Mistakes Parents Make Saving for Their Child’s Education


With the cost of higher education soaring, saving for your child’s college education is probably one of your biggest concerns.

However, many parents make some common mistakes that can seriously hurt their efforts, leaving them well behind on their goals. Here are three of the most common errors and how to dodge those issues.

1. Being too cautious

Many parents make some common mistakes that can seriously hurt their efforts of saving for their child’s college education, leaving them well behind on their goals. While you don’t want to take too much risk with your child’s education fund, you don’t want to play it completely safe, either.

“Over the last 10 years, you would have earned an average 1.85 percent per year from a savings account or CD, according to Morningstar,” states a 2016 article in Time magazine. “That’s not nearly enough to keep up with college inflation, and it’s a fraction of what you might have earned with a moderate investment portfolio combining stocks and bonds.”

Still, most families continue to put their money in low-risk, low-return options despite the fact that college costs increase by an estimated 8 percent per year, according to the SmartStudent Guide to Financial Aid. Instead, try a 529 college savings plan for growth without huge risk. A 529 grows tax-free if the money is used for qualified college expenses. You can even open an age-based account that becomes more conservative as your child gets older, thereby minimizing the risk as your child is about to enter college.

2. Waiting too long to start

Editor David Levy of Edvisors Network, a college-planning source, tells Deborah Ziff of U.S. News & World Report that if you wait until your child reaches high school to start saving for college, you will need to contribute six times more money than if you had started at the child’s birth. That’s a harsh statistic for any parent with a school-age child.

“What people forget is that the most powerful tool you have on your side when it comes to saving for any goal is time,” Adam says. “If you can use the power of compounding to your advantage, and if you start now, you can save much more.”

Some parents are so nervous and overwhelmed about paying the astronomical costs of college, they give up on saving before they even start.Starting earlier also gives you more time to handle the ups and downs of the stock market, so you can take a chance with investing more aggressively.

3. Giving up before you start

Some parents are so nervous and overwhelmed about paying the astronomical costs of college, they give up on saving before they even start. Others worry that savings in the bank will count against the family in financial aid calculations, which is not true.

“The biggest impact comes from what you earn, not what you’ve saved,” Adam says.

Furthermore, don’t set the unrealistic expectation of saving to pay 100 percent of college costs, Ziff says. A reasonable goal is to pay for one-third of the cost of college through savings and the remainder through income, financial aid and loans.

“They (parents) can use college calculators to get a sense of how much college is expected to cost, [and] then set a monthly savings plan based on how much they hope to fund,” she writes.

While saving for your child’s college education may seem daunting, just remember to start early and contribute regularly, and you can get there.

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