The M-Network is currently doing a series highlighting Dave Ramsey’s 7 Baby Steps for getting out of debt and getting on track financially. I will be discussing Baby Step 5 – College Funding for Children. A great introduction to all the steps is over at Cash Money Life, and as other members of the network add their contributions I will add them to the end of this post.
My take on Baby Step #5 of Dave Ramsey’s 7 Baby Steps is basically that once you are financially secure, you can think about contributing to your child’s education fund, and not really before then. The reason behind this is a very simple one – your child (or you, depending on what you believe) can borrow money to go to college or get scholarships/grants, while you cannot borrow money for retirement. Although the government and some companies used to really help out when it came time to retire, nowadays you really only can depend on yourself to make sure you can do it in style. And part of that is taking care of yourself first and then worrying about your child’s education.
I have read a few articles that say this step makes parents seem selfish in that they are not putting their kids ahead of their own needs. I have to disagree – being a parent entails putting yourself second in nearly every aspect of your life for more than 18 years – your free time, what vacations you can take, what you do on Saturday mornings, spending a ton on sports and extracurricular activities – it never ends. So taking the time to make sure you are financially secure for later in life is not necessarily being selfish; it is being smart. After all, do you want to raise your kids just to have to take care of you because you never saved for retirement or future needs? Didn’t think so!
Loans and grants can either be paid back or are free for the taking, and there is a lot of money available for loans or gifts for college. There is no reason whatsoever that you should be putting a ton of dough into a college account for your children while you are still carrying credit card, car loans, or have not started saving for retirement. Your kids can borrow to go to college; you cannot borrow yourself out of debt and/or preparation for retirement!
This all being said, Dave Ramsey says that as long as you have taken care of steps 1-4, you should be saving for college so you or your child does not have to take on debt just to attend school. I was very lucky in that my parents had put away a lot of money over the years for college; I only had to borrow $10,000 because my Dad died when I was 18 and they had not finished saving for our college fund. My brother had to borrow a little more because he was younger, but still – we got off relatively scott-free compared to other people I know who had to borrow the full amount for college. Dave recommends that as soon as you have the first 4 steps done, you start investing in a 529 or an Education Savings Account (ESA).
But keep in mind – there is no rule that says you have to pay for your child’s college tuition. It doesn’t make you a bad parent. If you can, fantastic, do them that favor. I appreciated that mine covered most of my expenses, but if they hadn’t been able to, I just would have borrowed the money. After all, nothing is truly as important to spend money on as education; you cannot really go wrong with it. However, spending money on it when you have bad debt and no retirement savings is a recipe for disaster.
Here are the other posts in the series from the M-Network’s group project on Dave Ramsey’s 7 Baby Steps:
- Overview at Cash Money Life
- Step 0 – No More Debt at Debt Free Revolution and Single Guy Money
- Step 1 – $1000.00 Emergency Fund at Gather Little By Little
- Step 2 – Pay off all debt using the Debt Snowball at Paid Twice
- Step 3 – 3 to 6 months of expenses in savings at Being Frugal
- Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement at The Dough Roller
- Step 5 – College funding for children at at My Two Dollars
- Step 6 – Pay off your mortgage at Moolanomy
- Step 7 – Build wealth and give! at Plonkee Money
- Series Wrap Up at I’ve Paid For This Twice Already and Being Frugal