Have You Started Saving For Your Children’s Education?
If you haven’t, you’re not alone. Many parents are overwhelmed at the cost of a college education, and the rate at which that cost is increasing. In fact, some are so paralyzed by the enormity of the goal, that they save nothing.
They don’t even start.
They wait until they’re in a “better financial position.” It’s easy to say, “After we finish [insert current financial goal] we’ll start saving” or “Once we get past [insert current financial hardship] we’ll start saving.”
That’s exactly what we told ourselves, too.
With our huge financial goal to pay off all of my husband’s student loans ($130K+ of law school debt) ASAP, we have put all other financial goals on the back burner. We are even living in my in-laws basement to free up more money to put toward our debt. We aren’t saving for a house until we pay off our student loans.
Saving for our children’s education also fell into this category, until recently. One effect of making our monthly finances public is that we get lots of public comment. Many people have asked what we are doing to prepare for the costs of college. Until recently we told everyone we hadn’t done much of anything yet, that we were focuses on debt payoff.
Last month, when we opened college savings accounts for the three younger kids (the oldest already had one), many people were surprised. A few seemed disappointed in us, as if they felt we had somehow lost focus. Maybe today’s discussion will help explain a little bit for any who are uncomfortable with our decision or interested in saving for their own family’s college expenses.
Paying for college for our kids
First of all, we don’t plan to pay for college for our children. Both my husband and I were pretty self-sufficient when it came to paying for college. Between choosing an affordable university, earning scholarships, working full-time during the summer and part-time during the school year, we were able to cover most of the cost of our own undergraduate education.
That being said, we would like to be able to help our children with their education when the time comes. We aren’t planning to save the full amount of the cost of college. Honestly, we don’t even have a numerical goal set.
Why we started 529s for our kids
Being so narrowly focused on our debt repayment goal, you might have been surprised to see that we spent some of what we could have spent on debt repayment on 529 plan contributions instead. There was no earth-shattering reason to do this, or to do this now. There are several smaller reasons we decided to make this addition to our slim monthly budget.
- For the sake of starting
While we won’t be contributing much, there is something to be said for just starting. Right now we’ll just be contributing $25 a month to each of our four children’s 529 accounts. There will never be a convenient time to start, so now seemed as good as any.
- Because time is on our side
As with any investment, time is a pretty big deal. The sooner you start investing the better. Our kids are ages 0-7. There’s still a decade before the oldest will go to college and closer to two for the baby. The longer we wait, the less we’ll be able to take advantage of the compounding growth available over time.
- To have a more productive safe-keeping spot
Our kids have savings accounts where we have put any kid “windfalls” up to this point. While it’s great that they have been setting money aside instead of spending every cent they receive, their savings accounts don’t earn very much more than the cash in the piggy banks on their dressers. Now that we have a 529 started, we have a better place to to keep the money that’s earmarked for the kids’ future.
- Because costs are going up
As undergraduate students at an affordable school, we were able to keep on top of tuition by working during school. In the decade since we graduated, tuition costs, even at the undergraduate level, have increased by almost 50% at many schools. We don’t foresee this trend slowing down. It might not be possible for our kids to work their way through school in the same way we did.
- To take advantage of the ScholarShare match
We’re suckers for free money. On May 29 (National 529 Day), the 529 College Savings Plan in California, ScholarShare, offered a $50 match for new accounts. It required a $50 initial deposit and at least a $25 monthly deposit thereafter until at least the end of the year. That’s a total cash investmentof $225 per child, and a total return of $50 per child, a 22% return over seven months. It was hard to pass that up, even if we won’t actually benefit from the return for many years.
Are you ready to start saving for your kids education?
We started out with ScholarShare, California’s 529 College Savings Plan. You don’t have to be a California resident or have a child who plans to attend school in California to be eligible. Anyone can start a 529 with ScholarShare. In fact, they make it really easy to get started. You can open an account with an initial deposit of just $25.
ScholarShare has no annual account maintenance fees and the annual asset-based fee is low. Since the plan is direct sold (as opposed to advisor sold), you don’t have additional fees. You have many options to choose from with ScholarShare’s 19 investment portfolios.
