College Savings Basics
October 19th, 2012 
Carol 
As a parent, you want to do all that you can to invest in your child’s future, and one of the best ways to do this is through a college education. But with tuition costs rising among both private and public universities, it’s also becoming one of the most costly investments. According to Labor Department data, after accounting for inflation, tuition and fees have increased 184 percent in 20 years, while wages for college grads have risen a mere nine percent.1 To save for both your children’s higher education and your future it’s important to start planning your finances as early as possible with a strategy in place. Here are a few tips that can help you maximize savings now to increase your child’s future opportunities.
Start Early
The question every parent or future parent always begins with is, “when should I start saving for my child’s college education?” For the most part, the answer is, “the earlier, the better.” Getting an earlier start can help parents minimize the amount they need to allocate to their college fund each month because they will be investing over a longer period of time. Since the rate of education costs have sharply increased in recent years, starting to save as soon as possible can make all the difference.
Identify a Savings Goal
With an early start, identify a specific savings goal that works for your family’s situation, taking into account factors such as your time horizon, cash flow needs, risk tolerance and other goals. How much you’d like to contribute each month will also influence your savings goal. Whether you choose to target a specific dollar amount, such as a projected tuition cost, or devote a fixed percentage of your income, keep in mind that these allocations may change over time as your circumstances change. And remember, funding a college education doesn’t have to fall solely on the parents’ shoulders. As your children grow older, consider including them in the conversation by discussing the types of schools they’d like to attend. This will influence your savings goal and help you identify how they can contribute, such as allocating a portion of their savings or monetary gifts to their college fund.
Do Your Research
There are a variety of different college savings vehicles available these days. But with so many options, it can be hard to know which is right for you and your family. As each family has a unique situation, it’s a good idea to research each option to learn about their different benefits and restrictions. For example, some vehicles allow the account owner greater control over their portfolio but limit the number of investment options. Consider how each vehicle might fit into your short-term and long-term financial situation. A financial advisor can help you evaluate different options and determine the best one for your individual situation.
Don’t Forget Your Other Goals
As much as you’d like to support your child’s future, it shouldn’t derail your future and other financial goals, such as retirement. While your child can take out loans to finance college, you most likely won’t be able to do the same to meet your retirement needs. College students also have the option of working part-time jobs, applying for financial aid, or earning scholarships.
Saving for college is not something you have to go at alone. By working with a trusted financial advisor, you can identify the investment opportunities and approach that are right for you. Regularly meeting with your financial advisor can help ensure you’re not only meeting your college savings needs but also your overall long-term financial goals. As your family grows and changes, you can adjust accordingly to help make sure your strategy is on track.
Investment products are not FDIC insured, are not bank guaranteed, and may lose value.
DIANE BAIN is First Vice President and Wealth Management Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. She can be reached at her office in PALM BEACH at 561-775-8143 or Diane_bain@ml.com .
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