Why Save for Your Child's Future?
If you're like most parents, you want your child to go to college. At the same time, paying for college is probably one of your biggest financial concerns.
By starting a savings plan early, even before your child begins elementary school, you can reduce the burden of taking on high debt to pay for his or her higher education.
Don't think you can do that? Here are some of the more common reasons parents don't save for college. But options are available.
"I don't have any money to save."
Too often this is true. If you live paycheck to paycheck, you may not have any money to save toward future college expenses.
But take a closer look at your expenses. You may be able to "find" money to save just by adjusting some priorities. For example:
- Put some extra money in your pocket by canceling subscriptions to magazines that you never get around to reading.
- Brown-bag it instead of eating out for lunch a few days a week, and you can "find" an extra $50 each month!
Add it up, and all of a sudden you have the means to start a college fund. Sometimes you just need to make savings a priority and come up with a plan.
Can you think of some changes your family could make?
"I don't know where to invest money for college."
If you have questions about investing, consult your personal tax advisor or a financial service provider for recommendations. Also discuss the following options:
- Traditional savings accounts—Available through banks and credit unions, these accounts are easy to set up and manage.
- Money market accounts and mutual funds—These types of investments can be arranged through financial service providers.
- Coverdell Education Savings Accounts and 529 college saving plans—Current tax laws provide you with these opportunities to save.
"My child will get scholarships, so I don't need to save for college."
Hopefully, your child will receive many scholarship offers to attend college. But the reality is that scholarships seldom cover the entire cost. In fact, over 99% of college students end up paying for some of their college costs.
Even if your child gets a full-tuition scholarship, he or she will still face expenses such as room and board, books and supplies, transportation, and personal needs. Student aid programs can help, but often there remains a "gap" that the family is responsible for, so be prepared.
"If I save for college, my child won't be eligible for student aid."
This may be the biggest myth of all. Many parents believe that having money in the bank will prevent their child from receiving student aid.
The fact is that your assets are treated very generously when it comes to student aid. In most cases, less than 5% of the total value of your assets is factored in. And if your income is less than $50,000, it's likely that your assets will not count at all.
- You don't need to report assets such as home equity and life insurance on student aid forms.
- You don't need to report income from a small business that employs less than 100 people.
- You don't need to report income from a family farm.
- You are given an allowance to protect all other assets (cash, savings, checking, mutual funds, money market accounts, rental properties, etc.).
Also, keep in mind that family savings are only a factor if your child applies for need-based aid. Savings are not usually taken into account in any way if your child pursues merit-based aid, awarded for outstanding performance in academics, athletics, or other areas.
So when it comes to saving for college, keep these things in mind:
- It is better to have money in the bank than to NOT have money in the bank.
- It is better to save than it is to borrow.
- In most cases, your savings will not impact your child's eligibility for student aid.
- In all likelihood, you WILL have to pay some of the costs of your child's education.
In short, saving for college can help ease your mind when it comes to paying for your child's education.
Want to Know More?
- A healthy college savings fund may make it possible for your child to attend the school of his or her choice.
- Time and consistency are your greatest allies. Begin saving early and invest on a regular basis.
- Start your college savings plan today. Visit Savingforcollege.com for some ways to get started.