Save for your child's college or your retirement? The real answer.
As I discussed yesterday in a pair of articles (this one and this one), I dream of a future where my children and I are completely financially independent from one another. I鈥檓 not dependent on them, nor are they dependent on me.
The real question that both articles strive to answer, though, is where should I put my money to ensure the best possible outcome for both me and my children? Retirement savings? College savings? Splitting it up?
In my eyes, the issue really comes down to the job every parent is charged with: raising a functional, critically thinking, independent child. If you are truly able to succeed in this regard throughout their childhood, you鈥檙e going to raise a child that doesn鈥檛 really need your help at all to succeed in the world.
In other words, if you take the time to really focus on parenting your kids in a way that makes them functionally independent and critically thinking adults, you don鈥檛 need to save for their education. They鈥檒l be able to make their own way in the world without your financial support. Thus, you can channel almost all of your long-term savings into retirement savings so that you鈥檙e not a burden to them in whatever they wind up doing in life.
How do you do that?
Over the last five years, I鈥檝e read a pile of books on the psychological needs of children and young adults, everything from and to and . I鈥檝e come up with three basic conclusions.
First of all, praise children on their hard work, not their natural gifts. Focus on when they improve their results, not on when they simply succeed because of their talents.
Second, give them room to explore independently. Don鈥檛 hover. Don鈥檛 be paranoid about kidnapping. Send them out in the yard to explore things on their own, then when they鈥檙e done, ask them about it. The more independent exploration they do, the more resourceful they鈥檒l become.
Finally, put them into challenging situations. Don鈥檛 protect them from failure. One of the most valuable childhood lessons is learning how to fail. What do you do next? You pick yourself back up and try again. If you go through childhood without knowing how to do this, adulthood becomes much, much harder.
If you are constantly conscious of these three things, you鈥檙e going to naturally mold your children to be self-reliant and independent. Those traits will serve them very well in whatever they choose to do in life, and because of that, you don鈥檛 need to hand them their education.
They鈥檒l be able to make it themselves.
A final reason to save for retirement: if you do choose to help, retirement savings are usually flexible enough to allow you to help. You can often take out loans to help with education purposes from a 401(k), and you can take back your Roth contributions whenever you鈥檇 like to spend as you wish. If you decide that financial help is really needed, you can provide it with retirement savings.
So fund the 401(k) and the Roth IRA and don鈥檛 worry as much about the 529. Instead, focus your parental energies on being a parent that raises an independent and curious child.
Good luck.
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