When does it start? When the first child is born, when does the parent begin worrying about paying for college? Does it take more than a minute? Is it in the first hour? Do some parents wait an entire day before they begin stressing over college tuition payments?
The pure and unmeasurable joy of having a child is tainted only slightly when parents begin to consider how much it is going to cost to raise the child. For most parents, the thought is the cost in terms of money, but for some, there are some nagging thoughts about the cost in years related to raising a child.
For, when a child is born, most parents are assigning themselves a minimum of 22 years of financial coverage. That carries the child through the normal progression of education through four years of college.
Spectrem research measures the concern of investors over college costs, and what is startling from the research is that investors with what seems to be more than enough money to cover those costs still worry. Among Mass Affluent investors with a net worth under $1 million (not including primary residence), 35 percent report concern over financing the education of their children. Even among Ultra High Net Worth investors with a net worth between $5 million and $25 million, 9 percent report concern over coughing up the funds to pay for their child’s education.
Imagine, then, the relief that comes when those investors are done paying for their children’s education. Listen closely and you can hear the collective sigh of parents who have completed that stage of their financial life.
Then consider what those investors are thinking about regarding the funds they have that are no longer going toward college tuition.
For investors who take out loans to pay for college, the financial party does not start immediately upon graduation. But for those investors who paid out-of-pocket for tuition costs, there is a brand new world of financial and investment opportunity that opens when the last child graduates from the final stage of parent-supported education.
At what point do parent investors switch their thinking from “How am I going to pay for college?” to “What are we going to do with our money when we are done paying for college?”
It is the advisor’s job to determine when it is appropriate to switch a client’s thought process from paying for college to having a financial burden removed from consideration. It is important for advisors to make investors understand the proper time to make the switch is not the day the children graduate. The conversation can begin many years before, once the investor believes the college cost concern is covered.
Spectrem’s unique study of investor parents – Family Affairs: How Children Change Financial Decision-Making – examines the difference between investors with financially dependent children and investors who no longer have children hanging on their purse strings. Reaching the stage when children become financially independent affects debt concerns, perception of wealth, and advisor relationships.
Investors without dependent children are more willing to engage with advisors about future investments because they do not have the albatross of expenses related to children hanging upon them.
The relationship between advisors and clients with dependent children is often one of need – the parents need help reaching financial targets and securing the future. The relationship between advisors and clients without dependent is one of desire, a period investors have waited years for, to be able to consider investment strategies without worrying (as much) about their children’s financial future.
When an investor’s children complete their education, it is a momentous occasion for the investor. It is also a big moment for the advisor, who can assist the investor in determining the best way to allocate the funds that previously went to pay for that education.
It’s a good time for investors and it can be a good time for advisors as well.
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