There are lots of great reasons to start saving for your children’s future now. That said, decisions in personal finance are just that- personal. If you are struggling to pay your bills or are bogged down in consumer debt, you may be better off putting out those fires before tackling college savings.
If college savings is not a good choice for you now, focus on what is a good choice to improve your financial situation. It might be figuring out how to cut your living expenses. It might be finding a way to earn more money. For us, it’s a little of both, but for now we’ll also be setting a little aside for the day when the kids face their first tuition bills. Maybe we can help them get through without going six figures under.
How about you?
- Have you started saving for your children’s educational future?
- What were the factors that affected your decision?
Note: I have teamed up with ScholarShare to spread the word about the 529 college savings plan. I will be compensated for my efforts. The content and opinions in this post are all my own.
I am Canadian so our system is slightly different. That said we started our boys(ages 3,5,7) RESPs ( registered educational savings plans) when they were born. The government gives us a percentage up to a couple thousand dollars on our contributions. So it’s free money! Needless to say they have more for school than I have for retirement!
That’s awesome Jennifer! Way to take advantage of free money! 🙂
Great post about starting a college savings plan for your kids. With college tuitions increasing 3% annually it’s important to start saving ASAP. We explored cool tricks you can do with 529 college savings plans, you may find it interesting http://bit.ly/1SYvYqT.
Thanks for sharing!
We have 4 children between almost 2 and 7 years old. Here in Canada we have what is called a Registered Education Savings Plan (RESP). We opened a family one 5 years ago (a family one allows the money to go between siblings if one does not go to an eligible school- international and trade school are allowed). You receive $500 per child just for opening an account and the government offers matching and bonuses based on the amount you contribute and your income. If a child does not use all of or part of the money then the parents reclaim their investment plus the interest in a retirement fund (RRSP) and the portion that was given as the bonuses goes to the local post secondary school of your choice. It’s such a great program that there was no reason to delay opening ones for our children. We recently had to put contributions on hold but after just 5 years of us contributing $25 a month to each childs there is over $12,000 already available. Paying off my own student loan was painful especially newly married and with a young child then 2 to care. We hope to be able to offer our children $10,000 each to help in keeping them away from student loans.
That sounds like a great program Christina! That’s awesome that you’ve save so much with just $25 per month per kid! Way to go!
Nate M. says
We don’t plan to pay for our children’s college in full, but we have decided to start putting money away for them (we began the first year they were born). We will continue to do so until they go to college. Whatever is in that account is what we will contribute, nothing more….at least that’s what we say now. LOL!
That sounds a lot like the way we’re doing it Nate! 🙂
Liz S says
We decided to go a different route, and we did not open 529’s for our two kiddos. Instead (we live in NH), we went with UGTMA’s (Universal Gift to Minors Act). This way, should they choose NOT to go to college, they can still use the money to start up their own business or for whatever route they take to further their educational endeavors that does not fall in the category of strictly college.
I don’t know tons about UGTMAs, but they sound like a good option if you want the flexibility instead of all the tax advantages. The important thing is that you are doing something! 🙂
Dane Hinson says
We also utilize a 529 for both of our boys. The #1 reason why we opened accounts so early (our boys are 1 and 4) is to take advantage of compound returns. With time on our side in a tax advantaged account, it’s a win-win to pay for college.
I totally agree! Great job getting started early!
Kathryn K. says
I agree with the reasons you gave for starting college funds (and we have one for our daughter), but I don’t agree with contributing to a college fund while not contributing to your own retirement. As the old saw goes, you can’t get a loan for retirement.
Would you have started the 529s if you weren’t being paid to promote the ScholarShare program? I think it’s great you’re making an income from the blog, but also that it’s important to acknowledge all the factors that go into a financial decision like this.
While we aren’t contributing to our retirement now, I am glad that we are at least keeping what we have (rather than use it to pay off our debt or something). We started saving for retirement pretty early in marriage, but the stopped for law school and paying for law school. Hopefully in the next couple years we’ll add some aggressive retirement savings back to our budget.
