The Best Ways to Save for Your Child’s Education
As every parent knows, college education can be expensive. Saving for this investment can be challenging.
There are various options available to your child when it comes to school education, from Ivy League schools to local community colleges; careful planning will enable them to find an ideal solution that matches both their goals and budget.
1. Save Early
As soon as possible, begin saving for your child’s education, giving their money more time to grow through compound interest in a savings account or tax-friendly college savings plans such as 529s.
Many banks and credit unions offer children’s savings accounts that parents can co-own with them, as well as teen checking accounts with debit cards that help develop savings, spending, and budgeting skills in kids. If your child works part-time jobs, encourage them to put their allowance in their savings account instead of spending it; consider matching it dollar for dollar in order to encourage even further savings – then when needed the funds will always be there when needed and less will need borrowing or scholarship loans!
2. Save Money
College education can be one of the greatest investments you can make for your children; however, its costs continue to skyrocket.
Financial experts generally concur that 529 plans provide an ideal way of saving for college, thanks to their tax benefits. Withdrawals made for qualified education expenses are tax-free under federal rules; and some states provide additional state tax breaks.
Encourage children to save from their allowance or part-time jobs in an account that earns interest. Many banks offer teen checking accounts with debit cards, which allow parents to remain co-owners and oversee them, helping kids learn to manage their money as well as practice saving for future expenses like tuition.
3. Get a Job
College education can make your child more competitive in the job market. Apprenticeships and vocational training may be useful for specific trades; however, a college degree narrows earnings gaps between high school graduates with degrees and those without them.
Help your child find a summer or part-time job to supplement their income and learn the importance of saving. Help them open a student checking account (most banks offer one with debit card access) so that their earnings stay separate from spending. Consider matching any savings dollar for dollar to encourage further savings!
Some states offer tax benefits for education savings plans; to find out more, contact your state education department.
4. Apply for Scholarships
As you already know, college education costs aren’t cheap and are only increasing. A tax-friendly 529 plan could be one solution to consider for saving for future expenses.
Encourage your child to apply for scholarships. National scholarship contests can be extremely competitive and draw thousands of applicants. Help your child identify local awards which offer more space and could enhance their financial aid package.
Help your child identify mentors that can provide guidance during this process, like an in-school guidance counselor or tutor. Also encourage them to seek out community college students willing to share their college preparation expertise for a fee, so your child can build their resume while developing valuable job skills.
5. Invest
One effective strategy for starting to save for college expenses for your child(ren) is through education savings plans (ESPs). These tax-advantaged investment accounts offer tax breaks when used to save for higher education expenses; such plans come in two varieties – 529 plans and Coverdell ESAs.
Your child can invest in either a 529 plan with preselected asset allocations that automatically adjust as their risk changes or open a brokerage account to gain greater control of investments. Either way, this presents an invaluable opportunity to teach them the basics of investing.
Start saving and investing early to give your kids the best chance at avoiding massive student loan debt that may impede their long-term financial success.
