Personal loans for funding college or retirement? Think carefully. (Photo: flickr.com)

One key question Americans are asking themselves is whether to use personal loans as a means of funding retirement or college funds. There is a careful balance between choosing to put hard-earned money into a person’s long-term future, or their children’s. Senior financial advisor Evelyn Dinkins recently reported on why consumers should be looking to their own retirement funds before their children’s college account.

An Expert Sounds Off

Dinkins stated that there are some very important points to saving for retirement religiously. First of all, retirement is funded one way: consumers resolutely saving. With the state of Medicare and Social Security, ancillary funding is most likely not going to be available for much of the future.  Consumers are most likely reaping the last benefits of these programs now; future generations will be on their own. For this reason alone, it’s important to realize that saving today is what’s going to take care of the average American’s future.

In addition, Dinkins spoke on how retirement funding is pretty much a fixed cost. If a consumer knows their cost of living and can project inflation somewhat accurately, they can pinpoint how much they need to save for a comfortable retirement. This amount is non-negotiable, unlike a college fund. Plus it’s important to take stock of funds at various times throughout the career to reassess if retirement fund goals are met, or if more savings need to go into the account.

Finally, with employers willing to match 401(k) contributions, it benefits all employees to take advantage of the extra money for their futures. Dinkins subscribes to the philosophy that people should “fully save for retirement and if there’s money left over, then save for education.”

On the Other Hand, There’s College

College has a good number of ways to be funded. Personal loans, scholarships, grants, and part-time jobs can all contribute to a college fund. Plus there are ways to alter this cost by going to a community college for the first two years of an education or live at home for the duration of college rather than dorm living. Schools can be chosen for a specific budget and other cutbacks can be used to save money.

How to Face Reality

Dinkins states that when a child is about 16, parents should have a serious discussion about their college future. Parents need to lay out specific financial guidelines, making it a point to communicate the total amount they can contribute. Children should understand that anything above and beyond the total parental contribution will need to be funded by their own efforts. Even if parents are able to totally fund a college experience, children should be aware of the total cost. Dinkins explained college funding to her own child this way: “My daughter looked at one particular school and I just had to say that can’t be on your list unless you want to come out with a massive student loan.”

Retirement Funding is a Priority

In the end, the temporary cost of college can be funded with a wide variety of tools such as personal loans, scholarships and grants. However, retirement funding is going to be a result of proactive savings. If their retirement years aren’t prioritized, then retirement may need to be postponed indefinitely. The bottom line is that Americans need to make sure their retirement futures are secure prior to contributing to any other funds.

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Couples need to make debt relief a priority discussion when considering marriage. A new national survey for Fidelity Investments is showing some interesting results. Many couples aren’t in agreement on basic financial issues and don’t even discuss finances in any depth. Here are some of the topics those questioned stated they didn’t cover with their significant other:

• When is each person planning on retiring?
• How much money do they need to save to retire on time?
• What types of debt will be considered priorities to pay off?
• How much insurance coverage is each expecting to have?
• What budget will they follow and for how long?

Oddly enough the same poll was given two years ago and there has been a general decline in communication, although the economy has drastically turned for the worse. For example, two years ago 79percent of couples stated they didn’t agree on retirement plans, including the time to retire or if they would continue to work after retirement.  This year’s survey showed that same number is up to 82 percent. Other numbers in the most recent survey follow suit.

An expert predicted the results

Nicholas Yrizarry, a financial adviser in Virginia, stated that he thinks the results of the most recent survey are accurate and logical. His belief is that the recession has pushed people to focus on “putting out fires, dealing with debt relief, worrying about interest rates, credit card debt, over-mortgaged homes and job insecurity.”

Although reason suggests they should be making financial discussions a priority, most aren’t. Yrizarry added, “You’d think it should raise some eyebrows, and they would say we’d better start thinking about this, but actually they just shelve it even further, defer the inevitable.”

The survey

The 2009 survey shows that only  45 percent of couples make decisions together on daily household management of finances like budgeting and expense payments.  The norm is for one person to take the helm at finances.  Amy Gunnerson of Pittsburgh, Penn., a agreed with her husband that she would pay bills. “My husband doesn’t want a part in the daily decision making. He’d rather focus on work, while I decide what the priorities are. …It works for us.”

President of Barber Financial Dean Barber said this is typical of families because normally one spouse is “adamant” about finances while the other “really could care less. … It makes it very difficult, though, and puts a lot of stress on a marriage.” Experts agree that this isn’t the most beneficial way to handle life because when one person has different expectations, there could be potential problems.   Also, if the family dynamic changes, say with divorce or death, the financially passive spouse is left in the dark.

Discussions about retirement are also put on hold by 62 percent of couples.  Again, this could potentially cause problems if one plans on retiring early, but there aren’t enough finances to maintain their lifestyles.  Financial Planner David Summerhill of Summerhill & Franke stated, “Retirement planning isn’t just about an amount of money. It’s about having an age when the retirement is going to happen for each person, having a plan to make it happen and having a contingency plan if it doesn’t.”

Financial discussions

One of the most surprising results of this year’s survey is that only 15 percent of all couples believe they could handle full responsibility for household finances if necessary.  With these kinds of numbers it’s imperative couples begin having dialogues about finances.  Retirement planning, debt relief, savings goals and investing options are all topics that need to be discussed and decided up on periodically throughout a marriage.