Are You Saving Too Much for College?

For parents who are saving for their child college education, they are mainly concerned about not saving enough. However, I don’t know if that many people think about the flip side.  For example, is it possible for some parents to save too much?

I got some great discussion going in my last article, and Chief Family Officer commented that $250,000 may not be enough for a good private school:

“…I do think that $400,000+ is more realistic if your child wants to attend one of the most expensive schools (Cal Tech, for example, is at $40K per year already, if you include room and board)…”

In another related post about my initial calculation for my son’s college costs, TBH offered another perspective:

“…I decided that I don’t have to be prepared to pay for his entire education. My plan is to tell him I can pay for all of a public school education. If he wants to go to a private school for some reason, I will encourage him, but he’ll have to take out loans for part of it. I want to help him keep his loans to a minimum, but I think it’s actually a good thing to put some of the responsibility on him so that he values his education more, etc…”

My wife and I intend to help our son pays for his 4-year college education. However, we have been focusing on the dollar amount and the investment strategy. After reading TBH’s comment, I had an epiphany. I really liked the idea of saving just enough for a good 4-year public college education, and having our son share the responsibility if he wants more.

Here are 4 reasons why I want my son to pay for part of his college expenses:

  1. It is less burdensome on our lifestyle and effort to save for retirement. Also, we have to consider our aging parents and possibility of having another child. We cannot let his college savings take precedence. After all, he has student loans, scholarships, financial aid, and other options at his disposal. For example, he can choose to go to a less expensive school. We do not have the same kind of flexibility with elderly care and retirement expenses.
  2. It teaches him a life lesson about trade-offs. Specifically, he cannot have everything he wants, and if he really wants something he will have to work for it. After all, 4-year Ivy League education is not a NEED; it is a WANT.
  3. It teaches him the value of money. We can show him the difference between a more expensive and less expensive school. Which one should he choose — go to a more expensive school and graduate with debt, or go to a less expensive one and possibly graduate with a positive net worth?
  4. Having our son share the responsibility of paying for his education may make him appreciate the education more.

How about you? How much are you planning to save for your children’s education?

This article was featured in The Carnival Of Education #138 hosted by Global Citizenship in a Virtual World.

About the Author

By , on Sep 20, 2007
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (15 Comments)

  1. Jonathan says:

    I totally agree with your perspective on this one, it encourages ownership and the recognitiion of the value of money

  2. Pinyo says:

    @TBH – thank you! Yeah, I could’ve finished faster also if I didn’t believe in th 4 years norm.

    I also agree that saving for 4-year public college will be hard for a lot of people. I calculated $5,000 contribution each year for 17 years and invest to gain 10% per year to get to $250,000 — not easy.

    My wife and I are planning to have 2, so saving for both will be very hard. So they may have no choice but to go to public elementary and high school.

  3. TBH says:

    I’m very glad my comment caused you to have ‘an epiphany’. Many of the commenters hit the nail on the head. My parents paid for my entire undergrad education, and I did not choose a practical major. I did finish in 3.5 years, so at least I didn’t do the 6-year plan like my younger sister. But I still farted around. Took painting etc because I had a crush on an art major, not because I had a shred of artistic ability or interest.

    My son is 3.5. We’ve been saving for college since he was about a year old, but we’ve also had a couple of small but very timely inheritances that were earmarked for his college education. So it’s easy for me to say “I’ll save enough for a 4 year state school.” I know even that is an almost unattainable goal for most people.

    Other advantages: We plan to have only one kid. And we plan to send him to public elementary and high school even though we live in a city and the public schools aren’t too fantastic. So it will be easier for us to save for college because we won’t be paying tuition between preschool and college.

  4. Pinyo says:

    @Becca – You’ve made a good point about not eroding their lifetime income opportunity. I certainly will not leave my son stranded, but at the same time, I don’t think I have to save for the best school either. I would be satisfied with saving enough to have him attend good public college.

    By the way, you just described my situation. My parents spent their life savings to send me and my sister to Ivy League school. While I am very appreciative, I am also very regretful. If I’d know the sacrifice they’ve made, I would have made a very different decision regarding my education.

    Right now, both of them are living with me and I am very happy with the arrangement. At the same time, I am also very concerned about how I can be a good son and provide for them in their later years.

    So, it’s really one big trade off because I didn’t have to worry about my education and got early start financially, but I have to worry about their retirement. Personally, I do not want to burden my child with such a responsibility.

