The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: CheapskateWife on August 19, 2015, 12:12:39 PM
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The "Parental financial favoritism" has generated some really interesting discussion and I didn't want to hijack that with my own scenario but have a complicated one that I could use some extra eyes on. My husband and I have 4 boys between us; 2 are his, one is mine, one is ours. We work really hard to provide equally for all of them (outside of required Child support, of course) and I am concerned that we have potential for unfairness in the administration of college funds. Please consider chiming in with alternate suggestions for what we could be doing here.
SS1
18yrs old - lives primarily with his mother who is rather low income, FAFSA grants completely cover CC tuition this fall and will likely cover the first 2 years completely.
529 - 10K (he hasn't used any of this yet)
9 months of GI Bill allocation
Offered 1 yr of free college through alternate TX veteran program, but refused.
DH contributed significant child support since age of 6
BS2
16yrs old - lives with us, his father contributes to college account, no chance of FAFSA grants.
529 - 17K (I had been contributing before I met and married my DH)
9 months of GI Bill allocation
Offered 1 yr of free college through alternate TX veteran program, will likely take it.
His father has approx $10K in 529 available.
SS3
14yrs old - lives primarily with his mother who is rather low income and is likely to remain, we assume FAFSA grants will reflect his brother's experience.
529 - 10K
9 months of GI Bill allocation
Offered 1 yr of free college through alternate TX veteran program, but will likely refuse.
DH contributed significant child support since age of 2
BS4
6yrs old - lives with us, hoping to be FIRE well before he graduates HS
529 - 7K
9 months of GI Bill allocation
Offered 1 yr of free college through alternate TX veteran program, will likely take it.
So how do I make sure this is fair? There are different amounts in everyone's 529's because of the age that the accounts were started, who was married to whom at the time they were started, etc. My initial thought is to make sure everyone has 10K available in the 529, is offered the same amount of GI bill and TX Veteran's program, and whatever they don't use rolls on to the youngest (when we will be FIRE). That doesn't work out so good for BS2 and BS1 as they won't qualify for the same free federal money that SS1 and SS3 will; but BS2 has access to two 529 accounts where SS1 and SS3's mother didn't establish accounts for that purpose. BS4 is stuck with whatever is left over at the end but will likely be in terrific shape if he wants to go to school in TX (likely). At this point, we have stopped contributing to the 529's and the growth has been stagnant as they are aging into needing the funds. We will not likely add more to these accounts.
Our original thought was that any 529 money not used would roll on to the next biological sibling. Any GI Bill or TX vet benefits would roll down to BS4 as we will be FIRE at that point and the benefits would have the greatest value (hello college tuition inflation!). For example, whatever SS1 doesn't use would be made available for SS3. Whatever BS2 doesn't use would go to BS4's 529.
So the question posed; is our $ rolls downhill approach fair? Or, should we incentivize scholarship recipients with getting to keep the balance left in their 529's when they are done with their undergrad degrees/certification programs? Since SS1 and SS3 are in a low income household and have access to free money the other two don't, should their 529 $ be forfiet if not used? Is there another way to look at this that makes it seem unfair (Yes, I know, life isn't fair) or that we are treating a child with favoritism.
Or is this so damn complicated that you would prefer to stay out of it and watch from the sidelines ? :D
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I believe that 529's are transferable, so if any of the children does not use his full amount, you could probably pass it down. Then, it becomes more like a shared pot of money (where each one has $10k at a minimum), which also gives the older children some agency in the younger ones' education.
This is a rough idea, but could be refined.
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What is your end goal?
If the idea is to have each child attend college and graduate with no/minimal college debt, work to that end and divvy as appropriate/available.
If one child chooses to attend a school that is $50k/yr and everyone else has gone to state schools, make sure that kid understands how that will impact his finances up front. Overall, I'd suggest just being blunt with all the kids and letting them know your goal for college assistance, and how their actions affect what you're able to do.
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Matt_D has a really good response.
I joked once with my Mom about "oweing" me $100k, because she sent my sister to a private school with no scholarships, and I went to a public school with about 80% of my tuition covered. My sister also stayed in a pricy sorority dorm and I went for a budget apartment. My mother was NOT amused (and I was seriously just joking). The end goal was we both got college educations and graduated with no debt. It was 100% fair. In our case, fair was that we were both given what we needed to get to the end goal, not the same amount of money. Either can be justified as fair.
If you aren't able to cover the total costs, which is a lot to ask of any parent of 4 children, then I think telling the children the maximum amount money you can give them, and that you expect them to make their choices with that in mind. Private school is very expensive (and if you are in Texas the public options are excellent- they should know that refusing them is a choice they are making that will add up. Can they go to that school 1 year free then transfer? Is that an option?)
Note I say maximum because I don't think it is an entitlement. If they do get scholarships and go to college without needing that money, I would not give it to them as a gift, but divy it up to help those still in line to go.
