While the average parent expects to cover at least a significant portion of their child’s college expenses, few follow through. And the UK expects the value of outstanding student loans to reach approximately £460 billion by the mid-2040s. Compound interest creates a strong tailwind, and if you’re worried about your child’s future, now is the time to start saving for his college education. Below are four ways to keep your child’s college education.
1. Plan with your financial advisor
Getting anywhere without a good plan can be difficult. Saving on your child’s future college education should start with a meeting with your financial advisor. They can advise you on available alternatives, including optimizing your investment to get the best return when the time comes. If you are looking for grants, scholarships, or financial aid, a financial advisor can help you with the application process and factor this into your college fund savings.
2. Have a savings plan
You can use a standard savings account for many purposes, including creating a college fund for your child. There are no limits on how much you can put into your savings, so keep that in mind. However, this is not the best option if you do not have financial discipline, as you can withdraw funds at any time. Also, savings account interest is lower than inflation, so you may not benefit from interest accruing over time, meaning you may not be able to maximize your funds. Others may be better-considered investment options for example, mutual funds to save for your child’s college needs.
3. Set up a custodian account
Custodial accounts allow you to invest in a wide range of assets. Typically, parents open these accounts for their children to increase the assets they will someday own. Stocks are often an attractive vehicle for investing in these financial assets because they are long-term. While there is no limit to the amount of money you can deposit into a custodian account, this choice is great for a responsible child. When your child turns 18, they will have the legal right to spend the funds in the account for college or other purposes.
4. Consider permanent life insurance
High-income families typically use this college savings plan to save on tax credits for a variety of purposes, including college education. A permanent life insurance policy is similar to traditional life insurance in that part of your premium goes to your death benefits and part goes to a tax-deferred savings account. One of the benefits of this is that the money saved is tax-free and not just limited to college expenses. It offers additional benefits without negative consequences if it is not used for education spending. You can talk to your life insurance provider for more information.
Saving for your child’s future college is a long-term plan that usually requires striking the perfect balance between risk and reward. After all, you don’t want to compromise your short-term needs for future goals.