Build Your College Fund With Your Kid, Not Just For Him

If you harbor a dream of your child graduating from college without being buried in student loan debt, you’re probably going to have to save up a heck of a lot of money for the cause. The earlier you start saving, the more you’ll be able to contribute. But it’s important that you get your kid in on the effort.

Bargaineering suggests starting a fund when your child is an infant and contributing to it regularly as he grows up. My favorite piece of advice from the post regards getting your child to buy in to what you’re attempting to accomplish, convincing him to set aside part of his allowance and money earned from odd jobs to the cause.

If you play it right, the college fund can be a bonding experience. You can track the account’s progress together and make collaborative investment decisions. If your child buys in, he’ll be less likely to blow the fund because he’ll see it as something he earned rather than money that was just given to him.

Kids & Money: When to Start Saving for Your Child’s College Education [Bargaineering]

Previously: Options To Save Money For Your Kids To Blow In College

Comments

Edit Your Comment

  1. Loias supports harsher punishments against corporations says:

    I actually like this idea. It’s a definitely logical approach – get your kid to have a dog in the fight for his education early on, and he’ll grow up with a more specific educational goal in mind, or at least the drive to be an educated person.

    • econobiker says:

      And you child can also see how the stock market can screw his college fund too.

      Son born 2000: $500 deposited in 2000 and 2001into a college savings account.
      I think it was 2007 when that original $1000 made it back to $1000.

      I don’t even care to look anymore…

  2. Nigerian prince looking for business partner says:

    On a related note…

    I’m not sure if it’s just a West Virginia thing but our state allows us to deduct 529 contributions from our income taxes. I was very surprised, since the money grows tax free — It seems weird to get tax advantages on both the deposit and the growth.

    • exit322 says:

      Ohio has a provision to allow $2,000 of what you put in the CollegeAdvantage (Ohio) 529 every year (you can put more, it just rolls forward) – per child – off your Ohio taxable income.

    • Loias supports harsher punishments against corporations says:

      Colorado and several other states have this provision. It makes it a great advantage when saving.

  3. axhandler1 says:

    Good advice. Getting your kid emotionally invested in their college savings will definitely make them more interested in the whole process. On the other hand if your kid has the ability to “blow the fund” on something other than college tuition, you’re giving it to him in the wrong way. The correct way would be a check paid directly to the school for tuition payments. Not giving him full control of an account with that much cash in it.

  4. BelleSade says:

    Is there a point to a college fund? If you put too much money in it, then your kid won’t be eligible for multiple grants and scholarships, and considering how quickly the price of going to a university/college is getting higher, whatever you save won’t be nearly enough, yet you’ll still disqualify the kid from said grants and scholarships.

    • TBGBoodler says:

      Grants and scholarships? More likely loans. If you make a decent living, you’re likely not eligible for grants or scholarships (other than purely academic ones, which are highly competitive).

      You’ll be surprised when you see how much your family contribution is supposed to be once you’ve filled out the FAFSA forms. Chances are, if you’re an average shmo who owns a house and lives a moderate, middle-class life, with kids who get, say… a 3.8 GPA, you’re not going to qualify for any type of handout–grant or scholarship. If you don’t have the money saved, you’re going to be taking out a commercial loan for at least $30K a year at 7 or 8 percent.

      Or your kid will–and spend the bulk of his adult life paying it off.

      • BelleSade says:

        That’s what I mean. If you’re the type who makes enough for a college fund but not enough to live without any concern of money, it’s just pointless.

      • Nigerian prince looking for business partner says:

        I haven’t filled out the FAFSA in many, many years…

        But from what I recall, savings weren’t applied dollar for dollar against need-based grants. A $1,000 worth of savings didn’t mean you got $1,000 less in Pell grants. I’m sure it was a consideration but it wasn’t tit-for-tat.

