Cashing out to pay kids' college a bad plan, experts say

Published: Sunday, Aug. 19 2012 11:11 p.m. MDT

An Ameriprise Financial Inc. survey of 1,006 baby boomers found that 93 percent provided at least some financial support to adult children, while only 24 percent of those boomers said they are saving for their own futures, down from 44 percent five years ago.

The college-prep site Schools.com features a 2011 survey by SimpliFi that found 58 percent of parents haven't set up a college fund for their children. It noted 62 percent expect their children to share the cost of education and 22 percent said they'd pay however long it takes their kids to graduate.

Yellen said college is important but some options are gentler on family finances, including less expensive but respected state colleges. And children can pay for their own education. A free ride from the Bank of Mom and Dad "doesn't help build that sense of self-reliance: 'I can make it.' "

Parents who want to or can afford it need not take on the entire burden. "You can be there for your kids, co-sign on loans, but the kids have to be part of the financial discussion. Get them involved as you look at the impact of their decisions and your decisions. Parents can help scout out loans, scholarships, work study or employment on campus," Yellen said.

Pareto said parents should be transparent about family finances and "run the numbers." If you take a loan from your retirement to help fund college, must you work five years longer or cut back on expenses? Can you live with the ramifications? "By and large, there are solutions for young people whose parents can't afford it. I found a way to get loans. They will, too.

"I come from the school of thought that says even if I have everything to give to you, I don't think I want to give you everything. There is growth in a little bit of a struggle, in having to work for it and earn it," Pareto said. "The value that process instills on a child is priceless."

Self-reliance

Mignonne Jeppson said her children have always helped by sharing costs like clothing. She wants them to be responsible and money smart. And a degree alone is not enough to ensure a healthy financial future. "I told the girls, if you get a four-year education from a university, make sure you have a plan at the end of that goal and that it works for you."

U.S. News and World Reports recently explained "costly mistakes" parents make when it comes to college funding for kids, including not saving enough, early enough and taking out 401(k) loans to pay for schooling.

Pareto suggested letting people know you have a 529 account to help pay for college when kids are very young. Friends and family would probably be as happy to put $25 into a college fund as into buying toys. She recommends paying for college that way because of tax-free growth.

Yellen, who lives in Santa Fe, N.M., likes using a specific type of life insurance, against which money can be borrowed without depleting the policy's value or growth. She explains more at her Bankonyourself.com blog.

EMAIL: lois@desnews.com, Twitter: Loisco

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