Do Parents Have To Help?

In Rob Carrick’s most recent offering he talks about how he feels parents should be prepared to help their children out in their quest to graduate from post-secondary education without a crushing load of debt. I have also heard many other personal finance gurus claim that tough love is the best educationmethod for teaching financial awareness at a young age, and that saving for your retirement is a much more important goal than helping out your children. It seems to be one of those weird topics where smart, rational people disagree intensely.

The Middle Ground

Like most instances where there are intense advocates on both sides of the spectrum, the best answer is usually somewhere in the middle. I think there are many parents out there that are guilty of sacrificing much of their retirement planning to help their kids. It’s tough to be too critical of selfless individuals who only want to help their children, but some degree of balance is best. I think that most financial planners would agree that funding a company match pension should be priority #2, second only to paying off high-interest consumer debt (and possibly ahead of that, depending on your preference).

After checking in on your automatic company match the question becomes TFSA/RRSP vs RESP in terms of priorities. If you are one of those lucky Canadian government employees like SPF and myself, your DBP gives you a super solid structure to build the rest of your retirement plan on, and you are in a great place to put some focus into the RESP program. I can sympathize with parents needing to make sure they won’t be dependent on the government pension programs when they reach an age they want to retire at, but ultimately, I think given today’s knowledge-based economy and escalating post-secondary costs, the greatest gift you could give your child.

This… Is… Sparta…

I am not a big supporter of the whole mindset that you can teach your child how to manage their finances by making them completely fend for themselves at age 18. I know there are a lot of people out there that say, “My parents made me survive Spartan-style in the wild for years, and it just made me tougher – I didn’t need no RESP things,” but the bottom line is that school costs are quickly escalating and young adults are entering a tougher job climate than we have seen in a long time.

If possible, the looser the noose of student debt is around their neck, the better. Remember, the money you save or invest at the beginning of your life has huge compounding effects right? If you’re paying your way out of student debt until your 35, this will cripple your long-term savings ability, or your chances of making headway on a mortgage.

There is obviously a wide middle ground between paying for your child’s entire education, and not giving them a penny right? Arrangements where parents make RESP help (remember, you control the purse strings on this deal, and your original contribution can be rolled into RRSP at any time) contingent on grades, or finding summer work, or staying out of credit card debt can be a very effective teaching tool in my experience. Financial aid is also available through most universities and this aid sometimes includes grants and scholarships. Your child will have to begin by filling out the Free Application for Federal Student Aid. The federal government will then determine that student’s need for aid. In some cases, the government will award grants that do not have to be repaid based on the student’s need. If no grants or scholarships are awarded, student loans can also be attained through this application. While going into debt is never ideals, it is often the only answer when seeking education.

The Government Wants Us To Be “Poor”

One legitimate original point I read a little while ago is that RESPs actually cripple a student’s ability to collect student loans and subsequently apply for many need-based bursaries. While this is true to some extent, it’s not like loans are based on your RESP income. They are based on your assets and your parents’ income. So while them giving you RESP money might limit the loan amount you receive, it is their income level that will likely determine if you qualify for a loan or not. In order to apply for need-based bursaries and scholarships, most of the time all you need is a student loan of some kind, even it is only a thousand bucks. Furthermore, there are still plenty of merit scholarships out there that your child will be eligible for no matter what their income level, so intentionally trying to make sure they have no money in the hopes they can apply for more scholarships is not the most ideal strategy in my mind.

Tough – but fair – Love?

I would never blatantly state that parents owe it to their children to pay for their post-secondary education. There are numerous examples of parents who teach their children by guiding them instead of giving them money. That being said, I’m such a huge fan of the RESP program and giving your kid a fighting chance at coming out of school debt-free that I would highly recommend parents trying to chip in a little every year in preparation for the big day. RESPs are really flexible tools and apply to almost any sort of post-secondary education – not just universities. I have even written about contributing a little money into these accounts as birthday or Christmas gifts, and I’ve even seen several families where grandparents help make these contributions. If you do this at a young age, it will be a HUGE help when that 18-year old hits the adult world. I’m cool with teaching responsibility, and I’m fairly certain I’m more tough love than most, but helping students today navigate choppy waters will likely pay huge dividends in the future to my way of thinking.

Do you plan on helping your children out on their post-secondary journey at all? Why and how?

(Photo credit: Sean MacEntee)

28 comments to Do Parents Have To Help?

  • This is SPARTA for sure!

    I plan to help them out to the point where they are not stressed out about money during college so they can have fun, network, and get good grades. If that means paying for their tuition, then yes. However, I will ask them to pay me back sometime in the future so they appreciate the classroom more and don’t mess around.

  • My parents helped me get through University debt-free. That doesn’t mean they paid for everything though. I studied hard and got numerous scholarships, and I also worked part-time through 2 of my 4 undergraduate years. That helped a lot and they helped cover the balance, and I’m infinitely grateful for their help.

