College savings strategy

Start early to make the most of your money

23 Jan 2020

As we bid farewell to the 2010s, college is more costly than ever. In the 2017-2018 academic year, American students paid an average of $23,091 for their annual education expenses, according to data from the National Center for Education Statistics—a number that will likely continue to rise in the coming years.

Headlines about student loan balances and ballooning tuition make it clear that paying for college is a major concern for most American families. In a recent episode of the UBS On-Air podcast, experts from the UBS Chief Investment Office shared their two cents on saving and investing for college.

Key takeaways

  • Set realistic expectations for which schools are viable options for your family.
  • Start early to give your family more flexibility when choosing a college or university.
  • In this episode of the UBS On-Air podcast, experts share tips you can apply to your college savings plan.

Saving for education is a moving target

Figuring how much to put aside for your child’s education is often half the battle.

“We have no idea what the future holds for the prices of college tuition,” explained Total Wealth Strategist Ainsley Carbone. “There’s no specific college inflation rate that everyone goes by.” Several organizations attempt to estimate the increasing cost of college each year, but there is no guarantee for what the future will bring.

“People can get so many different types of higher education,” Carbone continued. Students can choose from public, private and community colleges, both in-state and out-of-state—a decision that dramatically influences the cost of attendance.

Setting realistic expectations for which schools are viable options for your family can help. Investment Strategist Justin Waring recognizes that “no one wants to say no to their kid, especially if they get into the college,” but emphasizes the difference it can make. “If you lay the groundwork for your children ahead of time and give them a budget, and emphasize the value per cost, you can save yourself a lot of money and help them make a better decision.”

Start saving and investing early

Saving for your child’s education is similar to saving for retirement in many ways. For example, starting early gives your family more flexibility down the road when choosing which college or university to attend. And, similar to some retirement plans, there are tax-advantaged investment accounts to give families even more of an incentive to start saving early.

A 529 College Savings Account is a great investment and savings vehicle for education. Despite the name, Waring explains, “non-tuition expenses, education-related computer expenses [and] even K-12 education can now be paid out of 529 accounts on a tax-advantaged basis up to $10,000 per year.”

One common worry people have is that they could put aside too much money in their child’s 529 account, limiting their access to those funds in the future. But you can use the account for a lot more than tuition, Waring explains. You can even “change which child it goes to on an annual basis.”

Taking advantage of the time value of money and investing for long-term growth can leave your household in a better position when it’s time to start paying for your child’s education.

Maintain open communication and assess your options

Real-world experience may be the best way to learn about money in the long run, but it’s important to help guide your children while they’re minors. Speaking openly about money as a family can be helpful, says Carbone.

It’s also important to adequately assess the financial resources at your disposal. Methods of paying for college include not only family contributions but also scholarships, grants and student loans.

To learn more about how best to structure your saving and investment strategy to pay for your child’s education, check out the full episode. It’s never too early (or too late) to start planning.

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