Parenting Grown Children: What Dr. Spock Forgot to Tell Us

Money Matters: There's still a positive ROI in a kid's college education

Does it pay to pay for your kid's college? That's a question that's being raised in many circles as the recovery from the recession drags on and our college grad kids struggle to find a career job. Our sons and daughters who took out loans and now have to start repaying them--without a job to help them do it--are questioning whether they should have racked up that debt. And those of us who invested in our children's college education may be wondering how wise it was to put our money into tuition, room and board--upwards of $200,000 for some of us--when our kids are struggling to find work. What kind of return on investment is that?

The Bureau of Labor Statistics latest figures suggest that, all other issues aside, it is financially still a worthy investment. The unemployment rate for college graduates was just 3.7 percent in January and that was less than half the rate (8.1 percent) for those with only a high school diploma. Here are the stats in chart form:

Source: Bureau of Labor Statistics.

 

Catherine Rampell, writing in the New York Times blog Economix, notes, "the wage premium for those with a bachelor’s degree compared to those without one is also growing, particularly when you factor in the fact that college-educated people are more likely to be employed at any given time than less educated workers. One troubling trend hidden in all of these numbers is that the unemployment rate for those with some college but no degree — 7 percent — is not that much lower than that for people with no college at all."

Bottom line: It's not only worth the investment, it's worth that extra push to get them to stay the college course.

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College Costs: Are your kids getting your money's worth if you help pay the bill?

Many of us are called on to help out with the college bills for our emerging adults--and many of us agree to pay our children's way, no questions asked or raised. Or we may be asked or want to help--after the fact, as those college loans come due.

Our generation has operated under theory that a college education for our children is worth the financial sacrifice--hence the temptation and wide spread practice of helping with tuiltion as well as room and board if we can. Recent news stories have been surfacing that suggest some kids who have to borrow to go to college are questioning whether that higher education is worth encumbering themselves with debt only to find no job in their field when they get out of school. A sobering thought and one that has some reality behind it.

A recent study that relies on 2008 data reinforces our orginal beliefs. It finds that although college costs more in this country than others, the payoff is bigger. [See Sweden]. This graphic from Planet Money tells a good part of the story.

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Notes

*Data for Japan are from 2007.

Source: Organisation for Economic Co-operation and Development

Credit: Lam Thuy Vo / NPR

A few notes:

The data come from a recently published OECD report looking at educational data around the world. The cost of education includes tuition fees and living costs paid by the student, as well as earnings that students forgo by not working while they're in school.

"Benefits" is the difference in lifetime earnings between someone with a high-school degree and someone with a college degree.

For more on the difference in earnings between men and women in the U.S., see this study from Indiana University.

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Lending Money: The family fund that offers a helping hand and a living legacy

Many of us want to make things easier for our grown children--pave the road for them with a little help here and maybe even a lot of assistance there. That is, if we have the wherewithal to do it.

Recently, the New York Times weighed in on the issue, taking as its news cue presidential candidate Mitt Romney's remark, "I have inherited nothing." The initial point Times writer Ron Lieber makes is that a living inheritance comes in many forms. "It exists along a range from the free room and board for a 23-year-old intern to a stay of years for a 43-year-old single parent who has lost a job or recently divorced. The contribution can be as small as a first month’s rent or as large as the 25 years of payments that many parents now make on college loans they took out so their children would not have to."

The larger point is that the harder a young adult has to work to make the next geographic, career and economic step up, the more difficult it is to make that step. And repayment of student loans--a crisis that is raging among college graduates, both recent and long-time--is one of those hurdles that can keep a grown child from making that next step up. "The lack of any family help can have a compounding effect on the millions of people who have negative net worths well into adulthood thanks to their student loan debt," Lieber writes.

Meanwhile, even as college costs rise, today's economy is marked by a distinct lack of opportunity for college grads to move into career jobs that pay enough to cover living expenses. And that's why so many of us are helping our grown children. Recent data shows that  nearly 60 percent of 23- to 25-year-olds report receiving some kind of financial assistance from their parents--even when it's sometimes a stretch for the parents. As one 70-year-old parent told Lieber, he didn't want any of his three children "to go so far downhill that they’ll never get out.” In other words, those of us who can afford it are, in effect, trying to guard our children against downward mobility.

Lieber ends his piece with a suggestion for providing family funds for college students: a loan pool set up by the family. He noted that George Lewis, an 82-year-old lawyer in Quincy, Ill., along with his nine siblings set up an education fund in honor of his grandmother who "had a strong belief in education." Today, the nearly 50-year-old fund, with holdings of $111,000, lends money interest-free to scores of members of the extended clan. 

