Studies show that saving for college on a regular basis is one of the best ways for families to accumulate the funds necessary for the rapidly rising cost of higher education. We personally own a ScholarShare account, California’s 529 college savings plan, so I’m excited to announce that I’ve partnered with them to share the ins and outs of saving for college in a series of posts through the end of the year.
As a former financial consultant, I thought I knew everything there is to know about ScholarShare but I walked away with and a greater sense of urgency and some really eye-popping statistics.
Why Parents Who Can Afford to Aren’t Saving for College
Procrastination is one major reason. Parents are so overwhelmed by the cost of college that even if they can afford to save a little, they aren’t doing it.
The problem of no or not nearly enough savings is perceived as so big that parents don’t want to address it.
I’ve personally dealt with clients like this who had multiple kids in the junior high/high school range. Imagine hearing that you need to save thousands of dollars per month going forward… and even that won’t cover the entire cost of tuition. It’s incredibly—and understandably—disheartening.
What happens next? Almost half the clients I dealt with threw in the towel and half would open a college savings account that they didn’t fund as much as they could have. A very small percentage buckled down and saved aggressively.
I believe another reason parents who can aren’t saving for college is because they don’t understand the benefits and flexibility of the ScholarShare plan, which I will go into in great detail about throughout this series.
Why Procrastinating Means Long-Term Consequences for the Kids
The obvious answer is that not saving enough for a child’s education means that it’s up to the child to earn scholarships or take out financial aid. A lot of parents understandably rely on this back-up plan.
As someone who graduated college without debt, I hadn’t thought about how having debt can change your life going forward.
Graduating college with less debt means less risk of children delaying major life events for financial reasons.
This could be anything from:
- starting a retirement account sooner and with higher contributions.
- a larger down payment on a first time home purchase.
- greater ability to start and provide for a family (hello, grandchildren?).
- starting a career they love versus one for the paycheck.
- funds to pursue one’s dreams.
Or, they could decide not to go to college. By the time it’s my daughter’s turn, if she chooses to attend Harvard University like her father, we’re looking at a $440,000 tab. It would take years and years to pay that off, even with low interest. Learn how to calculate the cost of college.
Again, ScholarShare is California’s 529 college savings plan that is named for the section of the IRS code under which it is created. Here are ten of many important facts about ScholarShare:
- It’s managed by TIAA-CREF, famous for conservative strategies and excellent performance.
- The fees are incredibly low. In fact, they are lower than many retail mutual funds.
- Anyone (grandparents, aunts, uncles, friends) can open a ScholarShare account for any child, even if the parents have one already.
- Anyone can contribute to an existing ScholarShare account.
- Morningstar, which ranks mutual funds, name ScholarShare as one of the nine best college savings plans in the nation.
- There are a wide variety of investment options.
- Earnings grow tax-deferred.
- Disbursements, when used for tuition and other higher education expenses, are federal and state tax-free.
- The account can be used at any higher education facility that is eligible for federal funding. This includes some overseas universities and trade schools.
- An account can be opened with as little as $25.
Here’s another interesting statistic:
Kids who know they have a college savings account are seven times more likely to go to college.
Studies have shown that this is a better predictor than race or parents’ net worth. See this article by the Washington Post.
What on earth are you waiting for? Open a ScholarShare account with as little as $25.
(See also Your 529 College Savings Plan FAQs addressed.)
*This post is a part of a series sponsored by ScholarShare.