Parental predicament: Save for retirement or pay for college?
Tuition increases make it important to plan financially.
(As seen on WZZM TV 13) All across the nation, college tuition prices continue to rise, and the state of Michigan is no different.
In June, the University of Michigan’s Board of Regents voted to increase in-state tuition by 3.9 percent, while in-state tuition at Michigan State University jumped 3.7 percent for freshmen and sophomores and 3.9 percent for juniors and seniors. Here in West Michigan, Grand Valley State University — the region’s largest — voted to increase tuition by 4 percent, while Grand Rapids Community College saw a 2.8 percent rise in tuition.
And as tuition rates across the board continue to rise, many parents face a difficult decision: whether to sacrifice their personal financial goals to help pay for the future of their children.
A recent study from banking and financial services firm HSBC Group found 60 percent of parents surveyed across 15 countries willing to go into debt to pay for their child’s education. Additionally, 37 percent of parents said education funding is more important than saving for their own retirement.
“This is a trend that’s been going on for quite a while but is becoming more and more prevalent as these additional costs are being passed on to students and their parents,” said Tom Blower, a senior wealth planner with Legacy Trust in Grand Rapids.
To avoid having to make a difficult decision, Blower said it’s important for parents to get a better sense of their financial goals and where they stand in attaining them. That includes removing the potential cost of college education at the onset and inputting assets, income and expenses into a formula that projects into the future.
“You want to see how healthy the parents are from a financial standpoint, regardless of college expenses,” he said.
Once that’s determined, the various costs of education are factored in and savings are taken into account to show how they affect overall finances. From there, Blower recommends parents create scenarios to show the impact of paying 25, 50, 75 or 100 percent of their children’s education costs.
“Once they’re armed with the data, it’s up to them,” he said. “But having that big picture perspective at the start is huge.”
It may sound like common sense, but Blower notes the reality is a number of parents opt to take a more transactional approach to their financial planning.
“Very rarely are things planned out — it’s more, ‘we’ll get there when we get there,’” he said.
And while that approach works for some, it may not work for all, and neglecting to do the legwork until it’s too late can oftentimes cause strain and hardships, he said.
Of course, the most important factor in handling future expenses also is the most frequently repeated: Start saving early.
“If you do, you can at least start putting a dent in these big numbers much earlier,” Blower said. “There are many different ways to save for college, and everyone is different. But this is a proactive planning approach versus a product approach, and any sort of partial application of this process for people would be beneficial.”