        Outside of Pell Grants, are there really any other need-based grants out there? If college savings means a lower Stafford Loan amount, is that really a bad thing? One less loan, is one less loan a child needs to take out.

        • BelleSade says:

          Most grants take need as a basis for consideration, not just merit. So you’re screwed usually if you have merit but no need.

  5. caradrake says:

    I’ve heard some parents say that they save up, and then make a deal with the kid: kid has to pay for first two years of college (scholarships, work, savings, loans, etc), but then the parents will pay the remaining two years. Good way of getting the kid involved, but also rewards them for sticking in school and removes stress during the tougher years.

    I like that idea. It seems to be a good mix. I don’t want to completely pay for my kid’s college, because I think that things are more valued when you have to work towards them yourself rather than having them handed to you, but I do want to help out if I can.

    • Willow16 says:

      There is almost no way a kid can pay for college themselves these days. Most don’t get full scholarships and the amount that FAFSA says a family can pay is ridiculous. Part of the aid is loans of which $3,500 is subsidized (gov’t pays the interest until it’s time for the student to start paying back) and $2,000 is unsubsidized (interest starts accruing immediately). After that $5,500, you have to go private loans and interest starts accruing immediately with them as well. Unless you go to community college, the gov’t loans won’t come close to covering even state university and forget private.

  6. MonkeyMonk says:

    This is great advice.

    We set up a 529 account for our son when he was born and encouraged grandparents to make donations to this in lieu of monetary gifts at holidays and birthdays. Thanks to a strong market over the past 2-3 years the little bugger is sitting on over $20K and he only just turned 4.

    He’s a little young to be making his own contributions but we definitely plan to encourage him to make payments once he hits allowance and/or chore age.

    • LanMan04 says:

      So what happens to all the $ if your kids doesn’t end up going to college?

      Serious question. Can you withdraw it with some kind of 10% penalty (like 401ks)?

      • MonkeyMonk says:

        The funds don’t need to be used exclusively for college. Any higher educational expenses will do. Unused funds have a 10% penalty on the earned portion only — although there are ways to get around this penalty such as scholarships.

        Luckily, we’re in an area with great public school but if private schools are starting to look likely we might also start a Coverdell ESA plan to help cover those expenses.

      • Nigerian prince looking for business partner says:

        There’s a 10% penalty, plus you pay income taxes on any growth.

        I suspect the vast majority of the population goes on to some kind of secondary training or school, at some point in their adult lives. If your child doesn’t use it at 18, she may use it at 25 or 30. If not, the money can be used to pay for another a child, grandchild, or yourself.

      • AtlantaCPA says:

        529’s can be transferred to any relative (or yourself) as well. So if your kid doesn’t go to college you can transfer it or part of it to your nephew. Or transfer to yourself and hang on to it for 10 more years until you find a worthy recipient. They are pretty flexible on what is a ‘relative’ too. I think the above is true for most/all states.

  7. Talisker says:

    My brother and sister-in-law put half of every monetary gift, allowance or paycheck that their kids got into savings. Both kids were able to go to school and get their bachelor’s degrees with money still in savings, and they both have a life-long habit of saving part of their paychecks as an automatic habit.

  8. crispyduck13 says:

    he’ll be less likely to blow the fund because he’ll see it as something he earned rather than money that was just given to him.

    I’m sorry but where is the part where you just give these tens of thousands of dollars directly to the kid? If I build a college fund I’m not going to be handing this money over to an 18 year old and trust that they’ll use it for college.

    On the whole I do like that advice about having the kid help, that’s been my plan and hopefully it works out. Now I just have to get started on making said kid.

