The top five financial mistakes parents make
September 29, 2009 · Tagged with Family and Home
Saving for college is often a priority for parents — as it should be. But saving for school doesn’t give moms and dads license to neglect the rest of their financial goals, advisers say.
According to AllianceBernstein Investment’s “College Savings Crunch,” a recent report that measured college saving trends, 70% of families surveyed don’t have a plan that takes into account all of their financial goals. AllianceBernstein is a global asset-management firm based in New York.
Melissa Osuch has seen first-hand proof of those findings.
“In talking to fellow moms and fellow parents, I realized they had no idea what their priorities should be and where they should start. A lot of times they do nothing,” said Osuch, a Glenview-based financial planner and educator with Strategic Advisors of Illinois. When they do take action, “they focus so much on college planning that they completely ignore retirement planning.”
And the immediate, everyday needs and desires of their families often get more attention than college saving. The AllianceBernstein survey found that of families intending to fund at least part of their children’s education, 58% spent more on eating out or ordering take-out food than saving for college in the past year, while 49% spent more on vacations.
For Vicky de los Reyes, a 38-year-old who lives in the Chicago suburb of Hawthorn Woods, buying a house was the priority when her oldest daughter was young. She and her husband began saving for all their children’s college expenses around the time her oldest turned 6.
Even though the couple began saving for their daughter’s education later than they would have liked, they have a catch-up strategy: When their youngest child no longer needs day care, the money saved will be put into their oldest child’s college fund.
To help parents prioritize their finances, Osuch has a formula: The most important component is protection and insurance, followed by establishing an emergency fund, saving for retirement and then, finally, socking away money for college.
Rick Brooks, a financial planner with Solana Beach, Calif.-based Blankinship & Foster, has a similar approach.
“The way we tend to look at financial planning is first covering the risks,” he said. The young families he works with are typically successful professionals in their 30s and 40s with high educational degrees on their resumes — yet still are often left scratching their heads when it comes to creating a family financial plan.
Below are five common financial mistakes advisers often see parents make: