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Trying to get kids to save money is kind of like peeling Dad off the couch during Sunday afternoon football. You are not likely to get a good response without some serious prodding. Still, teaching your kiddos is an important life lesson and ensures that they won’t be living with you when they are 28 years old.
Teaching kids about saving money is a hard task, add-on getting your kids to even to even think about college (and saving for it) before the age of fifteen.So how to you get kids to save money for college?
Is that even possible? (Can they actually think beyond their next text message?)
The answer is yes, it is possible. BUT, you have the be the catalyst to make it happen.
The first thing you have to do is teach them that different choices can equal different outcomes. To get kids to save money, you have to show them the payoff at the end. That is rather easy when it is for a favorite doll or comic book, but showing them the benefits of a saving for college education is not so easy. The key here is to start early. In our household, we have been using the phrase “when you go to college” since they could talk. If you were to ask them, they’d both tell you they will be going to college after high school.
Go to your local bank and set up a fund in their name. Let them physically go and deposit money in their accounts. That habit is vital to their future finances. The money is one thing, but the habit is something that will follow them the rest of their lives. Either make it a percentage of their allowance or birthday money. Plus, they will love being about to watch the number go up and “dream” of what they could do with the money.
Put a college expense plan together. Until you and your kiddo spend time figuring out the total expenses for a year in college, it is a little hard to save. By writing down all the costs (tuition, room, food, books, fees, parking, spending money, etc.), you’ll both have an idea of the costs involved and can make a savings plan together.
Have them understand not only the how of saving, but why they are part of the equation. I’m a firm believer that without skin in the game, you can take things for granted. It is no different for a college education. Letting your kids know from an early age that they will not be getting a free-ride in college helps them understand that they are part of the saving equation. In order to go to college, they will be in charge of paying for part of the expense, period.
Educate your children (and yourself) on the other options to pay for college. Not only is it important to save money for college, but it is also important to try to get all the free money you can via scholarships. I know many families who have a 50/50 plan for college expenses (50% on kids and 50% on adults). In that equation, any scholarship money goes toward the child’s part of the expense, so it rewards good grades and the time it takes to fill out applications. If you have younger kids, you may starting asking your friends what criteria college scholarships look for…in many cases community service hours are super important as well as a job outside of the home.
With all of that being said, I understand my kids saving money for college will not pay their way through or probably even make a dent in the total costs. But having them understand the costs involved will help them make smart choices while they are at the university.
(PS: For all of my KC Peeps, you have to checkout this resource from the Federal Reserve Bank – Money Smart KC. It’s a FREE resource that hosts workshops and more throughout the area to help people understand the ins and outs of money/investing/saving/etc. And since it is the Federal Reserve and not a bank, there is no sales pitch at the end.)
What about you? What tips do you have to get kids to save money for college?
FAQs
So, if your child opts out of college, you can name a younger sibling or even a niece or nephew or potentially another relative. And you can even name you or your spouse as the beneficiary if you're interested in furthering your education.
Are 529 plans worth it? ›
And when you pull the funds out, as long as they're used for qualified higher education expenses, there's no federal income tax on the distribution and often no state income tax. 529 accounts also receive some favorable treatment for financial aid purposes, so they're really a great way to save for college education.
What is the best college savings plan for a child? ›
For most parents looking for a way to save for their child's college education, a 529 college savings plan is a wise choice. That's because the money you invest in one of these accounts grows tax-free if you use the funds toward eligible education expenses. Individual states offer 529 plans.
What age is too late for 529? ›
529 college savings accounts are not just for young children -- you can open one at any time, even if your child is already in high school. Four years of saving $300 per month for college could lead to over $16,000 of savings.
Can I use my child's 529 for myself? ›
Your 529 can be used for student loan repayment up to a $10,000 lifetime limit per individual. Up to $10,000 annually can be used toward K-12 tuition (per student). You can transfer the funds to another eligible beneficiary, such as another child, a grandchild, yourself or a friend.
How much do most parents save for college? ›
Most families plan to save about a third of future college costs for each child. On average, however, families save only about 10% of college costs when the child turns 18, falling short of the goal.
Can I start Roth IRA for my child? ›
A Roth IRA for a child needs to be started and managed by a parent or other adult as a custodial account. The child needs a Social Security or other tax identification number, plus earned income. The Roth IRA stays a custodial account until the child reaches the age of majority, which is 18 in most states.
How much to put in 529 per month? ›
For in-state, four-year, public college: minimum $300 per month. For out-of-state, four-year, public college: minimum $500 per month. For private, non-profit, four-year college: minimum $650 per month.
What is the downside to a 529 account? ›
Must only be used for education
Only certain education expenses qualify, so you need to make sure you're withdrawing money for qualifying expenses to avoid taxes. If you use 529 savings plan funds for non-qualified withdrawals, they may incur a 10% penalty. And they may be subject to federal income tax.
Why don't 97% of people use 529 college savings plans? ›
It's easy to see why Americans don't embrace 529 plans. They often have limited investment options, high fees, complicated rules and anxiety-producing investment risks. All that said, the plans may ultimately be worthwhile for most families, as long as parents choose carefully. Focusing on fees is crucial.
Some 529 alternatives include using a custodial account, Roth IRA or Coverdell Education Savings Account.
How much should 7 year old have in college savings? ›
How Much to Have Saved by Age
| Age | Low End | High End |
|---|
| 4 | $15,395 | $30,789 |
| 5 | $19,728 | $39,456 |
| 6 | $24,275 | $48,549 |
| 7 | $29,045 | $58,090 |
14 more rowsJan 7, 2023
Using a Roth IRA for college
Some people use a Roth IRA to save for college instead of retirement because withdrawals are exempt from penalties when used to pay for qualified education expenses (like tuition, fees, books, and room and board).
When should I start saving for my child's college? ›
Ideally, the best time to start a college fund is when your child is born. With compound interest and regular investments made monthly or yearly, the funds have an opportunity to grow over a longer period of time, and you don't need to put aside as much each month or year to reach your savings goal.
What happens to a 529 when a child turns 18? ›
A 529 plan is technically a custodial account, so an adult custodian controls the funds for the benefit of a minor. The beneficiary can assume control over the 529 once they turn 18. However, the funds must still be used for qualifying education expenses.
What happens to 529 when a child turns 25? ›
There are no time or age limits on using a state 529 college savings plan. Money can be kept in a 529 plan indefinitely. 529 plans can be used for graduate school, not just undergraduate school, and can be passed on to one's children.
Can I convert my 529 to a Roth IRA? ›
As of January 1, 2024, owners of 529 plan accounts can make tax and penalty-free rollovers to Roth IRA retirement plan accounts, subject to certain limitations. This has been welcome news to many families who worried about having unused or leftover funds in a 529 plan account.
What happens to 529 when a child turns 30? ›
529 plans do not have specific withdrawal deadlines. A 529 plan account owner is not required to take a distribution when the beneficiary reaches a certain age or within a specified number of years after high school graduation, and funds can remain in the 529 plan account indefinitely.
