Should We Start Saving for College When a Child is Born?
What’s the first thing you should think about when you bring a newborn baby home from the hospital? Making a checkup appointment with the pediatrician? Checking the crib to make sure it’s safe? Mom and Dad getting some sleep!
Your opinion on this is probably just as unique as your new addition. Believe it or not, some people think about their new child going to college early on. Very early on. Along with that, they think about paying for college too.
But should they?
"How much better to get wisdom than gold! To get understanding is to be chosen rather than silver." Proverbs 16:16 ESV
When Can you Start?
Before we discuss whether you should or not, let’s start with when you can start putting money away for college. You could, conceivably start putting money away in a regular savings or investment account any time including long before you’ve picked out a name for your child. Most people equate college savings with 529 College Savings Plans so let’s answer that specific question. There are also some other ways to put money away for college, but 529s are the most applicable path for the vast majority of families. In that respect, as soon as your child is born, you can establish a 529 plan for them and start putting away money for college. The provider will want a social security number for the child (what they call a beneficiary) so it may take a few weeks after their arrival before you can establish the account.
Why you should
There are compelling reasons why you should start as early as possible with saving for college. The biggest reason is the longer you have money in a 529 the longer the money has to compound and grow. Let’s take two families. Both families open a 529 with the same amount of money and experience the same returns each year. One family starts when their child is six weeks old and the other starts when their child is sixteen. Which one do you think will have more money when they get to move in day at the dorm? Time makes a difference. Another reason is any financial priority you make a positive habit over time has a higher likelihood of success. This is no different.
Why you should not
There are some good reasons why you should not put money away for college when a child is born. Do not misunderstand this. I am not saying that saving for college is bad! It’s a question of is this the best use of funds at that moment in time. Do you have credit card debt or outstanding student loans? Have you saved anything for retirement? Do you need to save for a move to a home that will accommodate your growing family? Do you still need to pay for the child that just joined your family and associated medical bills? Again, don’t be let your instincts to set your new family member up for future success feel like a bad thing. This is commendable but keep it in context with other needs.
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OK, but when?
The best time to start on the endeavor of saving for college is very specific to your family. Weigh your family’s financial priorities along with this one to exercise good stewardship over your family’s finances. It does not have to be all or none either. You can decide as a family that some funds will go to college savings while some others will go to other priorities. For some more context, keep this in mind. When your child grows up and goes to college, they can pay for it with loans, scholarships, work study programs, a part time job, grants, or combination of all those things. There are no scholarships to pay for you and your spouse in retirement.
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