Here's Why You Should Avoid Taking On Debt For Your Kids
As a father of three, I understand that parents who go above and beyond for their children financially usually have good intentions. But as someone who works in the financial industry, I'm telling you to stop. Here are some ways to help your kids succeed without digging deep into your pockets.
While many Americans condemned the actions of the wealthy parents in the recent college admissions scandal who had bent the rules to put their children ahead, others were more compassionate, confirming that they too would do just about anything to see their kids succeed—whether it be lies, bribery, or even jail time.
A recent Country Financial study found that most parents are willing to go to financial extremes when it comes to giving their children the best opportunities to succeed. The study found that 60 percent of those "who attended or are planning for college have enrolled in at least one financially-taxing extracurricular to help improve either their own or their child’s chances of success." The most popular? SAT or ACT prep classes (13 percent), private sports (12 percent), music, language or art lessons (10 percent), and hiring an academic tutor (4 percent).
In order to give their kids these opportunities, parents admitted to making financial sacrifices, such as pulling from their savings accounts (26 percent), taking out a loan (18 percent), cutting back on retirement savings (13 percent), and even taking out a second mortgage on their home (5 percent)!
It’s obvious that love can make you do some crazy things, but as a parent and someone who works in the financial industry, the scandal had me thinking about a scenario that affects many more Americans: How much debt should we take on to help our children succeed and can we realistically support our offspring without sacrificing our own retirement savings and dreams?
Parents who have financially overextended themselves for their kids likely have good intentions. As a father of three, I myself have spent plenty of money over the years towards expenses related to my kids’ traveling sports teams. But before you pay the hefty price for extracurriculars, consider the bigger picture. In the case of sports, very few kids actually go on to become full-time athletes, so it’s important for every parent to think long and hard about if those costs are worth the investment.
Similar to the act of putting on an oxygen mask during a flight, it’s important to prioritize your own financial stability before you can help others. Failing to do so can become crippling for the entire family in the long-term.
Here are a few simple steps parents can take to help their kids succeed, without sacrificing long-term financial goals:
Set Your Long-term Goals First. Before you can determine what you’re able to afford for your kids today, you need to think about tomorrow. Where do you want to be after the kids have moved out? Talk to a financial representative to determine your priorities, and then develop a budget that will help you achieve your goals.
Be Open with Your Child About What’s Feasible. Once you have a plan in place, have a transparent conversation with your child early on about what you’re able to afford so they have realistic expectations moving forward. Let your children know that while you want the best for them, you don’t want to end up living in their basement in the not-too-distant future.
Look at All Available Extracurriculars. Extracurriculars like traveling sports and private lessons can quickly drain your bank account. To save money, get creative and consider more affordable, hands-on alternatives. Rather than pay a piano teacher, for example, is there a free tutorial series online that you can help your child stick to? Instead of paying for expensive test prep classes, could you take an hour each night to work through SAT practice tests with them? Investing time vs. money can help your child sharpen the skills they hope to build.
Teach Them About Managing Money: While parents are concerned with making their kids seem as impressive as possible on paper, many forget the fundamental personal finance skills that are just as necessary for their long-term success. Help your child to get ahead and become financially independent by taking the time to show them how to save and learn the value of money. Once they have a better understanding, they’ll not only be financially independent, but may also respect the financial decisions you made as they were growing up.
The Bottom Line
Don’t lose sight of your own financial goals as you assist your children. Remember that prioritizing your future does not mean that you don’t care about your kids’ futures. Talking with a trusted financial advisor can help you to identify ways to continue supporting your child without getting off track.
Tim Harris is the executive vice president at Country Financial.