Preparing For Your Kid’s College Tuition
If you’re a parent with a young child, and you’re already concerned about university tuition down the road, you’re not alone. This is a worry many parents share from day one, and unfortunately concerns only seem to be growing. The idea of paying for school amid Covid-19 (or its aftermath) has led to spikes in the number of parents who say they’re worried about paying for education. Many even report that their higher education plans have specifically changed due to the virus and ensuing recession.
None of these are reasons to despair though! It’s a simple reality that university is expensive, and it’s true that the circumstances of 2020 have only made it harder for many families to handle that expense. All this ultimately means though is that it’s important to plan ahead and take a clear-eyed approach to the issue. Whether you hope to pay for your kid’s higher education, or you want to equip them to manage tuition, a thorough, well-planned approach can help you get there.
We’d suggest breaking this process down into three specific efforts: building up savings, being open with your child, and planning specifically.
Building Up Savings
Building up savings for university tuition is a gradual, long-term effort that you can undertake in several different ways. To give you a few specific ideas though, you might consider the following:
Talk To An Advisor - Before you do anything too official regarding university savings, it’s a good idea to consult a professional financial advisor. Someone in this field with experience organizing savings plans will be able to help you assess your outlook and come up with the most appropriate and effective way to start saving up.
Use An RESP - For Canadian families specifically, an RESP (Registered Education Savings Plan) is an excellent way to build up savings for university. RESP arrangements are essentially specialized savings accounts that take in contributions from parents and government grants alike. The accounts are then sheltered from taxes, such that compounding growth over time is not actually taxed. It's an option any Canadian parents looking to save for education costs can take advantage of with virtually no hassle or trade-off.
Explore Qualified Tuition Plans - Also known as 529 plans, qualified tuition plans are designed specifically to help parents save up for higher education in the U.S. There are two types of 529 plans that are structured somewhat differently: prepaid tuition, and college savings. The former essentially helps parents purchase tuition credits in advance, and guarantees via investment that those purchases will be enough to cover whatever the same credits cost when it’s actually time for the kid to embark on undergraduate studies. College savings, meanwhile, are structured more like a traditional investment fund — albeit with some tax advantages meant to incentivize education savings.
Explore High-Yield Savings - If you’d also like to explore other options — either instead of or alongside the plans just discussed — this is another interesting option to look over. Basically, high-yield savings accounts generate more interest than ordinary savings accounts, and keep building the longer you leave them alone. If you’re starting with a young child, or you have a certain amount of money to put away, this sort of account can earn you a significant return (either over time or due to the size of your investment). Specific accounts of his nature can vary from one provider to another (or depending on whether you're in the U.S. or Canada), but the general arrangements tend to be similar.
Being Open With Your Kid
As you undoubtedly know if you’re a parent — no matter how young or old your child may be — kids tend to be more perceptive than they get credit for. With regard to this conversation, that tends to mean they’re aware fairly early on of how much college might cost. It can be tempting as a parent to tell them not to worry about this sort of thing. But whether you want to reassure them or you want to prepare them to take an active role in funding their education, it’s best to address the issue openly.
Acknowledge Concerns - When they start to become concerned about the cost of university, talking to kids can help. And that starts with acknowledging concerns. Be honest about the fact that they’re right — education costs a fortune, and it’s something to discuss and plan for. Starting with this simple acknowledgement can open up a years-long dialogue that leads to more productive family planning for university.
Teach Them About Money - In addition to discussing tuition, you can also take the opportunity to introduce your children to the concept of money. That almost sounds like an odd thing to have to do, but at some point, children have to learn about the importance of money, and the responsibility that comes with managing it. Teaching these things early on will benefit your kid in more ways than one, but it will certainly make the process of preparing for university tuition easier.
Perhaps it sounds obvious to say, but there should also be some specific planning. That is to say, it’s also wise to keep an eye on the conditions that may apply to your child in particular, so that you can adjust your planning accordingly. As a few examples:
Monitor Tuitions - If you have some idea of the general type of school your child might be aiming to attend, keep a close eye on how tuition fluctuates from year to year. It’s best to have an accurate idea in mind of what your child’s specific tuition is likely to cost.
Keep Track Of Aid Options - This is a broad idea, but even as you keep your eye on tuition costs, it’s a good idea to watch out for various aid options specific to where you live and what schools are under consideration. In the U.S. for instance, some states allow prepaid tuition, and others don’t; some schools have a broad range of academic and extracurricular scholarships; some have more attractive financial aid options. There are a lot of variables that should be involved in a detailed tuition plan.
So there you go! It’s a big task that lasts for several years, and it can look different from one situation to the next. But the most important thing is to make the decision to start preparing. From there, you and your kid can start to work out the best path forward to university.
Article written by Lucy Roberts
Exclusively for kidsandcompany.com