A reader tried to convince his friend that retirement planning is the first priority in investing. Everyone else, including our children’s education, comes next. He wrote to me looking for “logical support” as he put it.
However, he was deeply disappointed in me because I thought just the opposite. So this is my attempt to explain why children’s education is at least as important, if not more so, compared to retirement.
I have mentioned several times that the fear of repeating mistakes drove me to invest in equity and towards financial independence: my journey is driven by the fear of making the same mistakes again.
I’ve also emphasized that “emotional logic” is the key to staying invested in equity through ups and downs. It is being emotional about not being financially independent in retirement or not providing enough for our children. See: Worried about a market crash? Use emotions to understand the cost of pulling out.
So I will be guided by emotion here and my experience. We are all victims of our experiences. My parents always put my needs before theirs. They supported me with their meager income for 14 years after school until I got a permanent academic position. They have never thought about their retirement planning.
So in my book I would be a terrible parent if I didn’t do the same for my son. Thanks to my parents’ support, I of course earn significantly more now. So I can afford to be logical and emotional at the same time.
This means that I can plan for retirement and my son’s future at the same time – that was the state of things when I started in December 2009. I have achieved both goals well before their deadlines, although I continue to invest with the same zeal.
If you’re starting a family, when you can plan for both goals, it’s the ideal place to be. For those who start a family earlier, it’s hard for me to say, “retirement should be your first goal”. I believe our children should not start their careers with debt (educational loans). I believe we should do everything in our power to help children follow their dreams and give them the necessary time to hear their calling.
So when I claim, “Our children’s education is more important than our retirement planning,” it means that I will not hesitate to dip into my retirement corpus to fund his future dreams (in my case, if I had made a mistake in assessing his need ).
Retirement planning is essential. There is no doubt about it. If we start a family without assessing affordability, I will put the child’s needs first. Yes, I have heard all the arguments to the contrary: “Children can get an education loan, but there are no loans for pension*”, “children are not your retirement fund”, etc.
* We have a product for homeowners – the reverse mortgage. Of course, it comes with its problems: Can reverse mortgages be used as a source of income after retirement?
The way I see it, if your pension is more important to you, make that choice Before you have a child. Once the baby arrives, as my father put it, “things change”. Most people will disagree in applying logic to when to have the first child. Fair enough. But we can’t eat the cake and expect to keep it intact too.
Life taught me a hard lesson: it’s better to start a family when I’m young, but at least for the second child (assuming we don’t have twins the first time), I would suggest that the parents pause and check if it would dent their pension plans.
If you are struggling to plan for your children’s needs and retirement, I encourage you to do everything in your power to invest properly and try to increase your income. See: How to Build a Second Source of Income That Lasts a Lifetime
All this rhetoric about why retirement planning is important is fine, but I would never clip my child’s wings to protect my retirement nest egg; this is a no-brainer.
Therefore, the choice should (ideally) be made before we become parents, as long as we don’t age too much. I understand that this is typically impossible or not practised, but that does not mean that pension has higher priority.
Some readers may be thinking “it’s easy for you to say this since your income is high and your goals have been achieved”. If you take my word seriously, I can assure you that my journey was full of difficulties and mistakes. If I had to do it all over again or follow an alternate timeline, I’m sure I’d always put children before retirement.
If that means being financially dependent on children after they start earning, so be it. It’s a gamble I’d take rather than face the angry fangs of my conscience. Family comes first. Don Corleone would approve.
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Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is Associate Professor at the Indian Institute of Technology, Madras. He has over nine years of experience in publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or Youtube. Pattabiraman has co-authored three printed books: (1) You can also get rich with goal-based investing (CNBC TV18) for do-it-yourself investors. (2) Game changer too young wage earners. (3) Chinchu gets a superpower! for children. He has also written seven others free e-books on various topics related to money management. He is the patron and co-founder of “Fee only India,” an organization that promotes unbiased, commission-free investment advice.
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Most investor problems can be traced to a lack of informed decision making. We’ve all made bad decisions and money mistakes when we started earning and spent years regretting those mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we were to nurture a skill in our children that is key not only to money management and investing, but to every aspect of life? My answer: Healthy decision making. So in this book we meet Chinchu, who is about to turn 10 years old. What he wants for his birthday and how his parents plan it and teach him several key ideas about decision making and money management is the story. What readers are saying!
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