Should Kids Save for Their Own College Fund?

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According to Fin Aid, a comprehensive source of student financial aid information, advice and tools, on average, college tuition tends to increase about 8% per year.

An average 8% college inflation rate means that the cost to send a child to college doubles every nine years. Accordingly, for a baby born today, college costs will triple from today’s current rates by the time the child matriculates. This is sure to give any potential parent or parent with a young child a headache!

However there are ways to reduce college costs, such as encouraging your child to attend a public university within state (on average, tuition and fees for students who live in state cost $7,020 per year) vs. a private four-year university which can run as much as $55,000 in tuition, room and board per year.

Rapidly increasing college tuition rates bring to mind an excellent question, “Should kids be responsible for their own college fund?”

It would certainly take a large burden off their parents, yet one has to think about the feasibility of this question.

In the United States, child labor laws prevent kids from obtaining work legally until they are around 14 or 15, and then, the amount of hours they can work is limited to 18 per week during the school year. In essence, the summer is the only time a child can legally work 40 hours per work week (and they can never work more than that until they reach 18).

At this rate, it would be nearly impossible for a child to save all his or her tuition costs for a private four year university, even if every penny from that minimum wage job is saved for college.

With this information, a child’s role in paying for his or her college education becomes more of a question of how much they should be asked to contribute, if anything, and if such a contribution is meaningful.

The Act of Saving is Most Important

Provided a family can obtain financial aid, federal loans or other assistance, it would be unfair and unrealistic to demand that your child save a specific amount for college. It is the act of saving, not the amount, that is important.

Children must recognize that attending college is not a right, rather a privilege. Children should be encouraged to work, provided it does not take away from their education, and to put money aside in a savings account to help their parents pay for their education. In doing so, they are more apt to feel that they have been active players in shaping their own futures.

Their sense of achievement and responsibility, having actively participated in a major life decision, will also be enhanced. This is why participation should be encouraged, but a pre-determined amount or percentage of college costs should not be dictated, as this could become stressful for the child and take the joy out of working toward a common goal, i.e., saving for college, together.

In fact, parents can even use various tactics to incentivize their children to save, such as promising to match every contribution dollar for dollar or opening an UGMA (Uniformed Gifts to Minors Act) account.

A UGMA account is a custodial account that allows parents (or adults) to put aside a substantial amount of money in their child’s name while benefiting from the child’s tax-advantaged status. The child is listed as the account beneficiary until the age of 18, at which point ownership of the account transfers to the child.

Money in the account can be used by the child to pay for college tuition. The beauty of an UGMA is that even the child can contribute. This is an ideal way for child and parent to invest in the child’s future and to also learn a thing or two about the stock market together.

There is no doubt that saving for college can put a large burden on parents. However, if children are encouraged to take part in the savings process, without setting a predetermined amount or percentage to be saved, it can be a collaborative learning process for both parent and child.

Published or Updated: April 5, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Briana @ GBR says:

    I don’t think it’s a bad idea to have kids help save up. Even if they did start working/saving at 14, they can at least save for their college applications, which are $50-$65/each.

  2. In general, 18 year olds should finance their own education. This doesn’t mean that parents can’t help and support their children. There are numerous student loan and grant programs available for incoming freshmen. Young adults must learn quickly the value of a dollar to be financially successful in their lifetime.

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