Dave Ramsey Baby Step 5 – College Funding For Children.

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:

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Comments (25)

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  1. […] Step 5 – College funding for children at at My Two Dollars […]

  2. Patrick says:

    Great article. My parents were able to help me out with some of my college. (I went to college for a year, then left to join the USAF). The Air Froce ended up paying the rest of my tuition. It was a huge benefit to graduate without any student loans tying me down!

    My goal is to be able to help my children (when we have them) with their tuition costs. I know university tuition will be extremely expensive in 20 years!

  3. LJ says:

    Great Article! I think college savings is important, if you can find a way to save the money. Helping your children to start out in their adult lives without debt is a great gift to give.

    Take Care


  4. paidtwice says:

    There may be no rule I should help my kids with college, but there’s no rule I have to give them anything past the basic food and clothing and shelter, is there? ๐Ÿ˜‰

    No one made me have kids. I feel I shouldn’t throw them to the wolves at 18. ๐Ÿ™‚

  5. David says:

    PT, if paying for their college puts you in the poorhouse and they have to pay to take care of you because you never saved for retirement, it doesn’t really do anyone any good. ๐Ÿ™‚

  6. Four Pillars says:

    I definitely agree with this portion of the DR method.

    Saving for your kids education is great but current finances have to take priority. The fact is when your kids are young, educational costs are a long time in the future and those costs are very uncertain.


  7. […] Dave Ramsey Baby Step 5 – College Funding For Children. | My Two Dollars […]

  8. […] Step 5 – College funding for children at at My Two Dollars […]

  9. […] Step 5 – College funding for children at at My Two Dollars […]

  10. […] 5: College funding for children – My Two […]

  11. […] My Two Dollars tackles Baby Step 5: Saving for college for your kids. Ramsey makes the point that you need to save for retirement first (Baby Step 4) because your children have options for college, and you don’t have as many for retirement. But if you can save for college for your kids, the no-debt guru advocates helping your kids start off their adult lives with no debt as well. David shares his experience in his post with having parents who helped with his college education. […]

  12. PT says:

    I totally agree with your take on this. We plan on helping our kids (when we have them) but only after we’ve taken care of everything else.

    I look at my student loan debt and smile thinking of how little in interest it’s cost me (they were subsidized) and how much I’ve been afforded b/c of them.

  13. […] My Two Dollars presents thoughts on Dave Ramsey’s baby step #5. […]

  14. […] David of My Two Dollars covers this step and points out that there’s nothing that says a parent has to pay for their c…. […]

  15. kentuckyliz says:

    Another strategy if you haven’t/couldn’t save/invest ahead of time: get a job at a college that has tuition remission bennies for dependents of employees.

    In a previous position, my secretary had just left a higher paying job to work for our college because she had four kids graduating from high school over the next four years, and she wanted to put them through college. Her employee benefit covered their private college tuition (although financial aid and self-pay had to cover dorm, meal plan, books). Worth about $13k per year per kid.

    My sister started working for a college to get health insurance coverage for her family–they’re farmers–and had been out of the paid workforce for 20 years! She is an executive assistant to the academic VP and her oldest son just graduated high school last year and is attending college there “free” on tuition remission.

    It’s a good time for Mom to go back to work–the kids are older anyway, and the tuition remission can really set up the parents and the kids for prosperity without huge debts and strain.

    You don’t have to be a college professor or professionally trained staff member or administrator–these bennies are open to all employees, so get a maintenance staff job if that’s what your qualified for.

    BTW the tuition remission benefit is not just for the college where you work–they usually participate in a consortium of participating colleges so check the list for all your options.

  16. david says:

    Thanks kentuckyliz !

  17. […] (ESAs) versus a 529 plan.Here are a few articles that discuss Baby Step 5 Baby Step 5 at Dave RamseyDave Ramsey Baby Step 5 – College Funding For Children at My Two DollarsHow much to save for a baby’s college education? at Sense to SaveSaving Money […]

  18. […] How do you think you can ever reach them if you don’t have a plan? It may be retirement, college funding, getting out of debt, or buying a car or a home. It could be saving for that bass boat or china […]

  19. […] your house. Dave’s plan is for you to not only build up your retirement fund, but also help with college funding (if applicable) and get that house paid off early. On the other hand, if you decide to contribute […]

  20. […] 5 – College funding for children: Save up some money for your kids education.ย  I don’t think you should pay for all of it, […]

  21. […] Step 5: College funding for children. […]

  22. […] Baby Step Five โ€“ Start saving for your childrenโ€™s college […]