Involve College-Bound Teens in Family Financial Planning

Children who have a solid understanding of their family's financial situation are better equipped to make rational decisions when making college selection decisions. Both parent and teen may benefit from working together with a professional financial planner. The teen will gain a better understanding of the sacrifices entailed in paying for college, while the parent helps avoid being pressured into making financial committments that will keep them from meeting other financial goals.

(PRWEB) November 5, 2005 -- You have skimped and saved since your child was 12 months old. You have contributed as much as you can afford to 529 plans for your child. As your high school junior starts the college selection process, you congratulate yourself on having met your long standing goal of saving enough to pay for four years of state college.

What happens, however, when Johnny decides that state school isn't part of his plans? What will happen when he decides that Exclusive University is the best place to begin preparing for his career, at an annual cost of three times what you are prepared to pay? Of course, we know the decision is driven solely by the quality of education at Exclusive. Has nothing to do with the fact that his new girlfriend has just been accepted at EU (with a full scholarship). "Honest, Dad, I'd be applying there even if I weren't going out with Mary!" Uh-huh.

You can explain that the family cannot afford Exclusive's tuition, but will Johnny really understand this, and accept it? Will he understand the impact that his college choices will have on his younger sibling's college opportunities, or his parents' ability to support themselves in retirement? Does he understand the huge impact of student loan debt on his personal finances after graduation?

Most high school age children are largely disengaged from family finances. They have not been actively involved in the budgeting and savings decisions which ultimately determine how much money is available for their own college education. Although they may understand how much is in their college savings account, most kids believe that there is always some additional untapped source of parental wealth which is available should they really need it. This can frustrate parents, who often complain that their teens don't understand the value of money. But in truth, teens who have not been involved in the family's financial planning can not be expected to fully understand the impact of the college decision on their parents, siblings, and themselves. Indeed, although they realize college is a lot of money, most teens simply do not have the perspective required to understand how difficult paying for college really is.

Due to this lack of experience and perspective, many see student loans as a painless solution to the college funding problem. Of course, for many it is the only alternative. However, teens need to realize that borrowing is not pain free - it is "pain deferred". Although they may realize loans need to be repaid "after graduation", to most teens this seems as far away as Pluto.

It can be difficult for many parents to have a family financial planning discussion with teens on their own. Many parents have difficulty comprehending their own complex financial situation, much less explaining it to their teens. Parents also naturally dislike having to deny their kids the things they wish for, whether it be a new car, $100 running shoes, or tuition to Exclusive University.

Due to the difficult nature of the family financial planning process, some parents opt to utilize their financial professional. Condider having your teen sit in while you and your financial advisor discuss college saving strategies. Let them help with budgeting and cash flow. Let them help set the goals and develop a plan for reaching those goals. Here are a few of the benefits of involving your child in the financial planning process:

1. Understaning of the Family's Financial Limitations. Children who are involved in the planning process, including setting of goals, will have a more realistic understanding of what is financially possible, and of the sacrifices that are involved in paying for college.

2. Ownership of Goals. Kids who help to set the family's financial goals will be more highly motivated to do their part in helping achieve those goals. Maybe they will decide that the new $85 jeans can wait until after the monthly 529 account deposit.

3. Appreciation of the Magnitude of the Task. You've been telling them that money doesn't grow on trees since they were 6 years old. Maybe by actually helping to balance the family budget themselves, your teens will learn that there is no bottomless pit of parental wealth. They may even come to understand and appreciate the very real and painful sacrifices that you are making to help pay for their college education.

4. Increased Financial Responsibility. Through early exposure to the financial planning process, your teen may learn valuable lessons regarding the dangers of debt and the importance of planning and saving to meet life's financial goals. Many young adults learn these lessons the hard way by digging themselves into a deep financial pit with credit cards and installment loans. Wouldn't it be better if they could learn from your past mistakes, and thereby avoid repeating those mistakes themselves!

Even if you are not currently using a financial advisor for your college or retirement investing, you may be able to locate a professional financial planner who will work on an hourly basis. Fees for a two hour planning session typically will run between $300-400, easily cost justified the first time your child reconsiders calling home to request $1000 for a new laptop computer. "Honest, dad, it's not for gaming - I need the extra power to surf the net for my research papers" Uh-huh.

Financial Pathways (www.financialpathways.net) is an independent financial planning firm located in Somerset County (Bridgewater) New Jersey. James Kinney, the President of Financial Pathways, is busily preparing to send his own young-uns off to the college of their choice. Financial Pathways accepts clients on an hourly fee "per visit" basis, as well as traditional ongoing management fee arrangements.

# # #