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Guide for Parents of Young Children

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As a parent of a newborn or young child, you are probably focusing on health and nutrition, childproofing your home, finding a good babysitter, and other joys of parenting, and not college. Nevertheless, there are a few college planning tips worth considering even at such an early age.

  • Saving for College. Children born today will face college costs that are 3 to 4 times current prices by the time they matriculate. The sooner you start saving for their education, the better off you will be.

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    If you save $100 per month from birth and earn a 4% annual return on investment, by the time your child matriculates in college you will have saved $29,246.57. Approximately 30% of your savings will come from interest. If you wait until the child enters high school to start saving, then you will need to save $561 a month to reach the same goal, and only 8% of your savings will come from interest.

    If you start saving sooner rather than later, you can also use more aggressive investments, such as stocks and mutual funds, at the beginning, because you have more time to recover from mistakes. As college approaches, you should gradually shift the investments into more conservative investments.

    Money should be saved in the parent's name or in a Section 529 College Savings Plan account controlled by the parent. Although there are tax advantages to saving in the child's name, these tax savings are wiped out by the loss in eligibility for need-based student aid.

    Do not be overwhelmed by the high cost of a college education. You do not need to save the full amount. Instead, FinAid recommends saving one-third to one-half the costs and $100 to $250 a month per child. But any amount is better than nothing, and it is more important to start saving regularly. Once you get into the habit of saving, it will be easier to increase the amount you save.

    Encourage family and friends, especially grandparents, to contribute to the child's college fund.

    Other good tips include making the saving automatic (i.e., set up an automatic monthly transfer from your checking account to a saving account or college savings plan) and depositing a portion of windfalls (e.g., income tax refunds) into the savings account.

    For these and similar tips, see FinAid's Saving for College section and FastWeb's Introduction to Saving for College.

  • Insurance. You may receive offers for life insurance for your children from a variety of companies. Some of the companies will promote the insurance as a vehicle for saving for college. But life insurance is for income replacement, so there is little need to have a life insurance policy on your children. Moreover, whole life insurance is often inefficient as a savings vehicle. Don't waste your money on a life insurance policy for your children. Do, however, obtain life insurance on each of the wage-earners in your family. You may wish to consider including an allowance for college costs when figuring out how much insurance coverage to get.

  • Social Security Number. If you haven't already obtained one, get a Social Security Number for your child. Not only will this be important when the child applies for college admission and financial aid, but it is necessary to claim the child as a dependent on your income tax return. Don't forget to claim the Child Tax Credit, the Credit for Child and Dependent Care Expenses, and the Earned Income Tax Credit if you qualify. Many families will deposit the amount of the Child Tax Credit in their children's college savings plan accounts.

  • Financial Aid for Private School Tuition. The FinAid content about financial aid for private elementary and secondary school tuition has been spun off into a new site about Private K-12 Schools.

  • The Head Start program provides help for low income families with preschool-age children.

  • College Planning. Encourage your child to take challenging courses, develop good study habits and time management skills, and become involved in extracurricular activities. This will help your children qualify for merit scholarships.

For good resources on parenting in general, see the following web sites: parenting.com, parents.com, parentsplace.com, parenthoodweb.com, familyeducation.com, and seasameworkshop.org/parents.

 

 
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