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My goal is to have the capacity to help each child attend college and graduate with no/minimal college debt. I acknowledge that that since there are 4 very distinct personalities, interests, and upbringings, that these young men are going to take very different paths; and those paths might be different than what I think is best. Someone might decide to go to a private school, and in that case would be presented with the $10K 529 and a firm "good luck with the rest of it" as the GI Bill and TX vet program won't help. With enough scholarships or work study program, that scenario might work out just fine.
Thus far, the one actually attending CC (SS1) and the next in age (BS2) seem to understand the available resources and are working to maximize the benefit for the full 4 years. BS2 is thinking of applying for an ROTC scholarship, and if awarded, that will adjust what is available to everyone else. SS3 is starting his freshman year so we have time, but he is watching carefully what the others are being offered and how they are using those offerings. Hence my concerns about ensuring fairness to the extent possible.
BS4 is going to be a scientist/rockstar/soldier/firefighter....basically he wants to be Buckaroo Bonsai.
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The blended families get complicated pretty fast! I can't give you any good advice about how to get to parity on what you're providing. I think you need to try to provide for all of them in some way and to come up with some kind of scheme to show that the split is fair, but how to actually do that is another story. Mrs Axe and I paid for our own college educations with no help from either set of parents, while our siblings all got some form of help from them. That stings and even 20 years later, we remember how that felt.
One thing to watch out for is who the 529 is actually registered to. Each plan has a custodian and a beneficiary. It cannot be shared; is it in your kid's name? That will hurt you on FAFSA. It's best to have the parents as custodians, then you can pay the school directly with the funds. If the fund has your kids as the custodians, they will need to do the paperwork to name other beneficiaries if they don't use all their money. It's OK to transfer the beneficiary to siblings.
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It's best to have the parents as custodians, then you can pay the school directly with the funds. If the fund has your kids as the custodians, they will need to do the paperwork to name other beneficiaries if they don't use all their money. It's OK to transfer the beneficiary to siblings.
Thank you for bringing that up...DH and I are the custodians and kids are the beneficiaries. I think the idea that each get at least 10K in 529 from us gets us to the parity of what we provide. The FAFSA benefit available to SS1 and SS3 but not the others helps with that parity against the state specific offerings and the elevated amount of funds available to BS2.
We have control of the funds and have made it clear that funds go to the school directly or alternately, the expense being proposed will be 100% approved by us only (not the other bio parents in the picture). Not an issue for BS2 as his dad and I get along great, but SS1 and SS3 have a momma who is a doozy and we don't trust her financial decision making. Keeping that access closed is the best way to protect their funds.
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I would aim for providing 4 years of state university tuition/books/dorm for each. If they pass up something (9 months of GI bill), go to an expensive school or need more than 4 years that's on them. If they earn scholarships or go ROTC route than rebate them some of the money they saved you. Grants b/c of low income isn't something they did so it just saves you money but isn't rebated to them.
I get the impression that their other parents can't fund anything?
The above assumes you have enough money to do it. If not then don't do the rebate or do at a lower %. Or exclude living expenses unless thy live at home with you.
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I definitely think that medical expenses and college costs are the areas where you don't need to SPEND equal, just provide equal opportunity.
e.g., if one needs glasses, do you give $100 to the other three? of course not!
So --I reccomend that you guarantee equal opportunity to get a college education. You will need to use your judgement for your family as to what that equal opportunity looks like.
My method / plan -- I have told both kids that we have saved $xx each for them after school (it is not enough to cover everything). If they choose to spend it in 2 years instead, ok.. BUT, they need to have a proposal / plan that we have to approve before they use the money, and it has to be EDUCATION related.
So -- if they don't use it (because of other life choices or scholarships), that kid won't get it, or only the education related part...
It helps to describe this ahead of time. And we make obvious comments about spending the same on gifts at christmas, or "I gave your brother $20 last week when he forgot his field trip money, so here is your $20". Lots of routine actions like this show how we consistently think of fairness.
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By the time the six-year-old is ready for college, $10K won't go nearly as far. I'd be tempted to make it something like "the value of one year of college at a state school," or whatever, rather than a dollar amount.
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By the time the six-year-old is ready for college, $10K won't go nearly as far. I'd be tempted to make it something like "the value of one year of college at a state school," or whatever, rather than a dollar amount.
This is a very good point...we currently have enough put away for tuition and fees for 2 years at CC for each boy, and the other benefits would cover 2 years at a state school to a bachelor's degree. But since the location didn't float his boat (TX), kid #1 passed on a full year paid for. So now he's down to 3 and someone else gets to benefit off his decision.
