John and Jane met with me regularly, mostly to touch base about their progress as they improved their financial position, or to discuss potential investments. But when their oldest son, Todd, turned 16, we met to discuss a major item that impacted their entire family. Both John and Jane were now 48 years old. During my telephone call to set a time and date for our meeting, John made a comment about how frustrated they were because of their boy. Todd was not a very serious student and his grades had suffered as a result. They were concerned that Todd would not be accepted into college he wanted to attend; there certainly wasn’t any hope of a scholarship to help financially with his advanced education.

As we talked further, it became very clear that having their children get a college education was very important to both John and Jane; the same goal did not seem quite as important to their two children. We talked briefly about some costs associated with college that most people don’t consider. I offered to explain those costs in further detail, and suggested it would be very helpful if the two boys were part of the discussion. They agreed to bring the boys to our meeting.

I knew I would have to be at the top of my game to keep the two teenage boys’ attention long enough for them to realize the real cost of a college education. Knowing the simple price tag of a college education wasn’t enough; they needed to comprehend the real costs of college, and the impact those costs would have on their parents’ and their own futures. Opportunity costs of a college education can be rather sobering, which is exactly what I was hoping it would be to the teenagers. Perhaps it would help them understand the need to more serious about their plans.

Opening the door to our offices, I greeted the four of them, “If it isn’t the Joneses! Nice to see you. Come on in. We will meet in the conference room instead of my office since you two boys are with us today.”

Extending his hand, John said, “Hi. I have been looking forward to this meeting since we talked on the telephone.” Then motioning to the two boys, he said, “This is Todd, he is 16 and that is Jason, he is 14. And no, they are not that excited to be here.”

I shook both of their hands and asked, “I gather you two are fairly fast runners. Is that correct?”

“Uh, what? I don’t know what you mean. Who told you that?” Todd said as he tilted his head.

“Well, I have a lot of clients blame all their debt on the fact that they are trying to ‘keep up with the Joneses.’” I answered, knowing it was a corny joke, but wanting to engage the boys.

John laughed heartily. The boys groaned but smiled, which I took as a good sign.

“There is a fridge right there, why don’t you two grab a soda. There are some snacks in the cabinet above the fridge. Help yourself.”

As we sat down, I began to ask the boys a series of questions to engage them and get their attention. I learned the two of them were hoping to go to college but had not considered how they were going to pay for it. They had both just assumed that Mom and Dad would fund everything. Neither one had a clear idea of what they wanted to study once they got to college.

“Your parents have been working with me for over 20 years now. They will tell you that one of the things I say all the time is you finance everything you buy,” I said looking at John and Jane. “Is that correct?”

They both nodded and John spoke up and asked, “Do you understand what he just said?”

“Not really,” Todd answered. “When I go to Costa Vida with my friends I use my debit card to pay, so I don’t finance anything, I pay cash for it. Well, as good as cash.”

“Let’s say the bill for your dinner with friends is $10. If, instead of having dinner though, you decided to put that money into an account that earns 5% interest. In 10 years, your $10 would be worth how much?” John asked.

John was explaining to the boys a concept I had planned to talk about. I was pleased by his direction and I swiftly brought up a Future Value Calculator and put in the numbers. There was a projector in the conference room so everyone could see well.

“I don’t know,” Jason said.

“I have several calculators that we’ll use today,” I explained. “This one shows the value of something in the future.” Then pointing to the answer, I said, “What does this future value calculator say your $10 today would be worth when you are 26?”

“That much?” Todd said.

“What this calculator is showing you is the opportunity cost of your $10 dinner over ten years, is $6.29,” I said. “So really, the full cost for your dinner was $16.29. And will that cost ever stop increasing? Of course not,” I continued, answering my own question. “But the more important question is, “Who gives up the money so you could have that $10 dinner?”

After a short pause, Todd said, “I guess I am the one giving up money. But are you saying I should stop eating? If you are, we can be done right now, ‘cause that ain’t going to happen.”

I just chuckled. “I have teenage boys myself. The most common thing they say to me is, ‘Dad, I’m hungry.’ No, I am not saying you need to stop eating, but I do want you to understand that we finance everything we buy, so we should be smart with what we buy and how we finance what we buy. If we purchase things – and I am talking about the more expensive items now – in the most efficient manner, we can minimize our opportunity costs. And that’s extremely important.

“If we minimize our opportunity costs, who will end up with that extra money?” I asked.

Jason was quick to answer, “the one doing the financing – so, me.”

“Exactly,” I smiled at John and Jane. “You have a couple of smart ones here.”

“Let’s take a few minutes and talk about one of the biggest purchases you will make in your lifetime: a college education.”

I brought up the Cost of Education Calculator and started to input their names and ages. Where are you hoping to go to college?” I asked Todd.

“Arizona State hopefully.”

“Great. And what is total for the tuition, room, books, and other expenses for Arizona State?” I asked.

“I have no idea,” Todd frankly admitted.

“That’s okay, I looked it up. The average cost for a year at Arizona State last year was $25,000.” But do you know that costs are also increasing every year? Right now the national average is 7% per year,” I said and put those numbers in the calculator. “So, what will be your bill to go to Arizona State for 4 years?” I asked pointing to the number.

“That is a big number,” Todd looked mildly discouraged. “That tuition increase of 7% per year makes a big difference. I thought it was only going to be $100,000.”

