By Scott Reed
I was talking with a friend of mine the other day whose oldest child is about to go to college. I asked him what his financial plan was for college. He said, much too seriously, “Hoping for a scholarship.”
It reminded me of the television commercial where the guy is trimming his hedge when his friend asks him about retirement. He says that he blindly throws money at it and hopes something good happens. I think we can all agree that blindly throwing money at any problem is not the right answer – but at least he is saving.
So many families I talk to have not yet begun to save for college. Not saving for college can have a devastating effect on family finances for a long time. I was watching President Obama on “Late Night with Jimmy Fallon” and he said Michelle and he just finished paying off their student loans seven years ago. He laughingly said that with the money he saved, he got to run for president.I know that some of you don’t consider the fact that he ran for President a good thing, but the message is the same: It takes a long time to pay back college loans.
This is not a small problem. I read that more than 80 percent of college students will have to take out a student loan by the time they get a diploma. One answer is to skip college and save all that money. I’ll admit that it is tempting sometimes to think about, but it is shortsighted and/or selfish. The amount of money average college students make in their lifetime in excess of what high school graduates make will make more than makes up for the costs.
The answer is not to skip college. It is to make the college experience as painless as possible.
Painless is probably a bad choice of words because it will be painful, as are many things worth doing in life. But you can make it less painful. Simply start saving NOW. I don’t care if your child is one or 16; start saving now. You most likely won’t be able to save enough, but you can try. Whatever you can put back, put it back.
There are some great programs for saving money for education. In Mississippi, we have the CollegeSavings MPACT and MACS programs.You can save money either through a state-sponsored program or you can buy a prepaid tuition to one of our state -supported schools. Also, most states have established 529 plans that allow you to put money into an investment program on a regular basis going toward prepaying a student’s qualified higher education expenses.
But you don’t have to save it all in an education-based savings plan. What happens if your child gets one of those elusive athletic scholarships and you have all of your money in a college savings program? Well, you can get it out with some taxes and penalties so you’ll still be OK. But you could save some of your money in a regular investment account. If you don’t need it for college, then use it for something else. At least you will have some options. If you don’t save any money, you will have very few options.
Most of the people I talk to want their children to go to college. It is a worthy goal and an honorable pursuit. It will slip up on you if you don’t watch out and it can set you back financially for a long time. You can do something about that – you can start to save now. The one thing you can’t do is open a college savings program for your children until they are born. I know that from personal experience – I tried. They’re never too young for you to be thinking about college.
Scott Reed is CEO of Hardy Reed, an investment advisory firm in Tupelo.