[...] The Problem with the Bank of Mom and Dad [...]

[...] The Problem with the Bank of Mom and Dad (from Get Rich Slowly)"[R]esearch indicates that ?the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more?. Think about what you give your kids. [...]

In the case of parents footing the tuition, I believe that this encourages laziness and does not promote the competitive spirit that is required to live (not just exist). Like it or not, life is competitive on just about all accounts. If person does not understand hardship and has not had to deal with it at an early age, they are less likely to conquer hardship later in life. Without experience, it is quite difficult to fully understand hardship, as most college don’t have a course entitled Life’s Hardships 101 or 102.

Becoming an individual is learned by the journey and not by the end result. Parents should discuss with children about the goals of a college education. College=job=happiness is not something that should be encouraged. Case in point: My father was coal miner and was the sole bread winner for the family. I was neither discouraged or encouraged to go to college, but was told that whatever I decided to do in life, make sure it was something that was practical and enjoyable. I worked in a grocery store during the week after school and in a rock quarry on the weekends. I decided that after high school I would go to college and become a chemical engineer. Got a student loan, scholarships. Mission accomplished. Got a well paying job and I thought I was happy. The job stole every shred of happiness and dignity from me. I finally got tired of feeling like machine with no thoughts or feeling, quit my job, sold my house, bought a small farm. The results are amazing: lost 50 pounds (I actually have to do something physical now!), breathe fresh air, and sleep well.

If you want to give your child a gift, let them make the choice to go college. If they really want to go, they will find grants and loans to make it happen. If they are unwilling to do this, college won’t be able to teach them motivation! Let them finish college and pay off their loans. When they finish paying for loans, offer to give them, as a gift, the same amount of money as the loan they just paid. More than likely, if you did your job as parent, they will refuse any money from you and thank you for giving them something college or any monetary gift could not give them: wisdom and experience.

[...] at Get Rich Slowly posted last week about the “Bank of Mom and Dad” and how we pay for education, with help from our [...]

My parents, both college professors, always made the assumption that both my brother and I would go to college. As a result, I always made the assumption (actually I never thought about it much at all) that my parents would pay for college and they did. My brother didn’t go to college and my parents after a couple of years gave him the money they had saved up for him to go to college. He invested that money in his own business which eventually failed. But, he started another business and he is quite successful. I worked a part time job during college (less than 20 hours a week, more like 10) to cover spending money and sorority dues.

When it came time to go to professional school I assumed I would pay for the whole thing myself.
But instead my Mom gave me a good size chunk of money from her father’s estate funds, I received a scholarship that covered about half of my tuition, I worked part-time, took student loans and my grandparents helped with living expenses. I paid my grandparents back and I quickly paid off my student loans.

When it came time to buy my first house my Dad helped me with the closing costs. I paid him back as well.

My husband and I don’t have kids yet, but if and when we do I assume that we will pay for their undergrad expenses.

I do think its important to help kids establish a work ethic and a savings habit. I think many kids today are spoiled and as a result will struggle when they become adults.

I also think its important for parents to take care of their retirement funds before funding their kids’ college costs.

She went on to say that sure, if you can pay for your own retirement and expenses, and have money left over, make sure your kids get educated, but don’t do it in such a way that it is an expectation – make it something they have to work for.

Take me for example. I was always under the impression that my education would be paid for. Problem was, when I was in grade 11, my dad got hit on the head at work but our work insurance refused to pay him any money. So my folks lived with no income for pretty much two years: luckily they were smart about how they saved, and they were okay. But there went my education money. I had savings for a bit of time, and I had scholarships, but with all the upheaval, I soon realized it wasn’t a good time to be in school. So, I moved back home. Long story short, here I am, 30 years old, and I’m just finishing my undergrad now. Sure, I know people that finished theirs 10 years ago, but I couldn’t.

That was a lame life lesson that I had to learn, but it sometimes is the truth. Sometimes, you just CAN’T! You can’t buy the new car. You can’t take the vacation. I’ve had to tell myself that over and over again – comparing myself to my friends whose parents didn’t go through as rough a time as my folks – and when it comes down to it: sh*t happens. But, through it all, the biggest life lesson I’ve learned is resilience. I think that is more valuable than any post-secondary education.

I’m a parent and I strongly believe in supporting a child’s education. However, I will not pay for the entire education. And I’ll leave it up to my children to decide what they want to study. If I decide to hold back some of the money, I may still make it available as a low-interest loan…but my husband and I would be stupid to give up the grant (and its growth) in the meantime.

