The Family Contract - Managing Expectations

The cost of higher education has pushed many folks to work past normal retirement age to finance their children's education. Either through home equity line of credit or co-signing for loans parents mortgage their retirement for the sake of their children

After the 2008 financial crisis where many graduates could not find employment, they naturally moved home. Even when they found a job, the "rent free" lifestyle persisted. The additional cost of food, utilities, cell phone, car insurance thwarts retirement plans and savings. Young people do not realize the parental sacrifice unless someone enlightens them.

Sharing a home includes sharing responsibilities. Putting those responsibilities in writing clarifies the situation for everyone. Some parents might have the means to continue supporting their children but is it really fair? Earning, saving, spending are all financial realities of life. Denying children those lessons helps no one, hence The Family Contract.

List the expectations AND the consequences.
Put it in writing and have all parties sign.

For example:
Son/daughter may live at home until June, 2017. During that period he/she will:
1. occupy one bedroom and use one bathroom, keep them neat and clean them (scrub/dust/vacuum) once every two weeks.
2. grocery shop once every two weeks to purchase favorite foods, replace essentials (milk, coffee, eggs, laundry detergent) and pay for such items.
3. refill the gas tank when borrowing the family car.
4. pay their own car insurance (if applicable).
5. do their own laundry.
6. assist with house upkeep (e.g. mow lawn, take out trash, walk the dog, etc.)
7. pay $200 a week to cover utilities and other household expenses.

Parent(s) will:
1. pay utilities and mortgage/ rent.
2. provide heat, hot water and A/C.
3. provide simple meals
4. make car available for occasional use (could be specific days/times).

Consequences should also be specific such as:
1. loss of car privileges,
2. an increase in weekly "rent",
3. finding another place to live.

If you feel uncomfortable charging "rent" realize your child must allow for rent in their future budget. You are not helping him/her live independently by providing a cushion. If charging rent truly bothers you, put the weekly money in a savings account and give the money to them after they move out.

Yes, they are your children. Yes, you love them. Your goal is to raise healthy, social, independent, responsible human beings. A Family Contract facilitates respect and growth for all concerned.

Be $ Smart - Make your children welcome but not so comfortable to jeopardize their future or your retirement.

Costs of College

Back to school brings parents a sigh of relief in one sense but it also brings to mind the cost of higher education.

If your student is bright and talented, there is a possibility he/she might qualify for Merit Aid. Be aware that some elite colleges may not offer merit aid to all students. Merit aid might be only offered for certain majors, e.g. engineering or computer science or particular talents, e.g. music, dance, athletics.
Parents need to research those colleges offering merit aid and learn the criteria needed to quality.

Financial Aid (need-based) may be available based on the student's family situation. The formula: cost of attendance - the Expected Family Contribution = need, determines eligibility. The EFC, the result of two formulas from FAFSA and CSS Profile, is the amount a family can afford to pay each year.
Parents need to learn their EFC early and develop a strategy to make their student eligible for aid.

Student loans are both a help and a curse. Over time, the interest can add tens of thousands of dollars to the cost of college. Parents borrow from home equity, retirement plans and Parent Plus loans all adding the interest costs to the college expense.
The key is to borrow the bare minimum, search for the lowest interest rates and pay off everything as soon as possible!

529 Plans are an effective way to plan for college:
- They can be set up as a systematic deposit.
- Depending on your state, they may offer a tax credit.
- The gains are not taxed when used for qualified college expenses.
- They reduce the amount of money taken in loans.

Be $ Smart - do some homework, plan ahead, be aware of the extraneous costs of college and borrow as little as possible.