Saving for College

apple_dollar_signHow should parents go about financial planning for college? Do you plan to save enough to pay all expenses – for each of your children? Do you expect your child to fund his/her higher education through loans, part-time employment or both? Naturally, all parents would love to give their child the gift of a fully paid education to his/her child’s college of choice…but what is the financial reality here? What expectations and financial goals have been established by you and your spouse, and what is your child’s level of involvement in the process?

My 13 year old who dog walks and babysits already has a couple hundred saved. It may not seem like much right now, but what’s most important is that she has established financial goals and taken responsibility for her continuing education. My husband and I have set clear and realistic expectations for college. She will attend college. She will be responsible for at least partially funding her education, and she will NOT graduate with student loan debt. Can I guarantee any of this? No; however, I believe goal setting and involving my kids in weekly discussions about money, savings, and college help set the course for a high likelihood of success. We’ll see.

Does past performance predict future performance?

My husband graduated high school in 1987, but didn’t earn his bachelor’s degree until 1994. It took 7 years because he’d work a year, save a bit, pay a year’s tuition, work some more, take a half-load, pay another semester’s tuition, work a little more, save, pay and repeat. He lived at home while working and going to school part-time the first few years out of high school. His parents gave him nothing for college (even charged him rent while he was living at home – working and saving).

By 1991 he had finally scraped up enough money and credits to transfer to a state university five hours from home. From that point on, he took full credit caseloads, PLUS worked 40 hours per week, plus paid for off campus housing. Graduated with zero student loan debt.

Although this was 20 years ago, I refuse to believe it’s no longer possible for any motivated young person who is determined to graduate without debt to do so. Too many people shrug their shoulders and embrace the status quo.

You don’t need “rich” parents to graduate without debt.

Live at home, work while attending school, attend a community college the first few years. Save. Ride your bike and forego an expensive car, insurance, and gas prices while you’re a teenager. Who says kids have to have what their parents have? Just because YOU have a smart phone and nice car, doesn’t mean your kids are entitled to it, or need it for a happy or comfortable life.

Your kids are young, and should be expected to WORK, take ownership of their lives, and be responsible for themselves.  This is the BEST thing you can do for your them, and  it’s exactly how my husband, Mr. Money Apple, was raised. Although his parents couldn’t give him financial contributions for school, they did  give him a strong work ethic, taught him the value of responsibility and hard work, and set expectations for his success.

Now, IF you’ve paid yourself first….meaning you’ve fully funded your employer sponsored 401k and maximized separate ROTH IRAs contributions for yourself and your spouse, refinanced your mortgage down from a 30 to a 15 year term, paid off all your cars, and carry no credit card debt, NOW, you can start to set aside a monthly contribution for the kids’ college expenses. After I did ALL these things – here’s how I invested for my kids’ college educations…

But wait! Please note before you read any further. I am not giving YOU financial advice. I’m not your financial adviser. Do whatever the hell you please with your hard earned money. You can even tell me I’m an idiot for paying my mortgage off within 5 years when I only had a 2.875% interest rate (more on this later). Bottom line: I’m simply sharing the personal finance experiences and choices I’ve made over the years with you, the happy reader, so enjoy!

In late 2001, shortly after the birth of my first daughter, I invested $5000 into a state sponsored 529 plan. In 2003, after my second daughter’s birth and lackluster performance from the “managed” 529 plan, I decided to invest $3000 into a DRiP custodial account. My stock of choice? McDonald’s which was trading around $12/share. Today, after steady contributions to Daughter #1’s EdVest account and much smaller contributions to Daughter #2’s DRiP – mostly the dividends that are reinvested – the DRiP has considerably outperformed the 529. Remember now, this is a case study of one. I repeat, “do whatever the hell you want with your money.”

Because there is a tax benefit –  I continue to contribute $3000/year to Daughter #1’s 529 as that’s the most one can claim for a state tax deduction. After that, I place the rest of my investment money into custodial DRiPs (Daughter #3 owns high dividend yield AT&T).

Another powerful strategy I’ve employed (and many will whine and say it’s impossible – but here I sit doing it) is paying off the mortgage – in full – before your first child heads off to college. Once the mortgage is paid off – that monthly payment can be put directly towards tuition expenses.

I bought my current home in 2010. I have about 1 1/2 years remaining on my mortgage. Once the loan is paid off, if I start allocating that monthly mortgage amount into DRiPs, 529s or brokerage accounts…well, you know the rest.

A final thought: language is powerful. I never, ever tell my kids stupid things like, “Don’t worry, we’ll cover the costs of college for you – even if it means co-signing or mortgaging the house…” “You’re so precious, you deserve an ivy league school – only the best for my baby – worry about paying for it later.”  “Enjoy your college years – focus on studies – you’ll have the rest of your life to work at a job and earn money…” Blah blah blah – BARF. Comments like these spoil children and build a sense of entitlement. My kids don’t hear phrases like this in our household.

Regardless, if there’s a million bucks in my kids’ college accounts by the time they’re ready to head off to school, you can bet I will still expect them to work, save, and contribute. After all, a sense of pride in hard work and accomplishment really is the best gift a parent can give.



2 comments on “Saving for College

  1. Interesting idea about the mortgage! We don’t own yet, but I’ll have to consider that idea. Actually my grandparents paid for my college education and my grandfather has been funding 529s for my toddlers, so I suspect I am more likely to be asked to pay for college for my grandchildren, should there be any, than my own children!

    I looked at some expensive schools (Wellesley, MIT, Harvard–got into the first two) and I remember my parents made it clear how much $$ I already had, how much they could contribute, and how much my grandparents would contribute if I went to a fancy private school. They never applied pressure either way, and I wound up choosing an excellent public school. (William and Mary! Go Tribe!)

  2. zambianlady says:

    Instilling a sense of hard work and the ability to save in your children is very important. Sometimes children are so pampered that they are not of any use to themselves and expect others to pay for their way in life.

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