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Financial Planning > College Planning

4 important points to consider with Gen X clients

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Different clients face different needs in different stages of their lives. When you work together and develop a financial plan, the issues begin to look manageable. Clients often have major issues they avoid addressing because of the enormity of the problem. Snoopy, Charles Schultz’ famous beagle, once counseled, “No problem is so big or complicated that it can’t be run away from.” Clients try, however, and it keeps them awake at night.

So what do your Generation X clients obsess about?

Who is Gen X, anyway?

Market research firms divide the population into segments based on age. Baby boomers are the most famous example. The baby boomers’ kids, born between 1966 and 1985 are Gen X. Now aged between 30 and 50, there are approximately 50 million out there. You’ve heard the statistics. They may be the first generation to have a lower standard of living than their parents. They have trouble in the job market. Their college degrees aren’t the same passport to middle class life their boomer parents enjoyed.

They grew up when AIDS became an epidemic. Their wartime experience was in Iraq and Afghanistan. They saw the rise of Ronald Reagan’s popularity and the fall of the Berlin Wall. If they were between 15 and 35 years old at the Millennium they had a front row seat for the bursting of the dotcom bubble and the real estate decline that followed.

Technology has been their constant friend. They grew up with smartphones. They communicate via texts and emails. Gen X is much more comfortable with social media than their parent’s generation. This has had a major impact on their buying habits. They rely on sites like Angie’s List and TripAdvisor instead of brand advertising. Gen X is distrustful of big companies.

What does Gen X worry about?

Every generation wants to provide for their children. It’s human nature to want kids to have the best future their parents can provide. Education plays a major role. Parents decide where to live based on the quality of school districts. But free education only takes you so far. College looms.

The Gen X client likely has children. You do the math and assume parents who are 30 to 50 years old have children aged 10 to 30. Maybe not. Lots of couples are focusing on careers first, postponing having children until their mid 30’s. Your 40-year-old parents might have 5-year-old offspring.

College educations paid off for some Gen Xers. Doctors, for example, begin earning serious money in their early 30’s. Those with liberal arts degrees with limited career potential don’t want their children to face the same problem. On the other hand, they know college will be expensive and they are avoiding the issue.

As their advisor, you’ve included college in their financial plan. Because it’s a daunting number, your Gen X clients may be in denial, saying, “We’ve got plenty of time” or “The grandparents will pay. They love those kids” or “Inheritance will take care of it.”

You helped others before so you see things differently. They might accept the fact that the cost of a college education 15 years from now might top $200,000. They are probably unaware the U.S. Department of Agriculture estimates the cost of raising a child from birth to age 17 at more than $245,000 (chart at end of article). Where does the money go? Childcare and education add up to 18 percent on their own. But the story becomes even more urgent. Between 2000 and 2014, the Consumer Price Index (CPI) rose by 69.1 percent.  Meanwhile, the cost of college tuition and fees grew by 130 percent. 

Your clients rely on you for advice. Part of your job is continually putting the problem in front of them. It’s not going away and could get worse if your Gen X clients live in an urban area and private school is a better choice than the public school system. Tuition might begin in kindergarten. If you avoid addressing the issue, a competitor could easily point it out as a failure on your part. How could you have missed such an obvious need?

You gain significant benefits from addressing it now. Money invested in the stock market has historically done very well when the time horizon is long. Establishing college savings plans for infants gives almost a 20-year time horizon. You can benefit because it’s extremely likely that new assets will arrive.

College Savings Plans sound simple, but the details can be complicated. Lets start with the basics. Children are likely taxed at a lower rate than their grown parents because they have no income. These accounts provide an opportunity for money to grow faster if the tax rate is lower. 

The parent is putting money aside with the intention of spending it on their child’s education. According to US News and World Report, the cost of a four-year college education in 2030 will likely top $205,000. If your client has saved it all by then, that’s great. If not, their child might need financial aid. The school expects parents to do their share. Often, college savings plans are considered as “parent assets” by schools and financial institutions. This makes the case for grandparents stepping in and setting up accounts, too.

Your Gen Xer has baby boomer parents and Silent Generation grandparents. Higher education worked for them. It’s extremely likely they support their alumni association, perhaps contributing to scholarships organized by their graduating class. Doesn’t charity begin at home? It might be worthwhile to investigate grandparent “ownership” of the account instead of attaching the Gen Xer’s name. 

Those 50 to 70-year-old Boomers might be concerned about estate taxes. Their 70 to 90-year-old parents are likely facing the same issue. Under current tax laws they can give about $14,000 a year to as many people as they want. They might own low cost basis stock. They might be paying taxes in a high bracket. Establishing college savings plans provides a framework for them to help their children and grandchildren during their lifetimes. Meanwhile, aunts, uncles and relatives might voice their intentions to help. This provides a collection point for those birthday and holiday checks.

Where does insurance fit in?

As their advisor, this is familiar territory. The Gen X parents might or might not be in the picture when their child turns 18. You can insure for this eventuality. Mutual funds are an ideal vehicle for investing. 

Talking about the elephant in the room

How do you start this delicate conversation? Begin with a few gentle questions:

  1. What would your children like to do when they grow up?
  2. What would you like to see them doing when they get older?
  3. Do you see them following you into your business?
  4. You know college will be expensive. Have you seen how much recently?
  5. Have family members said they want to help? Have you set up accounts?
  6. Let’s start by setting up college savings plans.

Do Gen Xers have other problems?

College funding isn’t their only worry. Shortly after college is over, wedding bells might beckon. They need to figure out how to pay for their children’s weddings. Their Gen Y children might turn up on their doorstep as “boomerang children,” expecting to live at home (29 percent do). Their children might need an advanced degree to get onto the career ladder. Fortunately, many of these problems have a financial solution. You are in an ideal position to help.