I knew from age 13 or so that my mom couldn’t afford any of that, so I did what I had to do – flipped burgers, drove a 20-year-old car inherited from my grandma, and graduated with good enough grades to get most of my undergrad expenses covered by scholarships. I graduated college with $0 debt and $15K for a down payment on a new car.

It seems to me that even wealthy parents could lay things out clearly as to what kinds of financial support they should expect for higher education – at least for me, when confronted with going into debt or coming up with my own money, I obviously didn’t want to choose debt.

Clearance Items…

Tweety Bird popsicle doesn’t look like Tweety Bird [BoingBoing] I bought this ugly Tweety Bird popsicle for my kid from the ice cream truck. The manufacturer didn’t even try to center the gumball eyes. The Problem with the Bank……

I worked ( legally) from the time I was 14 and had a full-time summer job, but I spent my first year in college living off financial aid and scholarships- renting an apartment, getting a lot of take-out,etc.

My best year in school I had to pay out of pocket because I was ineligble for aid ( too many WDs lowered my completion % for continuing aid). I worked 7 days a week that year as well.

As far as my role as a parent when I have college-aged children- I think I will offer Full Room and Board. My offer of Full Room and Board will consist of: keeping their room in my house and eating whatever food I prepare/buy. There are plenty of good universities within driving distance, and unless they have a specialized major that isn’t available, I doubt it will hurt them any to go to State U.

My parents also encouraged me and my siblings to pursue further education (i.e. medical school. I’m in grad school now, but not medical). Continuing the sense of self-worth, I myself made the decision to fund my own graduate education. This has been difficult, especially being a small growing family.

To show my diligence, we lived on spouse’s part-time work, my asistantships from school, and some federal loans for a year. I then showed my parents a budget indicating how I could use a $10,000/year loan. They were more than happy to provide that amount, interest-free for life. It’s family money, and in my view, it’s to be repaid as soon as practical. But, as it’s family resources, eventually it will be inherited. Better to spread it around than to have to waste it on interest paid to a third party.

I hope as a parent to be able to afford not only such financial support but also disciplined upbringing to my children!

I don’t have much to add to this discussion because other than watching friends, and other than taking a job at the family business, I have little first-hand experience with this. Kris and I do not have children. My family was too poor to give me direct financial assitance. True, my parents gave me a few hundred dollars over my four years at college, but that was it.

I knew at an early age that my parents would not be able to help me with college. I also knew that I was going to go to college, no matter what. You might think I would have saved money, but I didn’t come from a family of savers. The thought never occurred to me. I did, however, come from a family of hard workers. So I took another approach: I studied and applied myself so that I could get scholarships. It worked. I attended college on a full-ride scholarship. (I’ve mentioned before, though, that I think this actually had some drawbacks, and helped exacerbate my financial failings.)

I do think it’s a good idea for parents to try to support their children, especially with education. I just don’t think it’s a good idea for either party to become accustomed to “economic outpatient care”. There’s a fine line, and I don’t know exactly where it rests. (It’s probably different for each family.)

I got enough scholarship money for ugrad to not work, but I don’t think that did me any favors in terms of work ethic. I spent the first part of grad school just learning to work hard. PhD programs can be a lot like an extended childhood with profs training and socializing students. The more one is responsible for thier own money the better able one will be to be an adult despite your schooling. If the finances are unbearable independently, perhaps one should forego graduate school. The sciences generally support their own students. The humanities may or may not, but the return on investment from a humanities degree isn’t sufficient to warrant the debt incurred.

@ Marsh, could you elaborate on the Horatio myth? My family is now solidly middle class to upper class now, but rewind to the 1960s and they were fresh off the boat immigrants with literally the shirts on their back. Actually, I’d say it was pretty tight through the 80s even.

I don’t agree with this sink or swim attitude. The problem is that most of society continues to support children. Not only are you forcing your children to live in poverty, but you’re also forcing them to go without valuable social connections.

My parents made just over the cut-off for student loans in Canada. They refused to offer financial support. Even though I graduated in the top 3% of my province and had won scholarships, I couldn’t afford to go to university. I’d been saving my allowance, babysitting money and part-time job earnings since I was eight years old. But I didn’t have enough to pay for residence, groceries, transportation, books and the like.

