A priceless gift for your child? Getting a head start on college costs.
When it comes to saving for a future expense, time is your best friend. You’ve got about 18 years from the day your child is born to save for one of the biggest investments you’ll ever make together. We all know the benefits of a college degree—and being able to help your child graduate with less or possibly no debt will take a weight off their shoulders so they can focus on school itself (and not worry about what happens after).
The average cost of tuition has been climbing steadily,1 so keep an eye on the numbers and adjust your savings plan as needed.
2010 – 11: $7,927 for public, in-state school; $29,514 for private
2015 – 16: $9,809 for public, in-state school; $35,561 for private
2020 – 21: $11,171 for public, in-state school; $41,411 for private
Picking a realistic savings goal can help you save more consistently. Make sure your family knows what your goal is and include college savings in your budget so you and your partner or co-parent are on the same page. Setting up monthly automatic transfers is a good way to ensure you’re putting a little away each month without thinking about it.
529 College Savings Plans are state-sponsored, tax-deferred investment accounts that allow investors to invest toward the costs of higher education. You can open one as soon as your child’s born, invest in diversified funds, and then withdraw the money for certain education expenses without having to pay taxes on your earnings. (But—similar to a retirement account—you cannot withdraw the funds before a certain time without paying a penalty.) While you can open a 529 in any state, since they’re state-sponsored, you may not receive all the benefits if you’re not a resident of the state. The details can vary by location—so look into 529 details in your region to see if it makes sense for you.
At the end of the day, college is just as much your kid’s choice as it is your choice for them. As they get older, make sure they know you’re saving for this. Explain the differences between public and private universities and federal and private student loans. Get them thinking about where they want to go and what they want to do—and as they get older, have them help save, too. By contributing part of their allowance or part-time paycheck, they can learn the value of saving and build healthy money habits.