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“Investing” in a College Education

Listen to Rick’s column here: Download investing_in_education.mp3

Recently, I heard someone say he was “investing” in his kids’ college educations. I’ve heard that phrase before, but for some reason it caught my attention in a new way.

I work with investments on a daily basis. For me, “investing” has a specific meaning. It is committing money or something else of value in expectation of making a profit. It assumes some type of benefit will be forthcoming in the future.

A college education can certainly be considered an investment. It can be a necessary step toward success in a career and offer tangible benefits in the form of higher lifetime earnings. There’s a catch, though. Those benefits accrue to the person who receives the education, not the person who pays for it.

When parents talk about paying tuition for their kids as an “investment,” what benefits are they expecting to receive? The obvious implication is that, when they reach old age, their college-educated kids will be successful enough to take care of them financially.

At the same time, I see few middle-aged adults who assume it is their responsibility to pay the bills for their own elderly parents. This is not intended as a criticism or an implication that my contemporaries are unwilling to help their parents. It’s just that we don’t assume such help to be necessary in most cases. It isn’t the way our society works. We count on Social Security, retirement plans, and the like to help seniors live independently as long as they can.

Why, then, are so many of us still stuck in the antiquated notion that paying for our kids now will translate into them paying for us later? Such an idea goes back to a time when having big families meant having more help on the farm or more potential wage-earners. In past centuries, it was reality in most cultures that having children meant having someone capable of supporting you in your old age. This was important, because investing for retirement was out of reach for the vast majority.

In today’s world, investing for retirement is within reach for the majority. We also assume, rather vaguely, that it is each person’s responsibility to do so. We no longer expect that an “investment” in education for the kids will be returned by those kids paying the parents’ bills in old age.

Yet many—indeed, most—parents still put paying for their kids’ educations ahead of saving for their own retirement. Over the years, I have dealt with many baby boomer clients who were failing to fund their own retirement because they were paying college tuition.

This seems to be an increasing expectation in our society. I would even describe it as a societal “money script”—an unexamined belief that is assumed to be true even though it is only a partial truth. Not once have I had parents tell me they weren’t about to pay for their kid’s schooling until their own retirement was fully funded. The notion that the children’s education should come first is one more responsibility laid on parents, many of whom seem to accept it without question even if they cannot afford it without considerable sacrifice.

Regardless of the parents’ ability to pay for education, there are many benefits to requiring the kids to bear part of the responsibility. If you do choose to help your kids pay for college, it’s probably wiser to think of it as a gift rather than investment. Helping them get a start in life might be a wonderful thing to do. Just be clear in your own mind that any “investment” involved is in their future, not yours.

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