College.
Over the past 55 years college tuition costs have risen between 6-9% annually.
A general rule of thumb is that you should assume an 8% increase in costs every fucking year.
That’s about double the general inflation rate!
Assuming an 8% cost inflation, a child born today would have to pay over $168,000 for a 4-year degree from an in-state public school — and that’s if they live at home (which they won’t want to, and you probably won’t want them to either)!
U.S. Census data published in April 2012, shows that the average American family has 3.14 members. This means that most families have one or two kids. I make a lot of assumptions and I’m going to assume that you’re an average American, so how are you going to put your one-to-two kids through college?
Let’s say you have a two year old at home who will be attending college in 2029, 16 years from now. If you’re stopping at one child, you need to raise $144k in 20 years (now until graduation). You might have a second child two years from now, which means their college is going to run you $168k. Combined that’s a staggering $312,000. Let’s be honest, can you imagine yourself having an account worth over $300k? (Future college cost calculator available here)
My advice to you — if you’ve decided to pay even a small percentage of your children’s tuitions — is to start saving now, or yesterday for that matter. Assuming a 5% savings growth rate, you’re going to need to put away $650 every single month for the next 22 years. No taking breaks. No using the money to go to Cancun.
Remember that you don’t need all of the money up front the day your oldest starts college, you can have some of the money ready, and let the rest grow for a few more years.
Now you have to ask yourself “Are my current efforts even worth it?” Every penny is going to help them of course, but is it possible your help won’t be realized when it comes time to pay the tuition bill?
If you have about $500 saved and you contribute $50 every month to the account, you’ll have about $15,773 in 16 years (assuming 5% growth). For one child, this will help lessen the need for student loans, not significantly, but either way: you are helping. If you have more than one child and you’re saving $50/month for their college, it’ll be a drop in the bucket. You’ll have saved roughly 5% of their combined tuition costs. Thanks for trying mom(s) and/or dad(s)!
What the hell are you doing saving for your kids’ education anyways? You have DEBT. The average American household is carrying a $15,000 credit card balance. The fact that you want to save any money before paying off your credit cards is absurd. Your money is being eaten alive by the bad kind of interest. I don’t give a shit if you have a 0% introductory rate on your credit card, pay them off before you do anything else!
How do you set your finances up better so your kids can go to college on your dime? You don’t! You teach your children how to earn the money they’ll need, before they need it.
Let’s assume you have a 15 year old child whose college is going to run about $53,000. Let’s assume they’re going to start college the summer directly after graduating high school, and graduate the spring of their 21st birthday. That’s 6 full years to raise $53,000.
Let’s assume no growth, because short-term investing is a bad idea, and interest rates on savings accounts are shit. Your precious child (not you) has to raise an average of $8,833 every year through graduation.
The first thing that you need to instill in your college-bound 15 year old is the importance of student aid — grants, scholarships, free money. You shouldn’t be writing their scholarship essays, the same way you shouldn’t be paying for their education. Writing a few letters and essays about how awesome they are and how much they deserve the money could land them around $10,000 or more. Now, instead of having to save $53,000 over 6 years, they only have to raise $43,000 ($7166/year).
Most states have a minimum wage north of $7.00/hour, so on average and after taxes your superstar is going to have to work about 1000 hours annually at a minimum wage job to stay on track. That’s an average of about 20 hours a week. A high-schooler could easily work 20 hours per week while maintaining good grades. Then, over the summer, instead of going to the beach every day (or whatever people do that don’t live near the coast), they can work full-time hours and really bring in some cash!
If you really want to help, one option is to seek employment at the college or university that they’ll be attending. You could essentially wipe out their obligation to pay tuition at all. There will no doubt be some fees, but if everything went according to plan your child will have a bachelor’s degree and around $50,000 in the bank. How many 21 year olds can say that? Besides the trust fund babies, not too many.
Another option is for your child to join the military. There are two ways that you can score free college from the military: 1. Do the ROTC program, then serve a few years as an Officer or 2. Go enlisted, use Tuition Assistance benefits while you’re serving then utilize the GI Bill to go to school for free after your four year commitment. Can you beat this option? Not by a long shot. Plus, you’ll end up with some great work experience and networking skills.
When you think about it, paying for your children to go to college doesn’t make very much sense. Basically you’re fronting their money, so they can be as close to debt free after graduating. Then, later in life they’ll start saving for their kids to go to college. It’s a cycle, and one that should be broken. I think it just makes a lot more sense to keep your own money, teach your kids not have the sense of entitlement that most American children do, and help them pay for college by paying for it themselves.
Can you imagine if you saved up 100% of the tuition costs and Junior failed out of college? I’d be so pissed, but I’m not going to save for my children’s education, so it won’t be an issue that I’ll have to deal with in my lifetime.
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