Many parents and grandparents want to make sure their children and grandchildren have more opportunities than they had growing up—a big part of that involves some level of post-secondary education after high school.
While attending a four-year college or university is often thought of as the next natural step after high school, the term actually refers to a lot of other options—including community or online colleges, apprenticeships, military or specialized training.
One way in which relatives can contribute to a child’s future is to utilize a 529 college savings plan or another savings account that is gifted upon graduation. Easy, right?
But before making the decision to gift money, Ben Linser at Family Wealth Advisory Group suggests first ensuring your investment is worth it by factoring in a few things to get an appropriate return on any career-prep investment.
Top Tips for Using College Savings Wisely
1. Consider your “why.” You decided to save up for your child’s college, but did you ask yourself what you expect in return? “Rather than focusing on how to save, you should focus more on why you’re saving,” Ben says. “What do you hope the outcome to be from this gigantic financial commitment? Do you want them to have the opportunity to go to parties and hang out or should they get a degree with some teeth?”
2. Explain any restrictions. What you expect and what your child expects will likely differ—that’s why you need to have a conversation early on about any and all limitations you choose to put on the money. Depending on the type of career he or she chooses—for example, getting a teaching degree versus a medical one—your allotment for that child may differ from that of a sibling’s. “Make sure both parties gain a mutual understanding of the student’s plans and your restrictions ahead of time.”
3. Discuss the savings impact. If you decide you want to give your daughter $5K a year, you should also explain to her how to make that money go furthest. “If she commutes and decides to go to UC, that $20K has a way bigger impact than if she decides to go out of state or to an Ivy League school,” Ben explains.
4. Know your values. “If grandma and grandpa are big-time military people, then maybe they’ll give a child extra money for retirement or a Roth IRA—but they want to encourage the military first. They’re saving for that post-secondary life … if they want to have a way to express their values with their money, then they have that choice.”
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