6 of the Most Popular Investment Options for College Savings
March 19, 2019“Out of the Box” Approaches to Saving for a College Education
The birth, or even adoption, of a child, is an exciting event in the life of any couple. Excitement can quickly turn to panic when you start thinking about the future though. Most parents automatically assume their child is heading off to college at some point in the future. It’s just the mindset our society ascribes to today. We tell them in order to be successful they should ultimately seek a college education, leaving little room that there is any other option in life. We’re basically telling them everything they do from Kindergarten on is to get them to college. Then life is planned according to what they do once they get to university. So what’s the problem with this? There’s a few actually.
Colleges are pretty expensive. Many degrees cost around a whopping $100,000 in America. Not only are the parents expected to foot the bill but they’re supposed to start making plans for the child’s college education even before birth. With such an outlandish expense, parents spend their whole lives creating college saving accounts with the hopes of making sure that when the times comes, the college of their child’s choice is affordable. They’re working tirelessly to save a huge sum of money, that doesn’t even include their retirement savings.
Plus what if a child’s interest lies beyond a college-educated occupation. Blue-collar jobs will always be part of our society and need to be filled. Many children may find more inspiration in fixing a car than computing an algorithm. So it’s very possible your child may not need or even want to go to college.
Example of the time value of money
Future College Savings Value – Assuming 6% annual return |
|||
Monthly Savings |
5 years |
15 years |
20 years |
$50 |
$3,506 |
$14,614 |
$23,218 |
$200 |
$14,024 |
$58,456 |
$92,870 |
$500 |
$35,059 |
$146,136 |
$232,176 |
An Alternative Approach to Saving for College
There’s no denying the importance of a college education. Even expert studies show that college graduates earn $500k to $1 million more than their non-college graduate counterparts. However, it’s important to know there are alternative ways of saving for a college education.
Parents can start by creating a savings account as soon as the child is born. Ideally, if you save about $ 207 a month in the account, you’ll end up with nice savings for their education. Remember that contribution must continue until the child is 18 years old (which is roughly when the college application process begins. That’s a total of 216 monthly contiguous contributions. Now, if there was an 8% growth rate on the money, after 18 years, your sum would total $ 100,040.35. That’s a huge amount of money to make affording college education a greater reality.
Now here is the twist on the traditional thinking when it comes to college planning. Instead of paying for your child’s college education, you let this money sit in this investment account and don’t make any additional contributions to it. The money would still get an 8% interest rate. So, say some 37 years later, when the child is 55 years old, the account would have $ 1,911,704.58. That is a gigantic total, right? Which amount would you rather gift to your child?
If the goal is to provide our children with the ability to change their family destiny, then secure a solid future and teach them to become a valuable, productive citizen of society. They will make a difference, college education or not.
I am NOT a proponent of loans but think about this alternative. If my children do take on student loans, they’re at least learning the responsibility of paying off their debt, which builds character. Their financial future is already secure thanks to the sizable investment account I began for them as a child. They are investment opportunities and risks they could take on after their student loans were paid, that I am not able to tackle myself at this point.
What does this mean for me?
I’m in no way trying to discourage pursuing a college education. Nor am saying don’t save for your child’s college education. All I’m hoping you get from this is to think about how and why you are investing. Realize there are options at your disposal when it comes to your child’s college education.
This possibility also gives your kids the ability to be more flexible as they decide their own course in life. If they want this money to go to college, then it’s there. However, if what they want in life is to use polish their blue-collar skills throughout life, they’re free to do so, and you’ve still managed to change their destiny.
If you have more questions about financial strategies like unique savings plans that might apply to your financial situation, schedule a call with us. We would love to talk.