It took me six years to finish my undergrad. I had to alternate work and school. I lived on less than $500 a month in the mid-1990s in one of the most expensive cities in the world. I couldn’t afford to go for coffee in the student cafeteria, have a beer in the pub, go to the odd movie or do any of the normal social activities. I struggled to find funds to socialize with the poor kids, since their student loans gave them more money than I had — and they were getting non-repayable grants, too. I couldn’t even get a non-student loan because I didn’t have parents willing to cosign and I was too young to have a credit rating. In fact, my bank wouldn’t even give me a credit card when I asked for one, because I didn’t have a student loan! So I had no way to build my credit rating. After a couple of years, I asked them about a secured credit card and they gave me one with a $500 limit in exchange for locking $600 into my bank account. Of course, that also meant I had $600 less to pay for food that year.

From a health and safety standpoint, I was in a rough spot. I lived in firetraps, bug-infested apartments, slummy neighbourhoods and the like. I’m not talking about your basic student apartments. I’m talking scary. Of the $500 a month I had to live on, $300-$350 went to accommodation, $54 to a bus pass, $100 to food and the balance to my phone bill.

Because I constantly interupted school with work, worked when I was going to school and took night classes when I was working full-time, I couldn’t build the social relationships that university is known for. This made it extremely difficult to network when I graduated. I managed to work hard in my career and move forward. But, even when I graduated, I still had to rough it. I had to save everything I earned, because I had no financial safety net. And that made it very difficult to do the kind of after-hours socializing required by business and middle class life.

I can see not paying for graduate school. But I think parents need to make sure their children can live in safe environments, eat healthily and survive during their undergrad. Why on earth would you want your child to live on less than a welfare recipient gets? You should be able to see your child’s financial habits early on. I can’t imagine most 8-year-olds are saving their own money for college. I mean, I essentially didn’t spend any allowance, babysitting money or part-time job savings when I was growing up. Even in 12th grade, I set aside $20 a month for social activities…which had to include my graduation, prom, dances, date money and so on.

That’s why I don’t agree with refusing to help your children with university. I can see not paying for the whole thing — I’m not going to cover the whole shot for my kids — but you don’t want to put your children at a terrible disadvantage.

It would be interesting to see statistics on that; my impression is that a lot of them do. My girlfriend put herself through law school with no help from her family, and I have friends who are doctors who did the same. A lot of MBAs got their degrees with loans or savings. Sure, there are a lot of doctors and lawyers from wealthy families, but I don’t think it’s as prevalent as it used to be.

When I went away to college I was responsible for all my living expenses. That included apt or dorm room, car, food, clothes and so on. I was also supposed to try and get scholarships/loans that would cover my tuition. However, they would cover any part of the tuition that financial aid did not.

This taught me to be financially responsible, but it also made sure I didn’t drop out due to lack of funds. With the high price of most schools, I think this was a great way for them to help without making me too dependent on them.

Gal

So, I have the view that if a parent has the financial ability to support their child going to a good public instiution (in-state), they should. If the child wants to go elsewhere that doesn’t meet that criteria, he/she can pay the difference, either by working or with loans.

I left graduate school without 1 cent of debt. Now, I wasn’t allowed to slack off, and it was expected that I work during my education for my living expenses, which was fine. I didn’t mind, especially since I saw my friends leaving with 50K in student debt, and that I left with cash in the bank.

That’s a huge head start in life to give your child.

However, be careful how the agreement is spelled out. Since I worked a full-time cube w2 job and 2 nightime odd-jobs (great paid study time basically), i earned a good income which I promptly blew on the weekends or on spring break trips. My father in particular is still upset with how I spent that money (he contends) recklessly (though there are many issues here that support my case that I wont get into).

If parents gave limited help for undergraduate, they are unlikely to give more and likely to give less for graduate school. Any expectation of help is probably misplaced.

I think the parents should help if they have led the child to believe that they will and they can afford to. If they truly value education then they probably should help – not necessarily in financial ways – as an expression of their values.

In general, I think there is an easily discernable difference between economic outpatient care and being generous to your kids. The only problem is that parents giving outpatient care don’t see thats what they are doing.

I personally got 1.5 years of university paid for and cutting me off was a good idea. I dropped my spending by $1000/year (or 10%) when it happened.

The other side of the coin is that paying off student loans while getting started in life is a huge drain on your limited resources. So I feel I want to provide something to my own kid’s education to ease this pain.

So what’s the solution? I’ve been using any government benefits I receive for the kid and any gift money for the kid and depositing it in a Registered Education Saving Plan (RESP) which is a tax deferred saving account in Canada. That money will be used to partly fund the kid’s education, after that I’m not worrying about it. After all it is also in my kid’s best interest to ensure I’m financial stable in retirement to ensure I don’t become a drain on the kid’s resources as I get old.

