Do you think that it is a smart move if you use your retirement money for your child’s education? After all, no parent would want to see their kid suffering financially. But does that really mean you need to sacrifice your future just so they can start their own future without any debt?
It is very hard to save for retirement when drowning in debt. That is a fact. So before you do the selfless act that comes naturally for parents, you may want to reconsider using up your retirement funds just to save your kid from student loans.
Although it is the noble thing to do, it may not be the smartest. According to an article published on CNBC.com, Boomerang kids are threatening to ruin their parent’s retirement. When they start moving back to the house or passing on the burden of paying off student debt to their parents, they are endangering the retirement of their folks. This report was taken from the market research done by Hearts & Wallets and shared with CNBC. According to this study, a lot of the parents of boomerang kids are postponing retirement just so they can help support their kid. And what is more troubling about this news is that those who are doing it is part of a big group. In fact, more than one-third of baby boomers provide financial support to their kids – that amounts to 15.8 million households. That is said to amount to $8 trillion worth of assets that could have been invested.
If you are seriously thinking about using your retirement money to help you child avoid debt, you may want to rethink your options first.
Should parents use their retirement fund to keep their child from student loans?
There is an article from MoneyNing.com that discusses this topic. According to the author, parents should not endanger their retirement money just so their kids will be spared. In fact, the article suggested that parents should start saving money early on to take advantage of the compound interest of some college savings funds. They can start early, save a little each month, and still have more than enough to help keep their kids from college debt when they are older. At the very least, this move will help put some money on the table to minimize the need to borrow money.
In our opinion, it is really not smart for parents to use their retirement money to fund the education of their child. So the answer to the title of this article is a big NO. There are two important reasons why parents should be encouraged to be a bit selfish when it comes to their retirement funds.
You deserve to give yourself a bright and comfortable future.
First of all, you really have to reward yourself for all the work that you have done and will still be doing in the future. You are not only working for your own needs, you have been supporting your child during the first 18 years of their life too. That is not an easy task considering the financial difficulties that everyone experienced in the past few years. Although parenthood requires sacrifice, there are some things that you also need to do for yourself. It is true that it is your responsibility to ensure that your child is equipped with the education that will help them support themselves financially in the future. But that does not mean you should choose between your future and theirs. If you want to be logical about it, there is more at stake with your future because you only have so much time to turn things around. You child still has a long way to go to pay up their student loans and save up enough retirement money. You do not have that luxury. That is why it is okay to be selfish by putting your retirement needs first before that of your child.
You need to teach your child how to pave their own way.
Another reason why you should not use your retirement savings to fund your child’s education is because you need to teach them to be responsible with their money. Times are hard. It is not like you are in abundance now. You need to let your child experience that reality. An article from QZ.com finds fault in the way baby boomers practiced the concept of helicopter parenting. This means they try to micromanage the routine and behavior of their child. Their intentions are good because they only want to pave the way for their child to experience success. However, the methods used are not really teaching their children to own up to their lives. Too much sheltering will leave you with a child who will always be dependent on you. Do you really want that on your plate while you are retired? More importantly, can you really retire if your child continues to depend on you?
How to help with college finances without compromising your retirement savings
Of course, as a parent, you will not really leave your child without any help. You will assist them to ensure that they will not graduate from college drowning in debt. However, you need to think about how you can do that without compromising your own retirement money.
Here are a couple of tips that we have for you.
- Guide your child in selecting the right loan. If you are not going to use your retirement funds to finance the education of your child, that means they would have to borrow student loans. There many options to get financial aid. You need to be patient and sit down with your child to discuss with them their options. Make sure that you research not just the type of loans that they can borrow, but the repayment options too. You need to make a decision on the loan based on how easy it will be to pay off in the future. In essence, educating them is more beneficial than using your retirement money.
- Teach your child how to manage their money wisely. Once you have helped them select the right loan, the next lesson you need to teach them is money management. What they will learn from you will be something that they can carry with them until adulthood. When it comes to teaching your child about proper financial management, you can start with budgeting, saving and smart spending. You should discuss with them credit and how to manage it properly – especially if you will allow them to use credit cards.
- Let your child work part time. Apart from teaching them how to manage their money, you should also encourage them to work part time. A college student has a lot of time in their hands – even those who have a full load. Help them seek out job opportunities so they can keep the need for loans to a minimum. If they can pay for their board and lodging plus daily needs, they only have to borrow money for their tuition. That will keep the student loan from being too burdensome. Not only that, they will learn how hard it is to earn money – that will teach them how to practice smart spending.
- Split the expense with your child. Of course, you have the option to split the expense with your child. Choose a comfortable amount based on how much retirement money you have. When we say comfortable, it has to be an amount that you know you can replace before you retire. You can offer to pay for the tuition of your child for the first two years and then let them borrow or work for the money to pay for the rest.
Keeping your child from student debt problems is not really that hard. Sometimes, all you really need to do is to educate them to help them make smart decisions about their loans. It does not really require you to spend anything but you will be giving them something much more valuable – your time.