The thought of financially preparing for your child’s college education may seem daunting. In fact, you may find yourself pushing this important task aside, especially if your child is relatively young. Don’t fret! Preparation for college can begin at this very moment, and it may be easier than you think. Some great short-term and long-term options can have you, along with your child, feeling more confident about covering the costs associated with higher education. Here are five ways to prepare financially for your child’s college education.
1. Start an educational investment account (infants and toddlers)
According to CollegeBoard, the “average published tuition and fee prices for in-state students at public four-year institutions” was $6,360 for the state of Florida during the 2018-2019 school year. Typically, when people think about investment accounts, retirement plans come to mind. Fortunately, there are additional services that specifically assist in preparing for educational expenses. Three types of educational investment accounts include 529 Plans, Coverdell Savings Plans, and Prepaid Tuition Plans. You can start taking advantage of these great options now, instead of waiting until your child is older. Ken Millhone, Program Manager of Investment Services at Community First Credit Union, reinforces the idea of starting early, saying, “The sooner you can start saving, the better.”
A 529 Plan, also referred to as a qualified tuition plan, is a savings plan that can differ from state to state. When parents use these accounts for qualified higher educational expenses, withdrawals are tax-free. Qualified educational expenses include tuition, fees, housing, books, and supplies. Parents can also use a 529 Plan for K-12 religious, private, and public school expenses. You can start saving with this investment account before the birth of your child. As a parent, you can start this account by listing yourself as the beneficiary. After your child is born, you can switch the name of the beneficiary on the account to your child.
Coverdell Education Savings Account
The Coverdell Education Savings Account offers tax-free withdrawals (up to $10,000 per year) when the funds are spent on educational expenses. These educational expenses include books, supplies, equipment, academic tutoring, and special needs services. With the Coverdell Education Saving Account, it is important to keep in mind that once you establish a beneficiary, you cannot change the name. You can start this savings account after the birth of your child. With the Coverdell Education Savings Account, you can contribute up to $2,000 a year. In addition, there are salary limitations for this investment account.
Prepaid Tuition Plans
A prepaid tuition plan is a prepackaged college savings plan that makes saving for future costs easier. With a prepaid tuition plan, you have the ability to prepay the partial or full cost of in-state public tuition for your child’s education. Although the prepaid tuition plan is for in-state expenses, you can convert the account for out-of-state and private colleges as your child’s plans change. Once you deposit funds into a prepaid tuition account, you are unable to retrieve them.
The state of Florida has its own prepaid tuition plan, Florida Prepaid. This prepaid tuition account is open to Florida residents only. To assist in meeting your educational savings goal, the Florida Prepaid website has a feature that gives a projected savings total, dependent upon your contributions.
2. Introduce your child to the financial world (young children)
Financial education can begin at an early age. Even if your child is only five years old, you can include them in things like visits to your local credit union branch. At the branch, describe to your child what actions you are taking, and why. For example, explain to your child why you choose to deposit money at the branch. You might find it helpful to educate them about why it is safer than keeping cash at home. Teach them some basic vocabulary words associated with banking. Some examples might include deposits, withdrawals, deposit slips, account numbers, and savings. When your children see you modeling healthy banking habits, they will learn the importance of the financial world at an early age.
3. Open a youth account (young children and pre-teens)
At Community First Credit Union, we offer special youth accounts. For younger children (ages 0-17), you can open a youth savings account. Youth checking accounts are available for children when they turn 13. With a youth account, your child will have an opportunity to gain a much more hands-on experience of how banking operates.
The youth savings account can be used to practice storing funds away to reach short-term and long-term financial goals, whether it is saving for those new rollerblades they’ve been eyeballing or a laptop to use for school projects. A youth checking account gives your teen the ability to use a debit card. However, services on this account do not include overdraft and check writing.
Both types of youth accounts allow the feature of Online and Mobile Banking. Within Online and Mobile Banking, you can review balances, transaction history, and conduct transfers from a computer, mobile device, or tablet. This visual representation of banking is a great tool to assist your child in making those financial goals and helps them keep track of them.
4. Practice real-world financial scenarios (teenagers)
In addition to having their own personal experience with a youth account, your children have the opportunity to participate in one of our moveUP Money Experiences for teens. These events are real life money simulations for teens who are ages 13-18, in which participants receive new identities including careers, monthly incomes, debt, families, and educational backgrounds. The teens must learn how to stick to a monthly budget and create financial goals. They do this by visiting 10 real-world merchants, including a car dealership, realtor, grocery store, clothing store, travel agent, home essentials store, mall, utilities, kid care store, and a credit union.
The goal of the events are to provide teens with a glimpse into what managing their money in the future will really look like, including costs associated with living expenses, managing household income, and saving. We stress the importance of establishing a monthly budget and the need to build savings to help them live the lifestyle they want. We also teach teens basic money management skills, such as how a checking account works, understanding their available balance, how to write checks, and how retirement accounts work.
5. Talk to your young adult about establishing credit (young adults)
If you have children who are young adults (ages 18-22), consider introducing them to the idea of establishing credit. Credit is an important factor when young adults seek financial assistance, whether they are purchasing their first car or renting their first apartment. One great way to start establishing credit is with a credit card. Fair warning -- it can be easy for some young adults to accumulate credit card debt. That’s why it’s important to teach your young adult to practice making small purchases on the credit card and paying the total balance in full each month. Another way to establish credit includes having your young adult establish a utility payment in their name. Making these payments on time will also help establish credit.
For more information about how you can help your child save money for college, visit our:
Saving for Higher Education Calculator