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IMHO, you are looking at it the wrong way. First, no child is entitled to a paid-for college education. Second, if fairness is the primary goal, while still aiding them all in life; open a custodial Roth IRA in each of their names as soon as you are able, and fund each of them as equally as is possible. If they ever need those funds (after 5 years) they can take them out to cover any crisis, including a tuition shortage. However, if they don't go to college, or can get scholarships to the college of their choice; then those funds can form an early nest egg and/or crisis fund. If you were to put $10K into a good index fund into each Roth IRA, they would each be around $40K by the time they were 40 years old. Maybe those funds will permit them to retire early themselves, or maybe those funds will help alleviate a financial crisis for your children (or minor grandchildren) before they are able to retire.
But then, I'm not a fan of 529 plans anyway.
You could do a 50/50 match as well. Those boys have to earn half, or get a scholarship for half; and then they could claim the other 50% from the 529 plan. Just make those rules known early, so all the boys know what to expect. Ideally, the 529 would run out just before the last son graduated; but in practice you'd be wise to aim for running out of the 529 with the last son and cash flowing the rest.
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It's a bit messy given the other parent's savings or lack thereof. I would think the important thing is to let each kid know that they will have the opportunity to go to college and you will help them all out to the extent that you can / are able to. Get the family to agree that giving everyone an opportunity to go is your goal, and that due to the complexity of each child's situation and their age differences, that might not mean that they end up receiving the same amount of money from you and your husband. I would also say that any funds from the children's other parents will be treated the same as a scholarship would -- they have to use that money first before taking money out of the family college fund.
My initial thought would be to look at the total pile of your money set aside for college when the first one is ready to go, and divide by four. Track that money like it is in 4 separate accounts that are only available to the kid it belongs to. This way, no matter what happens, everyone at least has something available to them.
Decide what % of your income you can devote for college savings, and commit to contributing at least that percentage until the last one graduates. Use the dollars being added to equally help out the kids who are in school at the time, and use the gap between 3 & 4 to continue to save.
Essentially, you would be giving those in school equal opportunity to the money that the family had available at the time the money needed to be spent. Any unspent funds from the initial 4-way split is divvied up among the remaining kids when they graduate.
When #4 is ready to go to college, look at the size of the war chest and the financial need of that child for their college. If you have more than enough money, divide the excess equally among any remaining student loans from the first three. After the last one graduates, any remaining money is applied equally to student loans. If there are no loans outstanding, divide the remaining funds by 4. If there are still student loans, decide if you can / want to assist your kids in paying them off by continuing to divert some percentage of your income.
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My buddy told his kids they needed to cover half, whether it be saved money, jobs or scholarships. His kids chose state schools. My wife and I plan on doing something similiar.
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My parents gave each of us a select amount for school. The same amount. Anything we went over we paid for or took loans out for.
Seemed perfectly fair to me. .
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I think with their ages being so different, the same $ amount will end up being very different spending power.
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My parents fully paid for college for each of us. My 3 siblings went to pricey private schools and I went to the local community college. I never felt like I got the short end of the stick. It was my choice.
I like the idea of offering to help with an amount equal to a year (or whatever length) of in state tuition. I think that what you're doing now is fair too by attempting to help them each to graduate with minimal debt.
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I feel like the whole fair/equal discussion goes a bit far in terms of trying to even the scales on everything. As seen from the other thread, "economic outpatient care" is bad. For everybody, including the recipient. And it causes a lot of resentment, to see someone getting what you worked so hard for, seemingly as a reward for laziness and poor choices.
But we're talking about funding education, and education has a few more elements involved than just cost. One is where a student gets in. My sister got into schools I didn't. There are many explanations for this but ultimately, she worked hard to get that opportunity and I'm proud of her. Another factor is choice of major/profession/ROI. If one kid shows great initiative, goal-orientedness, drive, and career planning, their argument to go to X more expensive school because it has a more hands-on curriculum, mandated internship program, high involvement in undergrad research, and better job placement statistics is probably a lot more convincing than their sibling's argument to go to Y school just because it's cool/fun/prestigious/they want to.
I went to a small tech school on a scholarship. Sister 1 went to an "Ivy-equivalent". Sister 2 went to a state school. Want to guess who was most expensive after scholarships and financial aid? Sister 2. My parents' deal is to loan us all the money at favorable (near 0%) rates with flexible repayment options, but they're still out the sum for a long time while we graduate and get established. It's still a privilege and a gift.
I don't think it's wrong to come up with minimum amounts you'll invest in each child's education so that each knows they have at least has something to work with. But if you have the means and they earn the opportunity, I don't think it's wrong to support one through an exceptional experience, like attending Harvard or MIT or Julliard (I think the renown and name recognition of a handful of such institutions really is worth it; that's my opinion/observation). Or maybe you invest in the business they want to start, or watch their baby, or let them live at home longer. Or none of those things because they're your kids and your money and you make the choices.
But really, I think the best thing you can do to prevent resentment is teach your kids to be happy for each other, to be proud of each other, to support each other's dreams and share the fruits of their labor instead of competing for your time, attention, and money like adversaries. The more you build up a sense of family unity, the harder it will be for these sorts of things to break it down.