SInce that piece ran, Lieber has updated it with other examples of family funds. Some of the examples are of fairly prominent people--Berry Gordy (the founder of Motown Records), for instance--who set up family funds to lend money to the upcoming generation. But one made it all seem within reach to the non-prominent among us. Lieber reports that Suzette Haden Elgin, in a book called “The Grandmother Principles,” offered her own notion of a family loan fund that grandmothers can initiate. She suggests asking for a small deposit from everyone in the family, including children. Having the younger ones pitch in can help give them a stake in the process and a reason to track the fund’s growth and its beneficiaries.

Put that way, it doesn't seem so formidable and even has the frisson of bringing the family along on a daring step toward the future.

 

Money Matters: How much do we tell our grown children about our finances?

Cathy and Ben had to make a key financial decision: how much of his paycheck was he going to apportion to his 401k. Ben had been unemployed for five months, and now had a new job that would be paying him less--by about 30 percent--than his old job. How much could they put into a retirement savings account and still have enough cash to pay the their monthly bills? So when Cathy brought up the subject of the 401k while Ben was watching a baseball game with his 21-year-old son, Ben balked. "I don't want to talk about it now," he told Cathy. When she persisted, he was franker: "I don't want to talk about in front of [my son]."

"This is one of problems between me and Ben," Cathy says. "He's uncomfortable talking to his kids about family money. I think they should know. I don't see why it should be a secret."

This reluctance to discuss family money matters has been going on since Cathy and Ben's son and daughter reached young adulthood. When they were college bound, Cathy wanted to level with them about what she expected them to contribute to college costs. Ben said nothing, preferring to pick up the whole tab. A few months ago, with one child out of college and the other in his senior year, Ben lost his job. Cathy was frank with the kids: You can no longer expect any financial help from us. Ben once again evaded the issue. He didn't want his children to feel the weight of his job loss. Costs for his kids were the last thing he would trim from his budget.

Cathy sees her tell-it-like-it-is attitude as part of her midwestern heritage. She grew up in a small city at the edge of farm country. Where she comes from, she says, people were frank about everything, including money. Ben grew up in a sizeable city. His father supported the family of four boys in a style that was more than comfortable. Ben's dad never discussed finances with or around his children, and Ben is carrying on the family tradition.

He's not alone.  Martin Kurtz, former president of the Financial Planning Association, says most families have trouble talking about money. "There's no way to talk about it and not have emotion involved," he says. "It reflects our personal belief system." And when young adults on the cusp of independence are involved, it's even harder to sit down and chat about family finances. "When your child is heading toward become independent, you're transitioning from the end of one thing and the beginning of another," he says. "It's difficult because parents don’t want to give up control around money."

On the question of the 401k, business was as usual in the Cathy-Ben household. Their son left the room so Cathy and Ben could make a decision. But as soon as Ben left town the next day on a business trip, Cathy talked to her son about the issue. "He--and his sister--should be more familiar with how our finances work. By hearing us talk about it, he'd have a better idea how to set up his finances when he starts a family."

Sounds like a no-brainer, but not many of us are comfortable doing it. And those of us like Cathy who are usually end up having to do it alone.

Money Matters: A saving plan for the grand kids

We've been squirreling money away for our Grands. We started out by putting money into 529s, but the 2008 recession and the follow-on downturn in financial markets have discouraged us from plowing more money into that vehicle. I've opened savings accounts for each of them. The interest rate on those accounts is, like the rest of the investment firmament, discouraging. Those accounts are not even keeping up with inflation--but at least the money isn't melting away into the downs of the stock market.

The idea behind my and Paterfamilias' savings for our four Grands is simple: We want to make sure there's some money there for their education. Their parents will bear the bulk of that burden; maybe the Grands will have to take out loans to finance some of it. But we hope our little bit will take the edge off  the cost. Our parents did that for our kids--every birthday they sent a small check to put in an account for the kids. The wonder of compounded interest made those accounts a help when the college bills started rolling in. It's a role model we plan to emulate. But how to do it in today's difficult financial time?

PBS's new Web site, Next Avenue, which aims to cover financial (and other) issues of concern to those of us moving further along the age continuum, currently has a video with the heady title, "Saving for Your Grandkids." You can link to it here. It won't give you answers to or even ideas for the investment questions we're all wrestling with, but Ric Edelman offers very generalized caveats and options for those of us who want to put money away for our grandkids.