  5. Becca says:

    I grew up in a family that put a tremendous premium on education and so my parents saved pretty much all they could — more than the federal government expected of them, anyway. I think that was really important. If you don’t contribute what the feds think you should, then understand that your child either has a choice of delaying education until they are financially independent (usually legally defined as around age 25 — which cuts into *their* lifetime income significantly) or taking on high-interest private loans.

    To be honest, a lot of parents think that it is their money and they have the choice as to whether they give it to their children. The schools, and the federal government, tend to look at it as another cost of raising a child — and functionally it screws the kid over financial aid-wise when the parents don’t meet their part of the EFC.

    @ Steve – consider:
    1) It’s a lot more expensive than it used to be to go to college, just because you could pay for it doesn’t mean your children will be able to
    2) More people go to college than before, and it is considered more important for getting a “good job” than it ever has been

    @Pinyo
    There are many excellent ways to teach your children money management, and many excellent ways to let them learn life lessons when they become college students. Most of these do not preclude you having the ability to help them pay for college. Personally I knew the value of money well before my parents sent me off to university.

    Also, I work with several Chinese people and the subject of college and retirement savings came up. I was amazed to realize they viewed their *children* as key components of their retirement plan. Better to send your kid to a better school, let them focus on studying and not working, have them become a doctor, and let *them* support you.

    I’m not sure this is the “right” way to go about it, but it’s another view. And I think it’s a good response to people who think providing for your children’s education is somehow “spoiling” them. Providing for their own car when they are 16, yes that’s a touch on the spoiling side. Investing *with* them in their education- that is not about to ruin them.

  6. Pinyo says:

    @SavingDiva – Thank you for your comment. I intend to do the same because my parents gave me that gift as well. Although, I am not planning to be as generous because I want to teach my child the value of money sooner, rather than later.

    As far as the excess money, that sounds like a good plan. Although, I still have to find out exactly what happens to the excess in 529 plan.

  7. SavingDiva says:

    I don’t have children yet. However, I would like to pay for my future child’s college tuition. My parents allowed me to graduate from undergrad with no loans or debts. I wish to do the same thing for my children. If I save too much (or they earn a scholarship), I would just give them the investment account to kick start their retirement fund….

  8. Pinyo says:

    @CFO – I agree your $400,000 figure was accurate for a more expensive private school. That’s what I was aiming for also, but realized that it would be too difficult.

    When TBH made his comment, I really liked the idea of shared responsbility, and remember how irresponsible I was because I didn’t have that burden. I learned life lessons a lot faster when I had to stand on my own two legs.

    @KMC – Yearly review and adjustment sounds like a good plan. Thank you for responding.

  9. KMC says:

    @Pinyo – We’re right in line with each other if you consider inflation. The College Board reports inflation-adjusted public college increases of about 4% for the last 20 years. I figure, if anything, states are going to reduce funding for higher ed.

    This is one saving area one want to nail as close as possible. Here, it is possible to ‘save too much.’ With that in mind, we’re prepared to adjust a little bit either way if we’re not on track many years from now.

  10. Pinyo says:

    @KMC – Good strategy. Do you think 8-10% is on the high side? Most places I read mention 6%.

    @Steve – Although I did (and still do) greatly appreciate my parents supporting me through college, I felt that I could’ve learned important life lessons much sooner without their pampering.

    By the way, we should all thank TBH for this fine idea.

  11. I completely agree with you that college savings is not as big a priority as other areas – we are sacrificing college savings for retirement savings and in a couple of years, paying for private school (our local public school is terrible; I have plans to blog about this soon). We will definitely help our kids pay for college; but how much assistance they get depends on how much we can afford then, not just what they want. What I hope was implied in my previous comment is that simply that if you plan to save the full amount of college expenses, $400,000 (or more) should perhaps be your goal.

  12. Steve says:

    This is one of the best ideas I’ve read in a long time. Guaranteeing your child a college education at a public university but telling them they are on their own for a private university education is exactly the right mix of responsibility by the parents and the child.

    I have pretty strong opinions about this, because I’ve never planned to pay for my son’s education, other than whatever grandparents, etc. contribute. I paid for my own education and frankly I expect my son to pay for his own, too – but this is a good compromise.

  13. Pinyo says:

    Full scholarship would be ideal. 🙂

    What is EFC?

  14. KMC says:

    My wife and I have the exact same strategy as your commenter.

    We took a guess at what in-state tuition would be based on today’s rate and the current (8-10%) year-over-year increase and came up with a number. If our kids want to go to a school more expensive then that, they’re welcome to but I won’t be paying the difference – they will.

  15. plonkee says:

    Ideally I would save enough to cover the EFC for 4 years and a bit more. Super ideally, they’d get a scholarship and we could split the money 50/50.

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