Doting on your children – can you afford it?

My most favorite financial TV show has been the one hosted by Suze Orman in CNBC. I consider her to be my mentor in the area of personal finance and a lot of my thoughts and attitudes about investment have been influenced by her. One of the segments in her show was called “Can I afford it”? You explained what you wanted to buy at what cost and provided some financial data. She would look at the details and give a verdict on whether the caller could afford it or not.

A lot of the calls were about children going to college and whether the parents could afford either payment of the fees or if they should co-sign the student loan application, which would make them liable in case the children did not pay off the loan for whatever reason. In most cases Suze would deny such requests by saying that the financial bandwidth was just not there to do what they were planning to do. A few real life situation that I have recently seen with children’s education, makes me wish that the doting Indian parents had someone like Suze Orman to get help from, in such situations.

Now do not get me wrong. I am all for spending on children’s education as I see it as an investment which will stand them in good stead throughout their lives. For my own children, I have been happy to put them through expensive public schools and while BITS is a very good institution, it is expensive compared to most. However, all these expenses were part of a plan and I could see the value they would bring to their careers. My advise to parents in similar situations as me would be to try and sponsor their children in a similar manner, even if it meant stretching a little financially.

Let me give you some instances of what I am talking about:-

  • An erstwhile colleague sent his son to Australia for an MBA course after he had completed Engineering from a mediocre college here. The father today is still working hard, while the son is back after his MBA and deciding on what he wants to do in life.
  • Similar case with another colleague’s son – he passed out of an Engineering college last year, did not get jobs that he wanted and did not want to take up jobs that he got. He has been spending the last year in looking at places where he can do an MBA from and obviously wants his father to fund it.
  • A couple I met recently in Kuwait was having a difficult time explaining to their son as to why it was difficult for them to fund his undergraduate studies in the US at a cost of nearly 200 K $.
  • I know a 40 year old son who is a not so successful lawyer and is married with 1 son. He still lives with his parents and expects them to fund much of his expenses including vacations for his family.
  • There are many examples of Engineers passing out of colleges and not being able to secure a decent job and in some cases not wanting to do jobs that they can get.

All of these situations can put your financial plan completely off track. The basic premise in any financial plan is that as you progress towards retirement, your children complete college and get to become self dependent, either by getting a job or otherwise. If this assumption proves to be incorrect then you will continue to spend on your children and, in some cases, such as an MBA outside India you may well over-leverage yourself.

So what is the way out of this imbroglio? I think the problem starts with us wanting things for our children that they are sometimes not capable of. For example, anyone can get into an Engineering college today. Every year there are 1.45 million Engineers passing out of colleges. However, there are decent jobs for less than half of these people. As such it really makes little sense to insist that your child does Engineering unless he/she can get into one of the top 100 or 200 colleges. Do not put pressure on your children if they are not capable of doing this. There are enough career options in the country today, gone are the days when only Engineering and Medicine would guarantee you a good future.

The other thing you must avoid is giving in to unreasonable demands of your children if it is not consistent with your own financial situation. If your situation warrants you to send your son to Sydney for an MBA course, do it by all means, but do not do it by damaging your retirement kitty or taking a loan that you can really not afford to repay. If your child has not been able to do a decent graduation then the chances of this being redeemed significantly at a post graduation level is limited in any case. Similarly, once your children have their own families you must extricate yourself from having to financially support them. Love them all and give them gifts but limit it to that extent.

We all want to dote on our children and for the fortunate few who are able to do it without any compromises, life is good. For the rest do what is affordable to you and take care not to go overboard.

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2 thoughts on “Doting on your children – can you afford it?

  1. Dear Rajshekhar

    It is a pleasure to read your posts. What you have mentioned is quite a reality. The middle class of today push their children to courses esp the professional courses from ordinary institutes by paying big fees which does not give them big breaks. Frustration creeps in along with a debt.

    I really appreciate your suggestions, parents need to exercise control and think from their head rather then from their heart.

    My suggestion to parents is that make their foundation strong when they are in schools, give them best education and morals that time. If foundation is strong, they will just do good where ever they are.

    Thanks Rajshekhar.

    Rajesh

    Liked by 1 person

  2. Hello Sir,

    As always, it is really wonderful and insightful article from you. I complete resonate with the ideas presented in this article. Though my own children aren’t yet to embark on their college education, I am preparing for their future in almost an identical fashion as you have outlined.

    Coming to the examples, I feel that there are couple of important points to consider. One, the parents’ dream of living their life through their children. If someone has come from lower economic class and were deprived of opportunities because of money, it becomes an emotional and psychological decision for parents that their children shouldn’t undergo the same ordeal. This has to be discussed and resolved rationally.

    Next, I think the one common thread is that the parents don’t inculcate the value of money in their children. As you have rightly pointed out, limit the gifts, give umpteen love. At the same time, children should know what I call as “The value of 1 Rupee”. I want my kids to grow up understanding the privileges or facilities that they are exposed and the cost being paid by the parents. The idea is to make them responsible and ready to face the world on their own.

    I know this is a little old school, but I feel is very effective and helps to condition the kids to appreciate things in life as well as empathize with the lesser fortunate and learn some skills about giving back to the society.
    After all Value Education is the most important thing any parent can give to their kids.

    Lastly, I am very happy that I wasn’t the only one watching Suze Orman and the “Can I afford it?” segment. She is and will always be my inspiration !!!

    Like

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