If you’d prefer your child not resort to shell games and grave robbing to fund their college education, start saving now. How early is too early? We wouldn’t recommend making investments any sooner than your kid’s negative sixth birthday. But even if you can only afford to squirrel away pennies found under couch cushions, start setting aside money from day numero uno. Regardless of whether you’ll actually be able to save $100K+ by the time high school graduation rolls around, the mere act of saving money may provide the encouragement necessary to get your child enrolled in higher education.
My College Fund in a Beer Bottle
From the time I was a toddler, my parents kept a piggy bank for spare change to be used for my college education. I use the term “piggy bank” broadly. It was more of a Budweiser bank–a 3-foot tall plastic beer bottle with a slot in the cap. Whenever they remembered, my parents would drop their loose change into the bottle and tell me it was my college fund. The trickle of clinking copper was sluggish and paltry. By the time I was 18, we couldn’t have accumulated more than $50–about 0.1% of 4 years of tuition at my state university of choice.
For most of my childhood, neither of my parents were college graduates. But from the time I was old enough to sort of understand what college was (and probably before), they made it painstakingly clear I would be attending. “I don’t care what you do with your life. You can join the circus or become a stripper or live the life of a hobo. But first, you’re getting your degree.” Typical of my mom.
The fact that the Budweiser bank yielded next no money was irrelevant. It was the illusion that mattered. The symbolic meaning of the act. Somewhat ironically, that giant beer bottle stood as an indomitable reminder of my looming college career. There was never a moment when my parents said, “You’ll go to college if we can afford it,” or, “You’ll need to take a year or two after high school to save money for school.” From infancy, years 18 through 21 of my life were set in stone.
Most of my education was paid with loans and scholarships. My parents helped out me here and there, and I used money from my part-time job to pay for books. But upon entering college, I had very little saved. Still, there was never a moment of doubt. I was going to college. Higher education had been fated upon me before I was born. I took out the necessary loans, applied for scholarships and swam through school financially poor but unshakably determined.
I share my story because I believe it can help provide instruction to parents who want their children to pursue a college degree (whether it be five, ten or twenty years down the road). Start saving money now, even if it seems like an exercise in futility. Ingrain in your child a strong sense of the future. Get your own Budweiser bank and leave it in plain view as a constant reminder of impending education.
The Correlation Between Savings and Enrollment
In 2011, the Center for Social Development (CSD) at the Brown School at Washington University performed a series of studies that found a correlation between financial assets and college enrollment. The number of family assets (IRAs, CDs, home equities etc.) had more bearing over college enrollment than family income. Intriguingly, teens with a savings account in their name were 6 times more likely to attend college than those without.
Though we shan’t be so presumptuous as to declare a definitive causal relationship, there seems to be some useful correlation between the act of saving and the probability of college attendance. Is it a similar phenomenon to the Budweiser bank of my youth? Are parents who set up college savings for their kids boosting their children’s confidence and determination to pursue higher education? Or is it a more general anticipatory optimism about the future as a whole?
Whatever the case, setting up a college fund for your child can only help. Start with a piggy bank. Collecting spare change in a designated reciprocal has the advantage of occupying physical space in your home, continually reinforcing the collegiate goal. Never store too much money in one place, but keep the container heavy and jingling. (A behemoth beer bottle might not send the right message. Make the container something attractive and familiar to your child.)
How to Begin Saving
If and when you’re ready to start setting aside substantial money, you have a number of options to consider. Lynn Ballou of Ballou Plum Wealth Advisors, LLC, suggests, “As soon as your child is born, open a 529 plan and contribute regularly or have grandparents contribute.” A 529 plan is a tax-advantaged savings plan offered by a state or an educational institution. Nearly every state has a plan, and which state’s plan you use generally doesn’t necessarily affect your child’s future educational options. For example, you don’t have to use California’s 529 plan to go to school in California.
There are two types of 529 plans: prepaid tuition plans and college savings plans. Prepaid tuition plans allow you to lock in tuition prices so that your savings aren’t ravaged by inflation. You pay current tuition prices rather than the inevitably steeper tuition prices of the future. With college savings plans, the account holder makes investments in stock mutual funds, bond mutual funds, aged-based portfolios and the like.
Save, save, save!
If a 529 doesn’t interest you, you can always start with a basic savings account. Even if you can’t make big contributions, making small, regular contributions can add up, especially if you start early. Your money might not keep up with the rising cost of tuition like it might with a 529 or investment portfolio, but your cash is fluid and accessible. Keeping your child involved in the savings process is essential. With every deposit, you’re helping your kid maintain that college-bound mindset. Be careful, though. If the savings account is in your child’s name, having too much money can hurt your chances of qualifying for vital financial aid. Keep the big bucks under your own name.
Ballou recommends your child be a very hands-on participant in the savings process. “Get kids involved at a young age: for each monetary gift a child receives, put 1/3 of the money away in a college savings fund. It doesn’t have to be a large amount of money that you put away! $25 a month does end up going a long way.”
The moral of the story? Save. No matter what. Whether you have $300 to drop in your 529 every month or the occasional quarter to plop in the piggy, start saving immediately. Even if the actual monetary accumulation is trivial, the mere act of savings can provide your child with priceless encouragement.