My take-aways from the video:

You can set up ways to save for their education or to save for their retirement. Few of us think about the latter. (How to do it, he doesn't say.)

Whatever plan you create for the grandkids you have, be sure you can replicate it for grandkids that might come along in the future. Fair is fair, even if someone's a latecomer.

 

Money Matters: Our college grad's expenses are our expenses--our worry too

Will the surveys never stop? Here's another one--this time from Ameriprise Financial--on how generous we baby boomers are toward our grown-up children--and how worried we are about their future financial security and ours.  

A December 2011 survey of baby boomers with $100,000 or more in investable assets reports that nine out of ten--93 percent--say they have provided some kind of support to their adult children. Paying for --or lending money for--college tuition comes in at 71 percent; help in buying a car, 53 percent. Parents are also helping with the upkeep of life's many expenses, like helping to pay for car and health insurance, rent and utilities.

Where does the money come from? 45 percent take it out of their spending money; 35 percent hit their regular savings accounts (about 8 percent tapped into retirement accounts) and nearly 15 percent take out loans to help their kids.

At the same time, more than one-third--35 percent--are worried that their children haven’t learned to manage money responsibly. More than that--nearly half--say their children don’t understand what it takes financially to prepare for retirement--even as they report that they are spending what they should save on their adult children.

As to those adult children at the receiving end, the survey found that more than half of them point their fingers back at their parents: they say they rarely or never talked to them about how they budget the family’s money.

Should we be surprised that kids coming out of college today are drowning in student debt? Or what the New York Times recently headlined as A Generation Hobbled by the Soaring Cost of College

 

Emerging Adults: Putting the burden of student loans in perspective

A few days ago I posted a blog on the heavy burden our college students carry in loans. It's hard for me to get my mind around $1 trillion--the amount of outstanding student-loan debt. I found these charts on NPR's Planet Money. They give some perspective on the bubble-like growth of debt college grads are currently saddled with.

1. Americans now owe more on student loans than they owe on their credit cards.

Source: Federal Reserve Bank of New York

Credit: Lam Thuy Vo / NPR

 

2. The amount of student debt being taken on every year has been rising rapidly for years now.

Source: College Board

Credit: Lam Thuy Vo / NPR

 

 

Emerging Adults: Their burdens are bigger than ours were at their age

A little--perhaps a lot--of sympathy may be in order here. Our kids--the young adults coming out of college and graduate school--are drowning in debt and a lot of other woes that ripple out from that. "It's a very different world than 20 yrs ago" says Nancy Molitor, a clinical psychologist who practices in the Chicago area. "Parents in their 50s and 60s don’t have any idea of the stress their children are under."

There's some $1 trillion outstanding student debt floating around out there. Molitor, who's also Public Education Coordinator for the American Psychological Association, saw the face of that debt up close and personally when she was a speaker at a seminar for graduate students in psychology. She asked the 150 students attending the seminar for a show of hands: How many of them had debt from college and graduate school? All hands went up. She then broke it down: How many had debt of $50,000 or less. Roughly 1/3 raised their hands. How many had debt of $100,000 or less? Another 1/3 raised their hands. When she upped it to $150,000, another 1/3 put up their hands. When she asked about debt above $150,000, ten hands shot up.

That's a lot of money to owe when you're getting out of graduate school and can't find a job--or can't find one that pays enough to start whittling down that debt. But psychology isn't the only field where young people are under stress. In the aftermath of the Great Recession, opportunities for college and graduate school graduates have tightened and are almost at a point of diminishing return. It is no wonder, Molitor says, that a lot of the young adults she sees feel "bamboozled." And a lot of them, she adds, turn their anger on their parents--for sheltering them from the harsh realities, for leading them to believe that doing well in college would mean a good job, a worthwhile career, a house and a life style similar to their parents. "They feel let down, she says.

It's also one of the reasons they're delaying marriage and are unwilling to start their own families. "These young adults feel like the debt is saddling them," Molitor reports. "It affects every decision they make. When you have debt you can’t take risks."

It's a point Daniel Burrus, futurist and author of Flash Foresight, riffs on as well. As he sees it, kids aren't being guided properly. They're going to college and majoring in things, like philosophy, that will never lead to a job. His solution: better guidance counseling, better education about school debt versus level of diploma versus job opportunity.

