As a member of the millennial generation, I find it absolutely astonishing how woefully unprepared the vast majority of my peers are for the world in front of them. Witnessing this phenomenon firsthand, I constantly hear from kids at my school the rationale, “I don’t know, my parents deal with that.”
This observation isn’t simply a feeling I have, nor is it unique to my geographic/socioeconomic position. T. Rowe Price’s 2016 Parents, Kids & Money Survey, which sampled 1,086 parents nationally and their 8- to 14-year-old kids, found that many kids (62 percent) expect their parents to cover the cost of “whatever college I want to go to,” while only 35 percent of parents claim to be able to cover at least most of college costs.
What this tells me, is that, for whatever reason, parents are not sitting down with their children and properly discussing the reality of their financial situation. Personally, my parents had been very clear since my freshman year of high school that I would have to take on student loans in order to attend college. I will never forget the night my parents sat me down during my senior year and made sure I knew the risk I was taking and the burden I would be faced with after I graduate.
Judith Ward, CFP, senior financial planner at T. Rowe Price and mother of two college graduates, says, “The benefits of a college education can become overshadowed by the burden of debt if parents haven’t saved towards a college education and had money conversations with their kids to manage expectations of how much of their college costs they can cover.”
T. Rowe Price’s survey also shows…
More parents have money saved for their kids’ college than their own retirement: While 58 percent of parents said they had money saved for their kids’ college education, only 54 percent indicated they had money saved for their retirement.
Parents use the wrong account to save for college: 43 percent of parents are using a regular savings account to save for their kids’ college and 27 percent are using a retirement account (401(k) or IRA). Only 37 percent are saving appropriately by using 529 college savings accounts.
Parents with student debt are more likely to have credit card debt and payday loans: Parents paying off student loans from their own education are significantly more likely to have credit card debt (67 percent vs. 54 percent) and payday loans (19 percent vs. 7 percent). And parents paying back loans for their kids’ education are even more likely to have credit card debt (75 percent vs. 54 percent) and payday loan debt (38 percent vs. 5 percent).
Parents tend to underestimate college costs: While the total cost of a four-year education at an in-state university is currently about $80,000 on average, only 35 percent of parents think that the total cost of a four-year education at an in-state university is $80,000 or more.
Parents who have student debt are more willing to take on higher levels of debt: Parents who are paying back their own student loans are more willing to borrow $100,000 or more themselves to pay for their kids’ college.
These statistics, unfortunately, lead me to believe the blind are leading the blind. The very people suffering with debt are expected to guide those new to the financial world away from such hardship. Logically, how in the world could this be successful? I see this as not the fault of the parents nor their children, but rather a systematic flaw that exists in the way we approach learning from our mistakes. Thankfully (luckily), I have been fortunate enough to intern for a company that helps people struggling financially, which has in turn, enlightened me to the stakes of my own student loans.
With the national student-loan debt at an unprecedented level — $1.3 trillion and growing by $2,726 every second — it is clear to me we need to reform the way in which we educate our youth about taking on debt. As someone who is currently enrolled in college, public universities should allow their students to earn community service hours — a requirement at nearly every school — from attending financial education workshops. Perhaps implementing new programs in public schools, creating governmental agencies, or even making non-profit entities more accessible would ameliorate people’s fiscal decisions.