    I don’t know about the comment that RESP income doesn’t affect student loan eligibility. At least in Ontario, OSAP (the goverment student loan program) is really complicated and requires information on all sources of income. I know that as a mature student, I’m no longer eligible for OSAP even though I have no employment income, because OSAP counts all your retirement savings as potential funds on which you could draw to fund your education, which is ridiculous in my opinion but whatever. I would probably look into that a little more thoroughly before banking on it.

    • Glad to hear you got through the education process “unscathed” E and M. As far as RESP income goes, it definitely would affect your application a little, but I guess the point I was trying to get across was even a small student loan would make you eligible for a lot of need-based awards.

  • Maryhomemama

    I’ve heard some of my friends with teens say that they will cover year 2 and 4 of their post secondary education but expect the teen to foot the bill for 1st and 3rd. I think that is fair and it may keep some from dropping out first year when it gets tough (as one of my friend’s son did after only 8 weeks and after dad paid for everything) Maybe having a personal investment in education will make them think twice about where to go, what to take and why stick it out.

  • I will support mine to cover their education expenses but not the drinking experience :)

    I had all my education covered and since I was in a co-op program, the rule was that when I worked, I paid for everything, when I am in school, education (classes, materials, food, accommodation) is all covered.

    I was thinking about this topic considering the uproar in Quebec over tuition fees and one thing I don’t understand is why parents make the mental switch to stop paying when kids reach college or university ?!? It’s not a standard around the world based on my experience working with many Europeans and Asians. I don’t think the SPARTAN style has merit at all when it comes to education fees and I don’t think it’s one thing over another that makes someone financially educated. It’s a long journey of making money a subject of conversation at home and engaging your children that will make it happen. (If they care is also worth pointing but they will only care if you do).

    • I totally agree PIE. That being said though, I should mention that there are a lot of really smart people out there that passionately disagree with us. A few bloggers that I passionately follow are deadset that everyone should make their own way in the world, and the best way to teach a man to fish is to force them to fish (there is probably a starving student joke in there somewhere).

  • My parents paid half each year for my college. I hope I can do the same if I have kids but college might not be affordable by then. Only time will tell.

  • Paul N

    I think parents need to adopt the loss of air pressure on a plane senario. Put the mask on yourself first, then try to help your child. (Or you may both run into issues)

    Too many parents try too hard and needlessly feel guilty for not providing everything under the sun for their kids. In many cases its not even really appreciated. It’s also not practical. Offer the reasonable amount of assistance that you are capable of. Nothing more.

    After your children are gone you still have a life contrary to popular belief. It will be hard enough adjusting to being a couple again with your spouse (if you are still together) and also have money difficulties because you spent it all away on your kids.

    I guess if that is a sacrifice you feel you should make though, it’s totally up to you.

  • I love this! I think that it all depends on how the parent goes about it. As a recent university gradate with friends from all socio-economic walks of life, I’ve seen it all. I’ve seen parents pay a fellow student’s way through school with no strings attached and the result is a new university graduate with mediocre grades, who is debt free but CLUELESS about money. I’d also seen students work their way through school with absolutely no parental help. They graduate exhausted and shackled to their debt.

    I’ve also seen it done right. I’ve seen students who have had parental help based on grade expectations, summer employment, and the requirement of part time work during the semester. These students graduate with a fighting chance, good grades, and a strong work ethic.

    I will absolutely be putting away money for my child’s education. It’s one thing to start out life with only $10 in your pocket (as my elders are fond of proclaiming), it’s another thing entirely to start out life $26,000 in the hole like I did.

    • Hey starting with $10 in your pocket and a 0 balance in your bank account these days would put you in a pretty good spot coming out of post-secondary (if you go right after high school that is). My dad was fond of attaching a few riders to the financial support in order to keep me in line. Interesting to consider anyway.

  • My parents paid for my undergraduate tuition, but I was on my own for everything else. I had to work part-time to pay for room and board. It was tough, but it taught me a great deal about money.

  • We have 529 savings accounts for both of our kids and yes we plan on helping them pay for college. The deal is that they will have to have a part-time job in the summer to earn spending money during the school year and we will pay for B or better grades. Expecting them to finance college on their own is unrealistic to say the least!

  • My parents offered to pay our first year of college tuition. In Australia we have a scheme called HECS where it is an interest free loan from the government which only has to be paid back once you earn above a certain wage after you graduate, and even then it is only a percentage, still interest free, until it is paid off. But of course you can pay it off sooner.

    I plan on helping my children pay for their education, but also teaching them about money and encouraging them to work to help fund it, as my parents did. I want them to learn about money and not have everything handed to them, but I don’t want them to have to sacrifice everything either, so I think finding a middle ground is good.

  • I think that kids are better off with a hands on approach than a hands off. There are many important decisions to be made when you become a young adult; college, career, investing.

    I think parents should help to the extent that they can help. First, by teaching and advising their kids on how they can prepare for the cost of college. Then by filling in the gaps in tuition price as it seems reasonable to do so.

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