According to Tanya Van Court, founder of saving and spending platform Sow for children and young adults, there is an alarming disconnect between families' college savings and the amount of money today's kids will have to spend on tuition in the future. In fact, Sallie Mae's statistics show 48 percent of American parents don't have any money stocked away, and those who do have a college fund set up are saving less than they did in years past.
The College Board reports that college tuition in 2015 is between $9,139 and $31,231 per year, depending on if the school is a public, four-year college or a private, four-year college. "In the years 2028-2029, when today's incoming kindergarten class is graduating from high school, the College Board expects tuition costs to be $26,677 for in-state public college, $46,494 for out-of-state public college and $61,143 for private college," Van Court says. These rates are for one single year and do not include room and board.
Even though the average American family does try to squirrel away some money, the normal rate of savings won't do much to put a dent in a $240,000 private college education bill by the time 2028 rolls around. "The average total savings for higher education is $15,346, up from $11,781 in 2013," says Van Court. With pressing bills taking precedence over long time savings, it's hard for parents to keep up with skyrocketing tuition rates.
So, how can a well-intentioned parent begin the process of saving for a child's education?
It all comes down to planning. Planners are more successful savers, says Van Court, so it's important not to wing it entirely. "Parents with a plan have saved 83 percent more in their college savings fund than savers who don't have a plan," she adds.
Not sure where to start? Van Court says that even well-intentioned parents often make the following planning mistakes:
1. Not having priorities in line
Here's a shocker: If savings isn't important to you, then you're less likely to make it a priority. And even if you say savings is important to your family, the proof is in the pudding — and whether or not you're willing to pay into savings before paying into other wants or goals. "Parents should pay their savings accounts first," Van Court says. She suggests that parents automatically transfer money from a checking account into a savings account or 529 account every month so that the expense becomes a key family priority.
2. Starting too late
When parents bring home their baby from the hospital, college may be the last thing on their minds. Those early years, however, are the best years to throw money into a college savings account because then the money has more of an opportunity to grow. "Saving $5,000 by the time your child is 5 will yield $12,000 — assuming a 7 percent annual return — by the time the child is 18 and ready to fly the coop," says Van Court. "If you start later, you'll have to save $7,000 by the time your child is 10 to grow to that same $12,000."
3. Misdirecting "extra" funds
Income tax refunds. A Christmas bonus. An extra pay period. Most families occasionally see an influx of money during the course of the year, but Van Court explains that many parents commit this extra money to other goals. "If you are paid every two weeks, there are two months out of the year when you will receive three paychecks instead of two. Pretend that extra money never existed," she says. Instead of using the money for a vacation or new clothes, put it immediately into a vehicle for savings.
4. Missing opportunities
It's easy for parents to get wrapped up in the excitement of birthdays, holidays and even smaller events like a kid's stellar report card. Many parents will invest money in awesome gifts or even a special event without recognizing that these instances are golden opportunities to increase savings. "Parents should use birthdays, holidays, graduations and report cards as opportunities to get kids disciplined around the philosophy of 'saving, sharing and spending' rather than 'spending, spending, spending,'" she says. Parents can use these opportunities to invest in a college savings account on behalf of their kids, or encourage their kids to invest some of their haul in their own future education.
Yes, college savings statistics are disheartening, and sometimes you're not sure the $20 you could put away here and there would make much of a difference when faced with a giant tuition bill. But every bit counts and might even show your child that chipping away at an enormous goal can help to build the future you both desire.
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