(The last one is the worst)
Most parents love their kids dearly and would die for them. My question is always – “Should We?” Here are some decisions that start out with good intentions but could actually end up having bad consequences for our loved ones.
- Getting a Parent PLUS loan that the student has to pay.
There is a reason that there is a limit on how much the government will lend to your student in their name. It’s because they should not have a massive burden coming out of college, and most students coming out of college cannot afford to pay more than the federal lending limit to them.
Many parents are struggling to fund college and also save for retirement at the same time. If you don’t have enough money to do both, then it is probably unwise to expect your children to pay back Parent Plus Loans that you have signed for.
Remember that if we have not saved enough for retirement and have depended on Parent loans to get our kids through college, then we might be reliant on help from our kids when we age. Is this what we really intended? Thanks a lot, Dad!
- Whole life insurance (The wrong type)
Often parents are signing up their kids for whole life insurance from the same company that they buy baby food from. These are horribly inefficient policies. Then when the kid gets older, they have to pay for this insurance. A little known fact is that often, insurance on young kids is much more expensive than on the parents.
Firstly, we should consider what the purpose of the insurance is. Any insurance that we purchase with the kids as the insured, would mean that it would pay when the child dies. Is that what we meant to happen? We should consider who we want to protect?
Typically, we would want to insure the parent who is the main breadwinner, so that if something happened to them, their spouse and children would not have to face devastating financial consequences. That way they would be leaving a positive legacy for the family and not a burden.
What type of insurance should I have? Well, that depends on your financial circumstances, risks, goals, and resources and who we would want to have control of the funds both during our lifetime and after our death.
I STRONGLY advocate for good insurance and personally practice what I preach, but I would advise a discussion with your financial adviser before making important decisions on insurance.
- Timeshare.
If you want to purchase a timeshare, do it for yourself, and accept the long term consequences, but don’t burden your kids with it.
Here is something to think about:
* The Internal Revenue Service values your timeshare, and all timeshares, as worthless.
* No legitimate charity wants your donated timeshare. Period.
If that is the case, then why would we think that our timeshare has any value. In fact, it has to be paid for each year and most people cannot even GIVE their timeshare away so don’t burden your kids by buying a timeshare for them.
- Champagne Taste on a Beer Budget
If our children leave our house with the expectation that everyone can go to a private school, vacation in Hawaii or France every year, shop at expensive stores, and drive expensive cars, then we have probably done them a disservice.
Their first shock might come when they see their first paycheck, wonder why so much of it has gone to taxes and other deductions, and the realization that they have to pay for their own car and place to live. We should be spending time educating our kids on the realities of life, and one way might be to get a part-time job long before they go out on their own. Sometimes we love to spoil our kids but it ends up hurting them in the long run.
- Parent Financial Insecurity – I have saved the toughest one for last.
Remember the lecture we always get when we fly? “In the unlikely case of an emergency, put your own mask on before you help your children” This is the way it should be with our finances.
I speak to families all the time who have parents who are not financially stable, who could not control their spending, who did not save enough for retirement or Long Term Care, who are in such bad financial shape that their children spend their nights worrying about their parents.
One of the most wonderful financial gifts that we can give to our kids is our own financial security. That way we can be a blessing to our kids and not drag on their lives.
I go back to my first statement – Most parents love their kids dearly and would die for them. My question is always – “Should We?”
Please feel free to contact Dave Coen davec@collegeplanningamerica.com if you would like to discuss how we can help you with your family’s plan either in person, over the phone, or on Zoom.
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