Virtually every parent wants their child to get a good start in life and there is an overwhelming amount of evidence to support the fact that in order for that to happen, they need a college education. However, with the amount of college debt within the United States sitting at a whopping $1 trillion and the price of tuition rising 5-7 percent each year, it’s no wonder why a lot of parents are asking themselves if it is better to save or invest in order to fund their child’s college education.
As far as providing you with a concrete answer to that question, the best answer would probably be that it’s smart to do both. However, in order to help you to decide what will work best for you and your family; we’ve provided you with a few saving and investing options to consider.
Set up a 529 Savings Plan. A popular thing that a lot of parents do in order to prepare for their child’s education costs is to set up a 529 Savings Plan. Because it is a form of an investment account, the money that you put into it will grow about seven percent (in interest) each year. This means that if you had put $200 each year into the account once your child turned 5, that amount will have more than doubled just in interest alone by the time they are 18. Plus, this kind of savings plan is totally tax free.
Put $350 a year (at least) into your life insurance. One way to invest into your child’s college education is to take out a life insurance policy. There are a couple of reasons why this can prove to beneficial. For one thing, if you have been putting money into the policy for about 5-7 years, you will have accumulated enough money to take a loan out against the policy should you really need it during your child’s college years. Another point to consider is that should you happen to pass on while they’re in school, that will leave them an inheritance to help them with their college debt.
Start a savings account at a bank for college. If you open up a savings account at your local bank that is strictly for your child’s college education, you can often accrue interest with those as well. There are some banks that will even offer fairly substantial monetary bonuses once your child turns 18, so be sure to speak with your bank about the kinds of college savings accounts (and benefits) that they have to offer.
Split “it” in half. Children tend to get a lot of money over the years for birthdays, Christmas and graduation. Rather than giving all of it to them so that they can spend it on items that will probably hold their attention for only a couple of months, give them half and put the other half into a college account. Half of $50 over the course of 10-15 years could at least cover a lot of their book fees.
Do not pull out of your retirement fund. Say that your college student is in the process of getting their urban planning degree and they make the announcement that they want to get their master’s degree too. As a good parent, you may be tempted to pull money out of your retirement fund to pay for it, but that only puts both you and them at risk for financial debt. Yes, this might seem like an odd investment tip, but it’s still an important one. With whatever you decide to do, do not rely on your retirement fund to pay for your child’s college education. There are a lot of scholarships, grants and government aid that can support them in furthering their education. And if you are financially secure, it will prevent financial burdens, as it relates to your own provision, from being an issue for you or your child later in life.