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.