BY: TIMOTHY BARRETT, J.D.
Trust Counsel, Argent Trust
My parents’ education was limited to a few college classes after high school. Although they worked full-time until retirement age, their compensation only covered the basic necessities. Their seven children had to work their way through high school and college to afford cars and tuition, each with a plan to move out once they started full-time work. All but one of us have graduate degrees; we are lawyers, engineers, educators and managers.
Working our way through college taught us that achievement requires financial sacrifice, desire, self-reliance, energy, focus, and a job with flexible hours. I strove to instill these qualities in my son, who is now completing his master’s in architecture—but not in the same way. And if you are willing to adjust your lifestyle, neither should you.
Twenty-somethings who are newly graduated from college or graduate school are entering a professional workforce unlike anything their parents faced. Many have student debt greater than my first mortgage and with much higher interest rates. Most won’t be able to even consider buying a house until after working a half-dozen years with steadily growing compensation. And those are the fully employed. Some professions have become project-oriented, with limited terms and little to no basic benefits (retirement plan, healthcare, paid leave, etc.) or opportunity for growth. Contract employers often don’t provide a workspace, basic office support, or equipment. To succeed in this economy will require strong motivation, good health, persistence, and focus —and, if you are willing, parental financial assistance.
A common goal among my clients is for their students to graduate college with little or no debt. But the costs parents often endure for college aren’t limited to tuition, dorms and meals. Beginning in the second year, students often move off campus to rental units (many campuses do provide large-scale apartment choices that include meal plans). Once a student leaves the protections of the college housing system, they become lessees who must pay utilities, plan their own meals, commute to class, and maintain a habitable living space (some are tidier than others). My clients are split on whether they push their students to find part-time work. But either way, the expenses compound.
I think that sacrificing your lifestyle so you can apply more of your income and less of your resources to provide your children with a debt-free college degree will bring you greater happiness and a stronger bond with your children. But don’t expect your support to end there because, despite your graduate’s beneficial characteristics, the path to their achievement in today’s economy is going to be complicated and filled with dead ends.
I believe that expecting a college graduate to be financially independent by their mid-twenties is an outdated and unhelpful hurdle to impose. And hand in hand with the reality that your children will struggle in ways you never have, you may need to make many unanticipated financial sacrifices. Over the past 15 years, I have held multiple conversations with clients of all ages, with as much as $10 million in investment and retirement accounts about the financial strain imposed by their children’s college costs, as well as their own debt service, taxes, and lifestyle spending.
Those still working with children entering college are often surprised that their income alone is now insufficient, and they must begin tapping resources they considered sacrosanct. Those who have retired while still paying college costs for children complain about the taxes imposed as they liquidate low-basis investments and tap tax-deferred compensation plans and traditional IRAs because they lack the income to meet both the college costs and their accustomed lifestyle spending and debt service. Most of these clients want to discuss how to cover their children’s college tuition, housing, and fees (with help from limited financial aid and scholarships), maintain their lifestyle and still grow their wealth. A commitment to these goals often will require that they work past their mid-sixties or even longer if they continue to support their children post-graduation. Their financial plan typically requires multiple adjustments to spending by the parents and the students.
I’ve heard that today’s college students are part of the first generation in U.S. history that will be financially worse off than their parent’s generation. Part of the reason may be that many “essentials” to modern life were nonexistent or considered luxuries just 25 years ago, such as smartphones, watches, and televisions that cost $1,000 plus and monthly subscriptions for talk/texting, internet, streaming services, and lifestyle apps that all together can cost as much as $500 a month. This spending may be compounded by social media influences and online shopping sites that create impulse consumer product demand and encourage spending as entertainment. I have found that many parents have incorporated all these nonessential expenditures into their core budget so that their college students also view these as basic expenses.
I advise them to discuss in detail the budgeting necessary for them to cover all these costs and to agree on the spending each party will sacrifice to maintain healthy financial governance. By providing good advice, setting expectations, and limiting their own and their student’s spending, these parents may provide needed tools for their students to meet their post-graduate challenges.
Graduates who have made sacrifices (even with major parental support) are more likely to find satisfaction rather than disappointment in the working world if they have already endured purposeful budgeting along with their academic rigors, life’s inherent unfairness, and the occasional failure.