“That is assuming you only take 4 years to graduate; but did you know the average student takes over 5 1/2 years to graduate?” I asked. Let’s see what that does to the cost.”

“Whoa, almost $80,000 just for 2 more years? I guess it would be a good idea to graduate in 4 years,” Todd said.

Turning my attention to Jason I said, “You are two years younger and I hear you want to go to Purdue University. The cost there is slightly more, it is currently $30,000 per year. What is the bill for your college degree?” I asked pointing to the screen.

“I can’t afford that,” Jason lamented.

“Now, did you two notice how I asked my question about the cost of your college education?” I asked.

They both stared at me.  I looked to John and Jane who looked similarly confused, so I asked again, this time emphasizing the key word, “What is the bill for your college education?  I intentionally used that word because the numbers on this calculator are not really the costs of your education.  Those numbers are simply the amount for which someone will write the check.  The total bill for both of you, is $127,082 + $174,596 = $301,678.  But to understand the full cost, we have to consider opportunity costs.

“Let’s assume for a moment that you are just going to get student loans that don’t require payments until 6 months after you graduate. What is the starting salary for someone graduating in one of the fields you are considering, Jason?” I asked.

“Roughly $40,000 a year,” Jason answered.

“Great, thanks,” I said. I opened a Payment Calculator and input a loan amount of $174,598 and an interest rate of 4% for 20 years. “Here is your monthly payment.”

“Wow, that is a house payment,” Jane sighed.

“If you’re making $40,000 and were to get paid monthly, the gross amount of that check would be $3,333.33. If you are single, or married and your wife works, you will pay roughly 25% in taxes, which would leave you $2,500 a month to live on. Your student loan payment would be more than 42% of your take-home pay,” I explained. “The total amount you will pay back on that loan of $174,598, is $1,054.51 x 240 = $253,082.40.”

I waited for a moment to let that realization sink in. I then asked, “So, is the $253,000 the total cost of your college degree?”

“I am guessing it isn’t,” Todd replied.

“And you guessed right. What if you didn’t take a loan and saved $1,054.51 in an account that was earning, say 4%?” I entered the numbers and put it up on the screen.

“This is depressing,” Jason said. “I could have all that instead if I didn’t have to get a loan.”

“When we first came in here I asked you, two boys, how you were going to pay for your college education. Both of you were unsure, but sort of thought your mom and dad were going to help you. Let’s take a look at what paying the bill for your college education will cost your parents. This calculator can look at the same scenario from your parents’ point of view,” I explained.

“This is a bit more complicated, so let me explain it a little. I put in your parents’ age of 48. I am assuming they would retire at age 65 and exit this life when they are 90 years old. I am also assuming they can get 4% growth on their money. This calculator shows us that your parents would need $250,909 saved TODAY, and have it grow at 4%, to be able to write checks totaling $301,678. Or, starting right now, your parent will have to save $35,834 every year for the next 8 years to fund your education. Writing those checks for $301,678, also means your parents lose out on $508,295 at age 65.”

“Here let me modify the calculator so you can see that better,” I said.

“The green indicates what the value of the $250,909 they have saved will be if it grows at 4% until they reach 65 years old. The red rectangle labeled Asset Reduction is the amount your parents’ lose if they write the checks for college. That is the cost to your parents for ‘financing’ both of your college educations.”

“The red bar on the far right shows your parents will have to go without $26,719 every year in retirement from age 65 until age 95. If we multiply that yearly figure by 31 (the years of their retirement), we arrive at a figure closer to the real cost to your parents of financing your education: $828,289.” I said it slowly to make sure they were grasping the whole truth of what I was saying.

As you can imagine, there was silence in the room for a little while. Finally, Jason spoke up and said, “I am not sure I want to go to college now.”

“Don’t say that,” John said. “I work hard every day with the hope of providing a good life for you two boys. I did not have much growing up since my parents went through bankruptcy and some other financial storms. I want to give you something better.”

“He’s right,” I said to Jason. “Your parents want the best for you, and I do too. The purpose of this meeting wasn’t to convince you not to go to college. The reason we wanted to have this meeting was to open your eyes to the extreme cost of a college degree. Many people don’t think about it this way until it’s too late, but I hope you see now the real cost of just going off to college to party for a while and ‘find yourself’ as so many kids do; or even the cost of taking a couple of extra years to graduate because you can’t decide what you want to do with your life.”

“I had no idea college would cost this much,” Jason spoke up. “Maybe I need to be more serious in class so I can possibly get some scholarships,” he conceded.

“That is a great start,” I complimented him. “What else could you guys do to lessen the potential costs to your parents?” I asked.

“I could pay some of the cost by treating my parents’ ‘financing’ as a loan, and pay them back the same way I would pay any other financial company,” Todd offered.

“Another great idea,” I said and smiled at John. “I think you two are getting the idea. This discussion needs to be an ongoing discussion between the 4 of you. Your parents have worked hard and have some assets inside a whole life insurance contract that might be a source of most of the funds you need for a college education. But those funds are also earmarked to help provide for your parents when they are older and don’t want to work a full-time job. We must make sure that money is used wisely and taken care of so it’s there for them when they need it most,” I said. The boys nodded.

I looked at John and Jane and said, “I think our meeting has been a success. I will let you two take it from here. As always, keep in touch.”


-Jason Henderson for Truth Concepts