Studio Chat: Advisor’s Take On College Savings
STEPHEN SMALENBERGER, EA & MICHELLE SMALENBERGER, CFP®
One of the areas you want to discuss once you have children is whether to save or fund your children’s college education. Do you want to fund all of it, some of it, none of it?
In planning for the day when funds will be needed for her education we have chosen to save money our daughter has received from birthdays or holidays. Up until now she has been too young to choose what to buy, save, or spend for. So we have set this money aside in a custodial account for her to use later in life.
We wanted her to have the ability to spend these funds for things other than college if she didn’t end up needing them for education. If she gets a scholarship that covers her education we wanted the funds to be available for use even on something like a home purchase if she chooses. Also if there are things like classes while she’s younger we are able to use these funds for that, as long as they are for her benefit.
Another consideration is how much to add to this account today versus in the future. We didn’t want to fund her college at the expense of saving for our future, whether that be retirement or other volunteering opportunities, where we aren’t paid and need to support our basic needs.
Another consideration is her college experience; will she work through school or is school her work? We worked before school doing things like caddying or worked during college and the values learned were instrumental in helping us develop skills that were important after college was done. And we want our daughter to experience these same things if possible.
So even if we do save for her education completely we have considered having her apply for loans, taking out a loan, and then consolidating them after graduation. Then, we could tell her afterwards that it can be paid in full. In this she also understands the value of her education and not just taking for granted that it’s paid for.
Other ideas we’ve heard that we like are the idea of junior college for a couple of years and then a larger university. Instead of a private, out of state or public four year university for four years we want to consider the real value of what you get for the amount paid. Another parent we know set up a matching plan, so every $1 the child put toward their education they matched. This was just another creative way to help motivate toward achieving something like an education.
These are just ways to help your child understand that they are investing in themselves with decisions like a college education. This isn’t just a decision of what to do after high school but an important step for their future. Of course, these are things we are considering today as she is younger, but these can change over time. However, these are initial thoughts we’ve had in these early years of parenting.