We have been meaning to get something started for our kids for a while now, but just haven’t taken the time to do the research and make the move. Learning more about ScholarShare got me excited about actually starting. Of course we still did the research to make sure it was where we wanted to put our money. The more I learned, the more I was excited to get started.
Luke Fitzgerald @ FinanciallyFitz says
We just started a 529 for our 4-month old. Both my wife and I had our education paid for, and it was such a blessing (we’re only now just realizing that). I hope to be able to do the same for our kid(s). But I’m with you, it’s only going to happen if everything else is all lined up. We started small just for the sake of starting. Hopefully can start to increase the yearly contribution as time goes on!
Wow! Starting at 4 months old is awesome! And that’s nice that you and your wife had your college paid for!
Liz S says
I am quite the opposite. I am so PLEASED that you started these accounts! I wondered if you would wait until you were ZERO figures under to start saving for retirement/college, and so glad to see you began one of the two! And I’m not sure how ANYONE could be unsupportive (not that their opinion matters, anyway) as you are contributing a very minimal amount each month. In fact, I love how despite what people say, you are doing what is right for YOUR family, what you and husband feel is the right next step, regardless of any more negative feedback you might get. We started college funds for our kids in January of 2012 and contribute a large chunk to both accounts each month…but we plan to cover most of our children’s college expenses as we only have two kids, and both of our parents paid in full for ours (of course we worked full time whenever we were not at college to help in the cost and we worked hard and got excellent grades). Sometimes I wish we contributed less per month than what we do, but it’s important to my husband and as he reminds me, college tuition will come BEFORE retirement. That being said, we are also maxxing out my husband’s work retirement, so it’s not like we are neglecting that either. But some days I would love to lessen our contributions to both and start hacking away faster at his med school debt and our mortgage! I need patience, though. Hope you got my lengthy email I sent last week was it? Take care, I know you are super busy with those 4 kiddos. ~Liz
Liz S says
Clarification: I just realized my comment made it sound like you don’t even have a retirement account. Oops! My bad. I actually know nothing about this, I just thought you currently were not contributing anything to retirement or had put that on hold at least for now. Sorry if I was unintentionally misleading!
That’s amazing that both of you had parents that paid for your college! I think that is pretty rare, especially with college getting more and more expensive.
It sounds like you guys are on top of college savings and retirement. That is great!
Liz S says
I went to Pensacola Christian College for 2 years, and at that time I believe tuition was only 4K per year…that being said, I am still extremely appreciate to my parents for covering what I could not, and especially because they did not have the money themselves and put it on their credit cards (which are now paid off in full)
I am glad you posted about this. We are in almost the same boat as you, literally! We have 4 kids ages 11 months to almost 8 years old. My husband graduated law school last year, and though we didn’t start off with six figures of debt, we are at about the same place now that you are, but I’m sure you will get yours paid off much faster!
We had one college savings account already started for our oldest before my husband went to law school. Then markets went south and I was nervous about putting money in just yet for our second oldest, but a friend here (we now live in Kansas after moving from California) told me that Kansas has a 529 matching program for lower income families where they will match the first six hundred dollars per year, per child, of contributions you make. Since we already had some money set aside in bank accounts for the oldest two, we just opened up accounts for them and got instant doubled money (I split it up between last year and this year, only putting in $600 per year). But now I am thinking about the other two kids and what you have written, and wondering if maybe we should put in contributions for them too.
Cool Jenni! That’s crazy how similar our situations and families are! 🙂
In Australia, the government will cover your tuition through HECS, which is basically a very low-interest loan that you don’t have to start repaying until your income reaches a certain point. Unfortunately the current government is doing their best to undermine HECS and to make tuition more expensive; but so far they haven’t been able to push it through parliament. Fingers crossed they don’t. In the meantime, we are saving for them. I don’t mind them graduating with HECS as long as the system is the same as it is today (if your income never reaches a certain point you never have to pay it back; it doesn’t count against you on your credit record; if you die owing HECS it’s forgiven; you just pay it back through slightly higher taxes once your income is high enough) but I’d like to be able to help them with living expenses, books, etc.
That sounds interesting Becca! I don’t know anything about Australia’s system.