too many Americans still don’t understand the benefits and the rules surrounding 529 college savings account plans. (The name refers to Section 529 of the Internal Revenue Code.) With a 529 account, investment earnings grow tax deferred, qualified withdrawals are tax free, and the money can be used at any accredited American vocational-technical training school, community college, or four-year university. And some states even offer a state tax deduction on contributions made into a 529 program.
You do not have to invest in your state’s particular 529 program — you can choose any of them. You can find more information at brokerage sites such as American Century Investments or Ascensus College Savings.
- They overpromise the benefits of a college degree.
We’ve all seen the studies and read the stories. There are plenty of long-term economic benefits associated with going to college.
But many people have bought into the idea that a college diploma — any diploma at all — guarantees a high-paying job right out of school. Many Millennials have discovered that simply isn’t true. Many find themselves working at Starbucks part-time and living in their old room at home. A lot depends on the degree you pursue — and how well you manage your expectations.
- They undervalue community college.
Community college is a bargain just about everywhere. Tuition is often half or even one-third the cost of a state college or university.
With the average Millennial having more than $400 per month in student loan debt, it’s time for parents to sit down with their kids and ask some tough questions, beginning with: what can we actually afford? Community colleges are a great way to get a lot of prerequisite classes out of the way without paying the higher tuition prices of a four-year university. Just a word of caution: Be sure that the community college classes will transfer to the four-year college or university you choose later on.
- They also turn up their nose at vocational and technical training.
Fact: There is a huge skilled labor shortage in America — and many of those jobs will pay better than an entry-level job requiring a college bachelor’s degree. There are also many well-paying apprenticeships and scholarships available for those students thinking about pursuing careers as bricklayers, carpenters, plumbers, and electricians. And we should have more respect for these professions and encourage students to pursue them.
- They rob their retirement savings to pay their kids’ college tuition.
Bad, bad, bad idea. North Dakota State Treasurer Kelly Schmidt travels her state touting financial literacy and responsibility. She often tells her audience that she did not make a commitment to pay for her sons’ college educations, but she did promise she would save well for her retirement so they would not have to take care of her. More should follow her lead.
Americans are facing a retirement crisis where the average baby boomer has saved approximately $50,000 for their retirement. At some point taxpayers everywhere will be faced with the burden of paying for the services that retirees will need when they do retire. Most financial advisors and planners would tell parents not to use their retirement savings for their child’s education needs. Be smart. Plan well.
Derek Kreifels is a contributor for Opportunity Lives and the President of the State Financial Officers Foundation. You can follow him on Twitter @dkreifels.