I spoke with investors who proudly admitted they had saved up a significant amount of money for their children's college education at the expense of their own retirement savings. While I applaud the desire to help your child pay for college, I believe it shows a misaligned priority and one that my wife and I hope to avoid. I'm not saying that we're aiming to be part of the 50 percent of parents who aren't saving for college, but simply that, as a priority, college savings must come after saving for retirement.
Retirement Planning Should Be Job No. 1
I know this isn't a popular statement, but it's my opinion that retirement planning should be the primary concern of most parents, with saving for college being a distant second. The average millennial will need at least $1.6 million if they retire at 65, so it's safe to say that regardless of your age, you're going to need a sizable chunk of money to enjoy a relatively secure retirement.
What tugs on parents' heartstrings is the nagging feeling that prioritizing retirement saving ahead of saving for a child's college education equates to loving your children less than yourself. I understand that feeling, on one level, but it shows a misplaced priority, in my opinion. There are loans and scholarships for college. Nobody is going to give you a scholarship for retirement.
We Don't Want to Be a Burden to Our Children
The main reason my wife and I aren't prioritizing saving for college is because we don't want to be a burden on our children as they get older. Whether or not we like it, putting their college accounts ahead of our retirement accounts will only hinder our efforts build up the nest egg we'll need to. That might not seem like as big an issue now, but fast-forward 20 or 30 years, and the lost investment time will be felt.
What gets lost in the saving for retirement vs. saving for college debate is what is in the best interest of the child long-term. Putting enough away to fully fund a college education is great. However, what good are you to your children if you need to live with them as you age because you didn't prepare for yourself? That also assumes they'll be in a position to help you. If they're not, then what becomes of you? Of course, that's the extreme end of the spectrum, but it highlights the importance of finding a healthy balance.
Saving for College Doesn't Have to Be All or Nothing
Too often we view saving for our children's college education as an all-or-nothing situation. You can balance saving for retirement and college –- even if the latter isn't the priority. That is what my wife and I do. We save each month for our children's college education, but it pales in comparison to what we put away for our retirement. There are two more reasons for our approach, other than not wanting to be a burden later in life:
- I believe that children should be prepared for the cost of things so that they can live financially responsible lives as adults. This spans from budgeting for everyday expenses to larger-ticket items like college.
- We want our children to view the college question through the paradigm of whether or not it's best for them. We want them to consider deeply what's going to make them happy and what's going to allow them to earn a decent living. We want them to see there are ways to fund or lower the cost of college that don't solely come down to student loans. All of those things go back to financial literacy.
While we don't make saving for college a priority, that doesn't mean we don't view it as important. We view it in light of other factors that are going to both meet our retirement needs as well as help prepare our children for a life of sound financial discipline.
John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. He is a father, husband and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about wise ways to manage your money at WiseDollar.org.