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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jan 18, 2013

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There is a societal idea that the more money parents give to their children for their education, the better they will do.

But a new report by Laura T. Hamilton, an assistant professor in the School of Social Sciences, Humanities and Arts at the University of California at Merced, says otherwise.

The report, “More is More or More is Less? Parental Financial Investments during College,” shows that college students statistically receive lower grades when parents foot more of the educational bill. Across all types of four-year institutions, the larger the amounts contributed by parents, the lower the students’ grades were.

Hamilton said that a “more-is-more” approach is ingrained quite deeply in higher education.

“Compared to parenting younger children, there is currently less consensus about what amount of financial support constitutes good parenting for college students — even within social class categories,” she said.

But that tradition does not lead to a better education.

“Intentionally crafting opportunities for children’s intellectual, social, and emotional growth has become an accepted norm of middle-class parenting — and one that may generate its own set of problems,” Hamilton said. “For youth reaching the end of adolescence, this parenting may be primarily financial in nature.”

Her report simply questions: “Can parents purchase a better college outcome for their children?”

After reviewing her findings, the general answer is no.

Forms of Financial Aid

Students can finance their education with grants, scholarships, work-study programs and student loans, both private and federal.  

Each student and family must decide how to pay for higher education. Sometimes the child must support themselves completely and other times the child’s parents pay for the entire bill. In other cases, it is a mix of both.

Hamilton distinguishes parental financial support from other financial aid methods. Financial support from parents or family members impacts students in a different manner, likely because it is not a debt that must be repaid.

Additionally, financial aid, such as grants and scholarships, is merit-based and usually comes with strict GPA or performance standards that must be upheld. These requirements keep students on-point for fear that they will lose their financial aid.

Other programs, such as work-study, also take the student’s academic performance into account.

Hamilton said that the only financial aid that does not require a merit-based standard is student loans.

“Loans are the only other sources of aid that is generally not tied to performance and may divert financial responsibility from students during college — especially if students are not responsible for payments,” she said.

All the Freedom, None of the Responsibility

Part of the reason for concern for college years could deal with the emotional transition it creates for students. If they live on campus or away from home, they are experiencing a different life than they experienced during childhood.

When students are on-campus, they are significantly freer to act under their own sense of urgency. Unlike during high school, parents are no longer able to monitor and control their children’s use of time and resources.

According to the report, college students spend as average of 28 hours per week on classes and homework combined, yet they devote 41 hours per week on social and recreational purposes.

In contrast, high school students spend more time, per week, in class alone.

Hamilton states that there is a high cost for creating a stage in student’s lives where they are free from financial responsibility. This freedom postpones their shift into adulthood.

This period without financial responsibility can even create entitlement issues. Hamilton’s report states that for some, they believe their parents should take care of their expenses.

“Such concerns tap into an alternative theoretical framework for understanding parental financial aid in college, where more may actually be less,” she said.

The lower grades attained by students does not necessarily inhibit their ability to earn a degree, it simply shows that their full potential is not being exhibited.

“Students with parental support are best described as staying out of serious academic trouble but dialing down their academic efforts,” Hamilton said.

If higher education is supposed to garner the best out of students, then the current method is failing.

The Value of a Child’s Educational Stock

Paying for a child’s education is like a business investment. However crude that sounds, most parents want a good return on investment (ROI) for their money rendered. They pay for part or all of their child’s education, and they would like to see that money turn into something positive such as a well-paying job.

“Parents often assume that one of the best ways they can direct their money is toward their children’s college education,” Hamilton said. 

It is like the stock market. If money is invested in a certain stock (child) and then left to increase and depreciate in value at will, the parent is making a risky bet. It is better to watch, update, and even change stocks if necessary. If a child’s grades fail and there is nothing the parent can do about it, then they should decide right then about possible solutions such as withdrawing their financial support. If the student cannot commit themselves to higher education, then maybe this career path is not the best choice for them.

But the ability to invest does not always constitute the will.

“Some parents provide more than they can reasonably afford, while others intentionally hold back,” Hamilton said.

Just because parents are financially able to invest in their child’s stock value, it does not mean that they will. Conversely, some parents invest more than they can afford.

Other Report Findings

Although the report found the negative link between parental financial support and student grades, there was a positive finding from Hamilton’s report.

There is a positive correlation between increased parental contributions and the likelihood that a student will graduate within five years. The reasoning is because students without funding for their education, such as from grants, scholarships or student loans, cannot continue to pay for college. Students with little to no financial support from their parents have a harder time finishing school due to financial concerns.

But higher GPA’s do not always lead to completed degrees.

Another finding from the report is the impact of parent’s involvement with their children’s academia. Parents that fail to discuss their expectations both financially and academically, often lead to unsatisfactory results for the students. Parents that set clear standards on grades and non-academic performance were more likely to have children with higher performances.

The Real Ingredient for Success

Money aside, the real issue is more about communication rather than money. When parents send their children off to college, their success is based partly off of a clear set of expectations. If parents are clear about their expectations for their children, in regards to GPA or graduation time, and set up a weekly update, the student is fully aware of what he or she needs to accomplish.

Financial support does help a student take care of themselves in college, but in the end, a helping hand and a clear sense of direction steers students more than money ever will.