Numerous reports show the rising costs of post-secondary education these days. So if parents have the means to afford to shoulder the burden, they should pay for their kids, right?
It's a question that comes up with many advisors who serve high-net-worth clients. While advisors certainly advise parents of opportunities of how to save for higher learning -- think registered education savings plans -- that doesn't mean they believe affluent parents should fork over the whole shebang.
"My own philosophy is that kids should have some skin in the game," says David Christianson, vice-president with Winnipeg-based Christianson Wealth Advisors/National Bank Financial. "When people have to struggle a bit and they know everything doesn't come easy, they are better prepared for life. I don't think that's harsh; it's common sense."
Still, many parents worry about burying their kids under a mound of student debt. By funding 100% of their education, they believe students can fully concentrate on hitting the books without having to figure out how to simultaneously manage a job. When clients mention this to Christianson, he often will offer another viewpoint. "My job is to help clients manage their decision in the most financially efficient way," he says. "If they say we want to pay for everything, I will have a frank discussion with them about alternatives."
That's because sometimes parents may postpone saving for their own future to pay for their kids' education, says Lee Helkie, a financial advisor with Toronto-based Helkie Financial. In fact, an August poll from CIBC found that one-third of parents incurred debt to pay for their kids' education.
Another 36% of parents believe they will have to delay their own retirement due to funding their kids' education. If parents can afford only one option -- post-secondary education or their own retirement -- Helkie advises clients to pick the latter. "Your kids have the time and ability to pay back their own student debt but you may not have time to save enough for retirement," she notes. "If we want to teach our children how to stand on their own two feet, we need to make them accountable."
There's a story Paul Lermitte likes to tell clients when he's asked for guidance in this area. He personally knows a great kid in his third year of university. His parents have paid for everything and while he studies hard, he has no job experience.
"He's a smart, good kid but I would not hire him," says Lermitte, a senior wealth advisor with Assante Wealth Management in Vancouver and author of Allowances, Dollars & Sense. "Does he really learn the value of his education when he has not contributed to it?"
He often asks his clients a series of questions to get them thinking about the issues so they can make an informed decision that's best for their family. His questions include:
- What happens when your child graduates from a post-secondary institution and cannot find a job?
- If your child lives with you while attending school, what is your expectation for how long you will financially contribute?
- How will you teach your aspiring post-secondary students about the banking system, credit and managing cash flow if you pay for everything?
- If your adult child experiences difficult times in his future, what is your strategy for helping him or her to manage through the process?
Whatever you decide, your kids need to know where you stand.
Start discussing post-secondary education in Grade 9, when guidance counsellors and teachers begin probing students about their favourite subjects. "A discussion should start with academic and career choices instead of the money," suggests Christianson.
Then let your kids know your financial intentions: what you are prepared to pay for and/or how you expect them to contribute? Helkie has one client, for instance, whose child contributes 20% of his part-time paycheque toward his own RESP.
Even if you decide you will pay for your children's education, they need to know your expectations. "My wife and I said to our kids, 'If you want to live at home we'll pay for your room and board while you're at school. Anything above that you'll be paying for yourself. If you want to go away to school you'll have to make financial arrangements for that,'" says Christianson. "We could have helped more but we thought it was better to have a life lesson that you can't just have a free ride."
If neither you nor your kids have saved enough money toward college or university, research other options. If, as parents, you earn too much money for your child to qualify for student loans, look into student lines of credit where students start repaying after they graduate. Your kids can also apply for scholarships and bursaries. Remember, many are not academic-based but based on where you live, your charitable or volunteer work or writing an essay.
