Financial Literacy

You've heard it time and time again: Start that college fund before the baby comes home from the hospital. However, the truth of the matter is that very few parents actually follow that advice. Young parents face far more pressing financial worries such as buying a house, paying off their own college loans, financing a car, and trying to make ends meet as family responsibilities grow.

So, if you're like most parents, with little or no college savings, don't despair. There are a number of steps you can take to get your child educated and to meet escalating tuition fees without having to give up your lifestyle.

The type of planning you do for college costs is sensitive to the age of your child. If you can afford to start investing now for your child's education, great! Your goal at this point should be to put away as much as you can each month.

Some quick action steps that point you in the right direction:

• Start early. Time is your greatest ally in the scramble to accumulate college money.
• Decide on how much you need to invest or how much you can afford to invest on a monthly basis. The important issue here is to get started on a monthly investment program.
• Select an appropriate investment vehicle.
• Decide who the owner of the account should be. If you want to maintain control over the funds, do not open the account in your child's name. If you are looking to save taxes and you are comfortable giving up control of the funds when your child is no longer a minor, then consider opening a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) custodial account.
• Be careful! If you think that ultimately you will be applying for financial aid, it is best to invest the money in an account in your name and forget the tax benefits.
• Once the account is open, contribute to it on a monthly basis. Stick with it!

How to Stash Away Extra Cash

• Deposit money in your children's college account on their birthdays or holidays. Make it $100 the first year, $200 the second, and so on. When they are old enough to understand, explain that this money is for their education.
• Encourage grandparents and others to also give financial gifts that have the potential to grow—cash, CDs, saving bonds, bonds, and stocks.
• Assign yourself a "rent hike." If your monthly housing bill was raised by $50 or $100 a month, you'd have to pay it. So, pretend that you just got a rent hike and save this "phantom" increase. When you write out your regular monthly rent or mortgage check, make out another check for the increase for your child's college fund.
• Set aside raises and bonuses—try banking at least half the dollar amount.
• Pay off a loan, such as a car loan, and continue saving the monthly payment—only put it into the college fund.
• Have your children pitch in. Encourage them to save half the money they earn doing odd jobs. Reward them by making a matching grant of your own.

Growth investments are appropriate when your child is young. Although bank or money market accounts are most appropriate when you're in the late stages of college funding (your child is 16 years of age or older), they may also be right for you when your child is young if your tolerance for risk is very low, or if you need the discipline of a convenient, periodic investment program.