Looking to the future? Starting a college fund is part of a successful education investment plan for investing in a lifetime.
College is an expensive proposition these days, so having a plan to pay for your kid’s education—even when it’s still far away—is paramount.
You’ll need to consider a college fund or some other educational investment plan such as a 529 plan or Coverdell savings plan. Those are investment vehicles, a first step in your total education investment plan. And it’s probably best to begin planning as soon as possible and get your child involved as well.
As you begin your family, or even before, think about how you’re going to get your child through his or her formative years, in addition to thinking about a college investment fund. Once your children are born, don’t wait too long to start saving. The sooner you can put your investment plan into action the more time you will have for potential growth.
As your child gets older, you might want to start talking about college investing and education investments with him or her relatively soon.
“It’s best to start the conversation before your children are teenagers on the brink of making important financial choices of their own,” says Tim Steffen, director of financial planning for Baird's wealth management division.
Modeling good behavior, such as letting your child see you actively putting money in their college investment fund or 529 plan, is one idea. Even for parents who automatically transfer savings to the account (something Steffen recommends to make saving easier), showing how this is done gets children involved. Also, start having conversations about budgeting and what type of school you think the family will be able to afford with the savings you expect to accumulate, he says.
Plus, these conversations may have a secondary benefit: They can help your child better understand the preparation and financial discipline that go into making an important purchase. This might put them in better shape later in life when they need to start saving for a car or home.
The discussions need to ramp up as your child enters high school. Since you’ve already set the stage by talking to your child about finances and how money works, you can help guide their choices and school dreams.
“You have to be realistic with what you can afford,” Steffen says, noting that some colleges might not be affordable for your family. “It is such a different world when it comes to paying for school for kids now than it was a generation ago. The prices just don't compare. Even inflation adjusted, they don't compare.”
By high school, students can become active members in their education investment plan. In addition to savings, you both should explore other avenues for finances, such as the student getting a part-time job and saving that money, looking at academic and athletic scholarships, talking to grandparents, and potentially taking out loans. There are more academic scholarships than athletic scholarships available, and it is important to remember that actively researching available scholarships can take quite a bit of time.
Before asking if grandparents can pitch in, think back to how they helped you with paying for college; it might give you a sense of their willingness (or ability) to contribute to an educational investment plan.
Also, work-study programs or first attending a community college can help ease the financial burden. Sometimes going away to a big school can be emotionally overwhelming at 18, so community college can help with that life transition—and save on costs as your child works toward his or her bachelor’s degree. And don’t worry how it looks on a resume.
“I think employers are more concerned about where you ended your college career than where you began it,” Steffen says.
The cost of college is high, but an education account can help you invest toward paying for your child's college expenses down the road.
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