Are Parents Over-Saving for Their Kids’ Education? Find Out Now!

Dive into the latest episode of The Long View, where Mark Berg, the mastermind behind Timothy Financial Counsel, unveils strategies that empower parents to financially support their kids while steering clear of instilling poor money habits.

Below, we’ve highlighted some key moments from Berg’s enlightening chat with the savvy financial experts Christine Benz and Amy Arnott.

Navigating the College Funding Conversation

Christine Benz: Let’s tackle the elephant in the room: college funding. It’s a major financial milestone for countless families. How should parents initiate this crucial dialogue? I’ve heard it’s wise for parents to outline their financial capabilities and expectations regarding their child’s contributions. Do you think setting these parameters is a smart move?

Mark Berg: Absolutely! This conversation is vital. College is a monumental financial investment for any family. Starting this dialogue early—think when your child is ready for their first job—is key. For instance, consider having your child set aside a portion of their earnings for their education. I’ve worked with families with modest means who effectively communicated their financial limits. They explained, “Here’s what we can contribute, and anything beyond that is on you.”

Surprisingly, even with a modest contribution, all three of their children graduated debt-free! They explored various paths—like starting at community college or securing scholarships—and as a result, the family navigated this journey successfully. Establishing these guidelines isn’t just important; it’s empowering.

Are You Saving Too Much for College?

Amy Arnott: In your experience, do you see families oversaving for their kids’ education? It seems especially prevalent among successful clients, like doctors or lawyers, who expect their kids to follow in their footsteps.

Berg: Great question! Yes, I’ve seen this happen. Many families plan not just for a four-year degree, but also for graduate school. While 529 plans offer fantastic tax benefits—growing tax-free much like a Roth IRA—our approach typically suggests aiming to cover about 80% of costs for three years of school initially, then adjusting as you get closer to those college years.

Oversaving can be a pitfall. We want to ensure that 529 plans are utilized for the intended child. Flexibility is built into these plans; if there’s surplus, you can even redirect funds to future grandkids!

Benz: What about parents who prioritize college funding over their retirement savings? How do you guide clients who might be veering into that territory?

Berg: This is a common dilemma. Every parent wants the best for their kids, especially regarding education, which is often perceived as a priceless gift. However, as costs soar, striking a balance can be tough. We guide parents by helping them visualize their financial landscape—detailing their savings and layering in college expenses.

It’s crucial to establish boundaries early on. If high schoolers set their sights on out-of-state schools with hefty price tags, they need to understand the financial implications. This teaches them to make informed decisions—and that’s a priceless lesson in financial responsibility that benefits the entire family.