So where do we parents come into this? Certainly, we can help with the guidance and whether our particular children need to give up philosophy and concentrate on accounting or whether they--make that we--can afford to have them study disciplines that will enhance their critical thinking skills but not  necessarily outfit them for a job in today's market.

Is there a parallel between the present crisis Burrrus and Molitor have observed, and a decade ago when the post 9/11 economy threaten to tank? George Bush famously offered his solution to the problem: Go shopping. Would that the solution to today's economic woes and job collapse were as simple as that. But maybe the fix is a variation on that theme: If we and our 401k plans can help our college and grad students reduce that debt, go pay it.

 

 

Grandparenting: Are we willing to share the wealth with our Grands?

A few days ago, I wrote about a 2011 MetLife survey on boomer parent's spending habits vis a vis their grown children. (Long story short: Most of us want to help our adult children with college tuition; fewer want to help them buy a house.)

There's also a 2009 MetLife survey on how grandparents feel about spending money on their grandchildren. The 2011 survey already covered the college tuition question for grandchildren--most of us say, 'no way.' But this survey has more specific questions.

How do we feel about financial assistance or monetary gifts for grandchildren? Two out of three of us give our grandchildren money; The average amount in the five years leading up to 2009: $8,700.

Why did we do it? The reasons most cited were general financial support, education, and major life events.

Do we want to give them gifts while we're still here or leave them a lump-sum legacy once we're gone? Nearly 80 percent of us would rather distribute smaller gifts. Nothing beats seeing them enjoy an indulgence or appreciate real-world help.

Has the Great Recession and its aftermath made us more generous toward our Grandkin? One in four of us report we are providing more assistance than in the past, due to the current economy.

Do we give advice along with the money? Not so much. More than two-thirds of grandparents report that they are not providing any financial advice or guidance to their grandchildren. Among those who are talking to their grandchildren about financial issues, the most common advice is “start saving early in life,” and “don’t get into too much debt.”

Isn't that what our grandparents told us?

Money Matters: What are we willing to pay for when our grown children are grown up?

There's a new survey out on how generous--or not--we are with our adult children. Overall, the 2011 MetLife survey found that four out of five us are willing to help out in a variety of ways. But we have our limits. 

Topping the list in priorities is college education. Nine out of 10 of us believe we, as parents, have some responsibility to pay for some of their higher education, with half of us seeing this as a strong or absolute responsibility. The survey even put some numbers on that assistance: More than half of us  would contribute 10,000 a year or more to the tab for our child's higher education.

In terms of percentages, we're more generous than our parents. According to the survey, only 35 percent of baby boomer parents helped with the college bills. As to helping our grandchildren with their college bills, two-thirds of us don't think we have any responsibility in that regard--love those kiddies though we do. Only only 15% of us report that we have contributed toward the costs of a grandchild’s education. 

We don't see helping our grown kids buy a house as nearly as compelling a responsibility as a college education. Half of us suggested that we had no responsibility at all to contribute to the down payment on a house. Among those 23 percent of us who felt we had at least a moderate responsibility to help, half of us said we would contribute under $10,000 for that purpose.

The survey also looked at how much responsibility we felt in helping out a grown child whose fortunes were flagging--who had lost jobs, were going through a divorce or meeting some other financial setback. More than four in 10 of us reported that, in such cases, we feel a strong or absolute responsibility to help out--if the setback was not of their own making.

Woe betide the grown child who spends recklessly and causes his or her own financial debacle. We are not as forgiving--at least our purses are not. Only 11 percent of us feel the need to bail out a child when the debt is due to overspending. We draw the line at those closets full of Jimmy Choo shoes, crazy weekends in Vegas or a drug habit. But even  here, the MetLife survey puts a number on how much we'd be willing to spend to help out--if we were willing at all. And it's not $10,000. It's half of that.

What about leaving them a legacy? Half of us in the Baby Boomer generation feel little or no responsibility to leave something behind for our heirs. For those of us who do, MetLife has some numbers: Those of us who would leave something behind see the appropriate amount as somewhere between $20,000 and $50,000. 

They survey also looked at what obligations our children feel toward us. Take a deep breath and read on: (all percents are for feeling a strong or absolute responsibility):

62% feel called upon to call us at least once a week to see how we're doing

58% would have us live with them if we weren't healthy enough to live on our own

50% would take us in if were financial destitute

46% would provide financial support in our later years if we were having financial reverses.

Not that we'd want that. 42% claim we wouldn't take the help.

Does this make you want to rethink those contributions to their financial health, education and housing?