CD

I think a tax-advantaged college savings program is awesome, and if I had kids I would use one to save for their college education. However, I might not let them know the extent to which I was able and willing to contribute to their cause. I’ve read many places — including The Millionaire Next Door — that it’s best for wealthy parents not to disclose how much money they have for fear of creating expectations in children.

As always, do what works for you.

@English Major
Great comment. I especially like: I think one has to be really careful that the whole critique of entitlement thing doesn’t teeter over into the realm of sour grapes

This is absolutely correct. There’s nothing wrong with parents helping children if they can afford to, and if the children don’t become accustomed to the help, or use the money for consumption. But, as Stanley and Danko show, too often adult children of wealthy parents become addicted to the Bank of Mom and Dad.

When parents foot the bill, this allows the student not only to do the proper amount of work for classes, but also to participate in clubs and events and to develop real relationships with other students. (Of course, many of these students still neglect the coursework part….) But many of these students don’t develop a firm consciousness about money and finances. I was one of these students.

Ultimately, I think the best scenario is for the parents (or whoever/whatever) to foot as much of the bill (tuition, etc.) as possible, with the student working no more than 15 hours per week in order to cover some responsibilities. This allows the student to be primarily a student, but also allows him/her to participate in the financing.

I think grad school is a bit different. If the student is in a program leading to a relatively high-paying career (law, medicine, etc.), loans will probably suffice (and I don’t see anything wrong with parents loaning the money, with expectations of repayment).

If the student is in a terminal-degree program leading to a relatively medium-paying career (PhD in most fields, Journalism, Culinary School), it’s best to enter programs that offer tuition remission or teaching assistantships that offset tuition and other costs. Otherwise, the parents may wind up paying more than the student will actually earn in aggregate! Loans can be helpful to finance such ventures, but if the career doesn’t yield the income to offset the expense, it isn’t financially practical. I know a couple of people who took out loans of over $100,000 in order to get grad degrees in the humanities, and they’re now making ~40,000/yr and still paying off the loans. But then again, they are doing what they love (I hope). For some, the burden of heavy loans and a perpetually low net worth are made up for by career and lifestyle satisfaction.

Ultimately, I think the issue of parental involvement in grad school depends on specific circumstances. I know a couple who laid out thousands of dollars to help their two sons get grad degrees in medium-paying careers (PhD in English, and MA in Journalism), because these were the careers that the sons wanted to enter, and the parents had the money to give. As far as I can tell, the parental support hasn’t harmed anyone involved, as the sons are in good jobs, and the parents have plenty to live on. Sometimes the best economic decisions are not the best life decisions.

Here’s the thing about expectations, though: they’re set up. I grew up expecting that my parents would fund the entirety of my undergrad education (which they did, at a private school, out of pocket) because I grew up with the knowledge that college was not optional and that it was my job to get into a top-tier school. I don’t expect they’ll fund my PhD because they always told me that I was on my own for grad school. But what about this monetary gift? I don’t know if it will be repeated because we never discussed it. The boundaries here are unclear. Does the gift recur until my salary clears some particular figure? Does the gift decrease as my salary increases? Was it just a one-time post-graduation thing? I probably won’t know ’til January. And frankly, that leaves me hoping that it will recur. I like money; I like using it for travel and investing. I know that on my salary, I won’t be able to max out my Roth for 2008 if I don’t get gift money from my parents, and I want to max out my Roth. Can you blame me?

A lot is given to one when one is the child of wealthy parents, and I don’t think it’s necessarily a sign of weakness of character that one can get used to it–one always gets used to things, it’s an essential human coping mechanism (“normalization”). I think the whole “sense of entitlement” issue can be avoided if wealthy parents are very, very clear to their children as to what financial contributions the children can expect from their parents. It is confusing to wait and wonder what my parents are going to want to cover and what they’re not going to want to cover. It makes it hard to plan. So I probably do come off as having a sense of entitlement, sometimes, in that there is always in the back of my mind the idea that maybe some goal, need, or want will be taken care of by my parents’ generosity. Thing is, though, this idea reflects fact: it might. It’s the might, I think, that leaves me, and the Metafilter poster too, perhaps, needing to ask, “Is it reasonable to ask for [X]? Is it reasonable to hope for [Y]?” in a way that reads as entitled.

On some level, I think one has to be really careful that the whole critique of entitlement thing doesn’t teeter over into the realm of sour grapes. I do think there are things wealthy parents can do to keep their kids “unentitled” (mostly: be very clear about financial contributions, work hard to instill a sense of perspective and a work ethic), but will that kid still bother the people who object to “entitlement”? Or is the real problem with the fact that that kid has material advantages, and that doesn’t sit well with us on an instinctive level?