While boomers may feel a sense of desire or obligation to pay for their children’s higher education, they do so at their own risk, says Cathy Pareto, founder of Cathy Pareto and Associates in Miami.
“A lot of parents feel like they owe some level of education to their children,” Pareto told AdvisorOne on Wednesday. Unfortunately, she says, several factors have arisen that force boomers to choose between their children’s education and their own retirements.
“Education has gotten so expensive in the last decade or so,” Pareto said, that paying college expenses puts a “direct negative damper on retirement.” Furthermore, the market climate has impacted portfolios in a negative way, and boomers can’t look forward to the kinds of returns they may have become accustomed to in the past.
“Those factors make it difficult to sustain the mindset or commitment to supporting their children’s education,” Pareto said.
An Ameriprise Financial report in April said more than 70% of boomers help their kids pay for college, while 93% said they’ve provided some kind of financial support to their adult children. Boomers who insist on helping their children have to accept the consequences, Pareto said, whether that means they have to continue working or change their lifestyle in retirement.
Pareto (left) noted, though, that just because they shouldn’t pay for college, doesn’t mean boomers can’t help their kids in an emergency.
“A medical emergency is a different situation,” Pareto said. “They don’t have a lot of choice.” When their kids are hit with unemployment, however, boomers should be selective in how they support them.
“They need to lay down rules and create expectations,” Pareto said. Boomers should talk to their kids about a time line for when they should be back on their feet. Parents should also discuss opportunities that they can help their children take through their own professional connections. “Parents need to be allies for their kids,” Pareto said.
“The bottom line is one of the greatest gifts we can give our kids is a sense of self-reliance. We have to teach them the skill sets to survive in the future.”