Thursday, March 4, 2010

Retirement nest-egg before children's college fees

It has been my experience that couples with kids will be aggressively sold financial products designed to help them pay for their children's education and college fees. My natural inclination as a parent is to buy these plans for my children out of love.

On second thoughts, I rejected these plans.

Firstly, I had to weigh my own retirement needs over my children's education fees. In developed countries, it is unlikely the child will lose the opportunity to get a degree because the parents cannot pay for it. There are many options in America that are cheaper for these children nowadays like taking college courses online or attending a community college. But if they want to go through a four-year university course, being young with decades ahead, he is a low-risk borrower to the bank. The bank will loan him money with little hesitation. I can be assured that there will be no lack of help from financial institutions to finance my kid's education.

However, what if I end up with little savings after sacrificing my retirement nest-egg to pay for my kids' education? No bank is going to help me. No bank is going to loan money to retirees with no income and no hope of paying back.

The reasoning is clear. If my children have no money for their education, they get help. If I have no money for my retirement, I get no help. Who should I help first? Myself, of course. I must build up a sufficiently large retirement nest egg before money is allocated for the children's education fees. Take note that once you pay for the first child's education, you got to do the same for the rest. Otherwise, the other kids will cry UNFAIR and this shall become a bone of contention within the family for decades to come. Therefore, if you want to pay for your children's education, then the money set aside must be enough to pay for ALL of them, not just the lucky first few.

Getting children to borrow to pay for their own education is not a bad idea too. A little debt teaches financial discipline. When totally unburdened, a young kid just starting out work may spend without restrain. He is like a teenage boy who just discovered sex. Some debt will check his spending habits.


  1. Yes, it is really a very difficult decision what to spend money on. Of course the best variant if you have enough money for both, unfortunately the reality is tough. Maybe it is a good idea to make children to pay for their own education. Surely kids will not adore this way but it can become an excellent start for them. Students who pay for their education are usually
    more serious. From the very beginning, when they enter University ( you can get help with writing application essays ) they know that they should get everything possible here. I am proud of people who can make such decisions and tell their children to be responsible for their education.

  2. You’re completely right, nobody helps you with retirement savings but you. On the other hand, one more way to teach teenagers to handle with money is to turn to Canadian loans. Teenagers would be able to cope with lots of financial problems in future, if they feel their responsibility for covering education costs. Teaching teenagers to be financially savvy could help them to be financially confident and successful in the future.