In 2020, fewer than half of parents surveyed by Statistica
But paying for college—and planning for everything else—is doable. The answer is to create a solid plan and work with your kids to reach those college-saving goals.
Create a realistic college savings plan
Define your potential total cost,
The first step is determining the ballpark range of what college will cost.
What can you expect to pay for college?
The
These numbers typically include:
- Tuition and fees
- Room and board
- Textbooks
- Computer and related supplies
- Daily living expenses
The good news? There may be a big difference between a school’s sticker price and net cost. A family may pay as much as
And while you can’t know what sort of education your child will want or need when they’re very young, the U.S. Department of Education’s
Decide how much you will contribute to your child’s college costs—and talk with them about it.
You may want to cover the entire cost of your child’s education. Or maybe you want them to have a vested interest in their future by making some sacrifices and taking on part of the savings responsibilities. The sooner you outline your family’s plan the better.
“Doing the pencil math will always suggest saving for your retirement first,” says Clint Jasperson, Wealth Advisor at Thrivent and a parent himself. “This is because of the power of compounding. When comparing funding college versus retirement accounts, college funding may need up to 20 years while retirement accounts may need up to 60 years.”
“This leaves you with the challenge of reconciling the conflict between your responsibility for providing education to your kids with providing for yourself when you stop working. Or balancing posterity with prosperity,” adds Jasperson. “Intuitively, this makes sense but is hard to practice. After all, what good does providing for a college education do if it jeopardizes the long-term financial security of the family?”
One way to vest your son or daughter in the savings process is to tie your contributions to your child’s academic performance. You’ll make them responsible for their own success—and they’ll feel better about your helping out, too. Consider savings techniques like contributing two or three times every dollar they deposit. (After all, you’re bringing in just a little more income, right?). Or, if they aren’t working, decide an amount to contribute after each report card tied to their grade-point average. No matter how you do it, they’ll have a more significant stake in their future.
Pick a college savings plan and get started—from day one.
There's no such thing as being too early to the table with a college savings plan. Opening an account is right there on the timeline along with buying a crib and a car seat.
It shouldn’t be painful to maintain a dedicated college savings account;
A 529 provides your family with flexible savings options.
The most popular type of college-specific savings account, the state-administered
Another 529 option is a Prepaid account. Like a traditional 529, it comes with high contribution ceilings (about $300,000 in after-tax dollars, state-dependent), no income barriers, and the ability to switch beneficiaries. However, it differs in that it’s school-specific. You choose a state college, lock in a tuition price, and work towards that savings goal.
A key benefit: It's not likely you'll have to pay for tuition increases.
A downside: If your child ends up going to a private school, you’re not guaranteed all of your money.
A Coverdell “education IRA” puts after-tax dollars to work.
A
Custodial accounts offer broader spending conditions.
In a
Talk with your financial advisor and your accountant about which savings plan(s) can work best with your particular financial profile.
Keep monitoring costs and saving for college expenses throughout your child’s college experience.
In some cases, such as with a 529 fund, you can still contribute once your child’s on campus. You should also monitor how you’re spending all that cash you’ve been saving for 18 years or more.
Keep looking for ways to reduce tuition costs even after your teen starts college. “When I was in school, I was actually able to score scholarships more easily, since there were fewer people competing for them than when you’re first going to school,” says Jasperson.
And be sure to file the
Get your kids actively involved in planning and saving for their college education
It’s their future, and the bigger stake they have in it, the more it will mean to them.
Help your children create a vision of their learning future.
Talk with your children to help them see how their interests can become a cherished vocation. Has your oldest always wanted to be a doctor, while your youngest adores the visual arts? Encourage them to start turning those dreams into tangible goals. It’ll make the sacrifices they’re about to make much more meaningful.
Assist each child in building their own savings strategy.
You’ve been guiding your children in developing their commitment to save, give, and spend with short- and long-term goals in mind since they were able to hold a dollar. Using that framework, be sure to weave college savings into their budgets as soon as they start getting an allowance—and establish its high priority.
Here’s an example framework for allocating allowance money, gifts from relatives and, eventually, those first paychecks.
- Charitable giving: 15%
- College savings: 40%
- Saving for special occasions or purchases: 20%
- “Fun” or spending money: 25%
Your percentages may vary, but the idea of prioritization is most important. Your child must understand the importance of paying for an education in the context of everything and everyone else they value.
Check out
Have your child research scholarships and grants.
Applying for scholarships and grants is another often misunderstood part of college planning, even though these sources fund
Planning how to pay for a college education takes time and effort. But when you approach the process as a family and empower your kids to take an active role in their futures, you’ll make the most of the relatively short time you have to grow your savings.
To learn more about creating a college-savings plan that works for your family,
