Conventional wisdom tells us that we should start saving for our children’s college education when they are born. It also gives us the generally accepted ways to do so: 529 savings plans, mutual funds, custodial accounts under a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act), U.S. savings bonds, Cordell ESA (education savings account), CDs, trusts, savings accounts and even using indexed universal life insurance. If you were to search these options online, you would find almost endless pros and cons for each. Any financial professional you speak with will gladly opine on which option is his or her favorite.
I am often not an adherent to conventional wisdom. I like to evaluate each situation individually and consider what might be best for the person I am speaking with. You also should know, as you consider my opinion, that I do not have a college degree. However, I have over 40 years of successful small-business-ownership experience. My children went to college, and two of my grandchildren are attending a four-year college. I am not against college.
What I’d like to do here is delve beyond conventional wisdom and offer you something more to consider. Setting aside money for education is a much more complex issue than simply deciding which type of savings plan you should implement. There are deeper things I think you should think about, and it should begin with self-reflection and conversations that answer the following questions:
WHAT IS YOUR FINANCIAL SITUATION?
This is very basic question must be answered first. How stable is your employment? Do you pay your bills and meet your other financial obligations on time? Do you live within your means? Do you have an emergency fund? Are you fully funding your own retirement plan? Do you have sufficient life insurance?
If your answer to any of these questions is no, then perhaps as the old saying goes, “You need to get your own house in order” before you add another financial obligation that you are not prepared to maintain.
WHAT IS YOUR ‘WHY’?
Another basic question. Why? What is your motivation for saving money for educational purposes? I encourage you to step away from all the pressure and conventional wisdom and examine your why. Is it in your and your child’s best interest? Why?
WHAT ARE YOUR EXPECTATIONS AND GOALS?
Search the topic online, and you’ll find that for the 2023-2024 school year, the average cost per year was $42,162 at private colleges, $23,630 for out-of-state students at public universities and $10,662 for in-state students at public colleges. Multiply this by the number of years your student will be in college, factor in inflation, and the amount becomes substantial — especially if you plan to fully fund your child’s education.
If your plan is to supplement any grants or scholarships for which your child may qualify and help him or her avoid student loan debt, that is a different goal. Do you want your child to know there is a pot of money available to him or her regardless of effort, or do you want your child to know you are there to assist in reaching his or her goals? What happens if your child would be a better candidate for a trade school? Is your expectation that he or she obtains a college degree, regardless of your child’s aptitude and dreams?
Answering these basic questions will help you make a more informed decision. Perhaps putting money in a savings account is a good place to begin. Opening a savings account may be a starting place for you and your child as you teach him or her the basic principle of earning, saving and budgeting.
Whatever your family’s circumstances, it’s something more for you to consider.
