Monday, June 24, 2013

How did/or do you save for your kid's education?

I've been thinking a lot about saving my future children's education.  It’s a topic and discussion I have frequently with customers at work.  The great thing about my job is, I usually present all the account options and then the person decides with their broker what is best for them.  I’m often shocked at how people go about it and when or how they start savings for different facets of their life.  There are a number of different ways to invest for this purpose.  I've just written down my five top options or the one’s most commonly used.

1.      Don’t save at all.  When it comes time for your kid to go to school, let them figure out how to pay for it.

2.      Save your own money in a special account for your kids.  There is no special tax break and pay for what you need when it’s needed, with no obligation to each individual kid.

3.      Setup a bank savings account for each kid and only put a small portion of money into them.  Once your child becomes a teenager, let them start to save and manage for future expenses.  Helping out along the way or course.

4.      Setup an individual account in your child’s name that you are the custodian for.  When your child reaches a certain age (based on the state you live in) the child automatically gets the full amount of funds transferred into their name, to use for whatever they want.

5.      Setup an education savings account.  All funds HAVE to be used for education.  If one child does not go to school, the funds can be transferred into another child’s name and so forth until someone actually goes to school
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Here are my thoughts.

I believe in a savings of some sort.  I don’t believe I’d be where I am today if my parents hadn't paid for my schooling.  I am also a huge planner so this is something I think about.  Therefore, number one is out.  That being said, I'm not trying to portray that Chris and I have large sums of extra cash for this purpose.  It's just a priority that I really want to start early on. 

I’m drawn to just saving my own money is an account labeled “kids.”  Since Chris and I don’t plan on being billionaire’s, I don’t know if the tax shelter of the other accounts would even matter to us.  Plus I LOVE the idea of having the money be mine and be used at my discretion – I’m selfish like that.   The bad part of this is that it’s easily accessible.  Easy to dip into when life comes up a little short.

Sisterville does her version of number three, and I actually really like this idea.  The part I don’t like is that the money can’t be invested.  After working in a brokerage firm, I want my kids understanding the stock market and being mindful of it on a regular basis.

I think just giving up all the saved money to your kid because they reach a certain age is a horrible idea.  I’m always surprised that almost everyone picks this option.  Perhaps they have more faith in their children than I’m going to have in mine.  But honestly people, how responsible is anyone when they are 18 years old?  Even if the sum of money is not that large, by the law the funds must be transferred completely over to the child.  The thought astounds me, good grief!  Mostly because everyone who does this, gives their children like 10’s and thousands of dollars and their kids are brats.

I also really like this idea of an education savings account.  Where the funds have to be used for education, they can be invested, and if one of your children doesn't go to college than the funds can be transferred to another child.  My only beef with this idea is the logistics.  I’m all gung-ho with one kid and put a consistent amount away each month.  However, by the time number three or four comes along, we could be dirt poor.  Therefore, our first child has quite a bit of money saved up and by the time the last one comes he has nothing.  Long term this might be a harder plan to keep up.

Any other good ideas?

What did your parents do for you?

3 comments :

  1. We are thinking about just a savings account for Olivia. I want her to be able to use the money for other things (like a mission) if she isn't going to school right away. We are slow to start, waiting for Bob to start getting his salary. And I definitely would've spent money foolishly if my parents had to give me my money at 18.... Ha ha.

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  2. We are terrible at saving, but we do a version of Option 3. Each boy has their own Savings account that money automatically goes into each month. Maybe you need to teach me how to invest!!!

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  3. Why can't our kids just join the Air Force or some other military branch? Better yet, I am all about them joining the Circus. Just think of all the free tickets so we could see the lion act.

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