Financial Mistakes Parents Make

Parents often prioritize the college education of their kids. But advisers say, saving for school doesn’t give parents the right to neglect other financial goals.

According to a global asset-management firm,  Alliance Bernstein Investment's "College Savings Crunch," a recent report that measured college saving trends, 70% of families surveyed don't have a plan that include all their financial goals takes into account all of their financial goals.

Melissa Osuch has seen first-hand proof of those findings.

"In talking to fellow moms and fellow parents, I realized they had no idea what their priorities should be and where they should start. A lot of times they do nothing. When they do take action, "they focus so much on college planning that they completely ignore retirement planning." said Osuch, a Glenview-based financial planner and educator with Strategic Advisors of Illinois.

Strategy to set priorities

College saving usually gets lesser attention than everyday necessities and desires of family members. The Alliance Bernstein survey found that out of all the families intending to fund at least part of their children's education, 58% spent more on eating out or ordering take-out food than saving for college in the past year, while 49% spent more on vacations.

For Vicky de los Reyes, a 38-year-old who lives in the Chicago suburb of Hawthorn Woods, buying a house was the priority when her oldest daughter was young. She and her husband began saving for all their children's college expenses when their oldest turned 6.

The couple has a catch-up strategy even if they saved for their daughter’s education later that they liked. When their youngest stop needing day care, the money saved will be added to their oldest child’s college fund.

Osuch has a formula to help parents prioritize their finances: First importance would be protection and insurance, then establishing an emergency fund, saving for retirement and last is saving money for college.

Rick Brooks, a financial planner with Solana Beach, Calif.-based Blankinship & Foster, has a similar approach. "The way we tend to look at financial planning is first covering the risks," he said. The young families he works with are typically successful professionals in their 30s and 40s with high educational degrees on their resumes -- yet still are often left scratching their heads when it comes to creating a family financial plan.