Amy Artiga: The Biggest Financial Mistake I See

The biggest financial mistake I see is when people put their children, or an individual child, ahead of the family’s financial stability. I most commonly see this when people neglect or raid their retirement savings in order to pay for college, but it could also be paying the living expenses of adult children or setting money aside for your kids while putting groceries on a credit card. Probably the most surprising example of this I have seen was a family living in an RV at a local campground because they couldn’t afford a house, yet paying for club sports for their school-age children. 

I should clarify up front that I am not against paying for things for your children. One of my children has hobbies that are not cheap, and I hope to help them both with college. Helping your kids is not the problem; risking the rest of the family’s financial stability in order to do so is. 

How Many Families Get Things Backwards

Let me tell you a story. Aaron and Betsy are the loving parents of four kids: Claire, David, Esther, and Frankie. They value education and do not like debt, so they have been saving diligently for college. They even cut back on their retirement savings so they could save for all four kids equally. A stereotypical oldest child, Claire is a high achiever with dreams of being a lawyer. For college, she got into her dream school, an elite private college with a hefty price tag. Even though she got some scholarships and had some savings, Aaron and Betsy still had to stop contributing to their retirement accounts and cash out some company stock to cover the cost of the first year. They were able to make the finances work. 

Until David finished high school. 

Aaron and Betsy wanted David to have the same opportunities as Claire, so they agreed to pay for him to go to the same elite university. But this time there was nowhere for them to cut their budget to finance it. Luckily, Aaron’s 401(k) had built up over the years. They decided to pay the 10% penalty and taxes to cash out some of the 401(k) to cover David’s educational costs. 

By the time Esther was ready for college, much of the 401(k) had been spent on David and Claire, and Betsy didn’t feel comfortable withdrawing any more. So they turned to Parent PLUS loans. After all, Esther should have the same opportunity that her older siblings had; she shouldn’t be the one to take out the loans. 

Despite his parents praying that Frankie wouldn’t be interested in college, he was recruited to play soccer for his dream school. But he only got a partial scholarship, so Aaron and Betsy took out more Parent PLUS loans.

Aaron and Betsy were able to achieve their dream of getting all of their children through college (well, Esther dropped out to become an artist, but she may go back) without any debt. Their kids didn’t miss out on any of the college experience, had four (or five, in Frankie’s experience) of the most fun years of their lives without worrying about money, and were able to begin their adult lives debt-free. Success!

But not long after, Aaron and Betsy found themselves in their mid-sixties wanting to retire. With $200,000 in Aaron’s 401(k) and $400,000 in Parent PLUS loans, they decided to take the leap, file for Social Security benefits, and officially retire. They downsized and were frugal, but by their early 70s, they had spent through the 401(k). Social Security was only enough to cover half of their living expenses, so they sold their home and moved in with Claire, since she had the biggest home. It worked for several years. 

Until Aaron had a stroke. 

Betsy didn’t have the physical capacity to care for Aaron, and Claire was too busy working 60 hours a week in a law firm. There was no money to hire a caregiver, and none of the kids had any cash to spare now that they had families of their own and needed to save for their own kids’ college. The siblings got together and decided that since David’s wife wasn’t working, she could be Aaron’s caregiver. She was a stay-at-home mom with a 4-year-old, 2-year-old, and newborn, but everyone figured she should be able to handle it. After all, she was home all day. 

I’m going to stop the story here because I think you get the picture. (If you’ve ever been a stay-at-home mom, there’s probably smoke coming out of your ears right now. I've been there; that was satire.)

The Surprise Consequences of Helping Your Kids Now

My point with that story is that many parents don’t consider the future consequences for their kids of their current financial decisions. If David had been told that the consequences of going to a private university were that he would be supporting his aging parents, his beloved wife would be forced into caregiving for his father during the most tiring season of her life, and he would live in a crowded, stressful home as a result, he may have decided to go to a community college instead. While his parents were trying to save him from hardship, they really just set him up for even greater hardships down the road. 

That is what many parents do without realizing it. They sacrifice future stability for present comfort. They don’t want their kids to struggle, but unwittingly set them up for even greater struggles than those they eliminate. 

Which do you think is harder: working your way through college and taking out loans, or physically and financially supporting aging parents while also trying to fund and manage your own family? Remember, there are scholarships and loans for college, but there aren’t any for retirement. 

A recent study found that 53% of Millennials and 33% of Gen Xers are still financially dependent on their parents. If your kids are dependent on you when they are in their 30s and 40s, do you really think they will be able to support you when they are in their 50s and 60s? When you no longer have money to support yourself, and your kids have never been able to support themselves, what are you going to do? More than three-fifths of Americans will not receive any inheritance, so that’s not a safe backup plan. 

What is Really Best for Your Kids?

I believe that one of the best things you can do is to provide your kids with a financially secure family, rather than give them money. Additionally, I believe that helping your kids develop financial literacy is more valuable than giving them money. Remember the proverb that if you give a man a fish, he eats for a day, but if you teach a man to fish, he eats for a lifetime?

Your choices can alleviate small burdens now or big burdens later. Prioritize family stability, starting with making sure your basic needs are met both now and in the future. You can always be more generous in the future if you find you have extra.

I believe that children are one of the greatest gifts that God gives to us, and we should be generous with them, just as he is generous with us, just not at the expense of being a burden to them in the future.

If you don’t know how to make sure you’re set up for a stable future, we are here for you. We can help you develop a plan that addresses both the present and the future and doesn’t sacrifice one for the other. Schedule a free introductory call today!

About Amy Artiga

Amy Artiga is a Christian fee-only Certified Financial Planner® and Certified Kingdom Advisor®. She has a passion for helping people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Atlanta, GA, she works with clients virtually throughout the country and abroad through Guide Financial Planning and serves pastors through Pastor’s Wallet. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.