  9. chizu says:

    I thought about this before. But instead of using it as college fund (I would want them to apply for every scholarship under the sun.), this is the money for post-college. I am speaking from personal experience, it’s not during college when I had a hard time financially. It’s post-college when I was trying to live on my own (well, with my brother), trying to get a full time job, buying my first car, and now looking at a reduced salary. I’m not sure how to do it since I’m not planning on having a kid anytime soon. But I’m not going to trust them with tens of thousands of dollar during college, and even a couple years out of college. (Oh boy did I waste so much monies on so much useless junk during that time period.) I want to give them the money when they are facing real hardship and when I believe I could trust them using that money wisely. I don’t know what to do just yet. Should that be a college fund, or should it be a trust or something like that? I have no idea…

  10. momtimestwo says:

    What to do if your state doesn’t have a 529? My kids don’t actually have an allowance, they have a list of things they can do on a daily basis and get paid at the end of the week. For example, each day they make their bed they get 5c, if my daughter picks up the dog crap in the yard she gets 25c a day, etc. If they are lazy and don’t do it, they don’t get paid for it. Each can earn $5 a week if they do everything. I was thinking about having them save a portion each week, say 25c, and I will match what they save towards college. They are only 7 and 11, but even a little bit helps them to contribute.

    • AustinTXProgrammer says:

      I believe every state has a 529, but you can participate in any states’ 529. You won’t get the same treatment on state income taxes (if you have them) but you will for the much larger federal taxes.

      Do your own research before starting a 529. Check out Clark Howard’s guide. Some states have high fee programs that should be avoided even if you reside there.

      • momtimestwo says:

        My state, Tennessee, got rid of theirs in 2010. I’ve read you can invest in another state’s 529, but it doesn’t seem like that would be a good idea. I’ll look up Clark Howard, thanks.

  11. zerogspacecow says:

    That’s the most useless advice I’ve ever heard. 90% of kids don’t give a damn about their college fund, especially not until about 10 days before they start sending out college applications. Convincing them to “bond” with you by putting away money for an event that seems millions of years away to them isn’t going to go over very well.

  12. NumberSix says:

    I set up an account for my kid when he was just a few weeks old. As soon as I had his social security card, I started saving for him. He should be in a pretty good position for college when it comes time.

  13. voogru says:

    At the rate college prices are skyrocketing, you will never be able to keep up. A college that charges you $25,000 a year today will be charging $116,523 a year in 20 years, at least if current college price inflation continues.

  14. sadie kate says:

    My daughter was born in October, and I already set up a 529 plan for her. I’ll contribute as much as I can, but when she’s older, I fully plan on getting her involved with it, too. When I was a kid, my mom set up a savings account for me for college. Anytime I got birthday or tooth fairy or Christmas money she gave me the option of saving all or some of it, and if I chose to do so, she would match the donation. We’d go to the bank together and deposit it together and she’d go over my bank statement with me every month. I wound up getting enough scholarships to pay my tuition, so that bank account was a nice chunk of change to put towards living expenses. I’ll absolutely do that with my daughter when she’s older, too.

    My dad also kept giant mug on his nightstand and tossed his spare change in it every night. Once a month he’d sit down me and my sister with coin rollers, and we’d roll it all up and put it in the fund. That added up over time, plus he was probably psyched to have us quiet and focused on a task for once.

  15. econobiker says:

    Ha- college savings, ha hahahahahahahahahahahahahaha…. You make me laugh…

    This kind of lesson for your children only works if you DON’T have a credit-addict former spouse who considers child support as a financial aid to maintaining a certain lifestyle…

    Example: Money gifts to children (holidays, birthdays, school graduations, etc.)

    Ex: money gifts to the children go into a kitchen drawer whence these funds are apparently “pooled” for the kids to buy stuff- no savings attitude at all
    Us: money gifts to the children = 75% into savings accounts for each child, 10% to church/charities, 15% for the child to spend how he/she wants to.

  16. Paul @ The Frugal Toad says:

    I try to teach my children to invest 50% of windfalls such as Birthday or Christmas gifts. They have a savings account and we take half of every gift they receive and deposit in their savings account. Once they reach a certain amount, we take that and invest in their college 529 plan. They are allowed to spend the remaining amount any way they want.