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Setting up a college fund for children

post #1 of 13
Thread Starter 

Any compelling reasons not to have a college fund?

 

If not, what is the optimal amount to have in there (by the time it's ready to be cashed in)?

 

How much do you currently put in there per month or year?

 

Any conditions that you've placed on your child's fund? If so, why?

 

Is putting it in account that pays 5% interest yearly, a wise choice?

 

Does each child have their own account? Or is better to pour it all into the one account, but each child receives an equal amount in the end?

 

I have four children - One of who is determined to be a scientist or engineer. She will start college in 8.5 years time. DH and I agreed to cover all university fees if she could maintain a credit average (65%). My other child dreams of opening up her own business, so her "college fund" will actually be a business fund. Not sure about the other two kids, but I'd like to help them nonetheless. I'm starting from scratch, so all advice is greatly appreciated.

post #2 of 13

The advice from financial advisers is to fund your own retirement before saving for your kid's college fund.  Reason being your kids can get scholarships, financial aid, and student loans.  There aren't any loans for retirement.

 

Fortunately, I'm in a situation now where I can afford to start saving for my two DD's college.  I don't have a certain amount set as a goal, I'm just going to put what I can afford to save in the account.  I can afford to save $300 a month, which I'm going to put in a 529 plan. 

 

I have two kids, ages 14 and 7.  Since I only have four years to save for my eldest, I'm going to funnel all the money into an account for her. 

 

I'm not going to save anything for my younger daughter until my eldest goes off to college, since I'll have more time to save for the younger child.

 

I'd look into a 529 plan, every state has one.

post #3 of 13
Thread Starter 

Thank you so much!

 

Do you mind telling me what a 529 is? We don't have them here, but I'd like to know if we have something equivalent.

 

Totally agree about setting up for retirement first. In Australia, an employer is required by law to contribute 9% of their employee's gross income into their employee's retirement account. We have a tidy sum sitting there and DH has another 3 decades of work ahead of him, so if we continue on this path, fingers crossed we'll be okay.

post #4 of 13

Oh! Sorry, I just assumed you were in the states.

 

A 529 plan is a savings plan for saving for a child's college fund.  It's invested and you get some tax breaks on it.

 

But why are you worrying about saving for college? I thought Australia was one of those countries where post secondary education was publicly funded.

 

At least you don't have to worry about filing bankruptcy for an unexpected medical bill like here in the US. 

post #5 of 13
Ok, I didn't reply to this because I assumed you were in the US too.

I'm in Australia and this is what we're doing. We have each girl's Baby Bonus in a 12 month term deposit. Each one also has a linked offset account and every birthday and Christmas we put in $100 which we add to the principle when it matures. With current interest rates this will give them each about $18k by the time they finish high school.

However, once we have a bit more on each account I'm going to look into some higher risk/higher yield investment options. Possibly create a small share portfolio for each of them. I'm not sure yet.

We probably won't be able to fully find their tertiary education. DH will be past retirement age by then and our super is pretty pathetic. However if they choose to attend the university in our city then they will be able to live at home which will help considerably.

For the PP who asked about public funding - it is heavily subsidised and there are various government assistance options. However, it's not free and most of the assistance available is means tested on parents income for school leavers. In the early 90s, I believe it cost about $30k for my undergrad degree, although that did include living expenses.
post #6 of 13
Thread Starter 

Amber - It's about 3/4 subsidised, but definitely not free. My dh's undergrad cost him around 25k in the mid to late 90's. His postgrad was about 10k (after a combination of scholarship and subsidy). He was able to defer the payment through HECS and pay it back once he earned over a certain amount. No other assistance was available though. Every year they are cutting funding to universities just that little bit more. I want to be prepared for the worst and I'm working under the assumption that only 50% will be subsidised by the time my eldest attends. It probably won't be anywhere near this, but it doesn't harm to over estimate.

 

While we do have a good public health system here and there is definitely no worrying about a huge medical bill for menial issues, there seems to be a misconception about our health system. Not everything is free and anything beyond a common ailment will cost you (unless you're in the low income bracket). I will refrain from putting further details here so as to not derail, but if you're interested in learning more, I'm only too happy to discuss. :)

 

Katelove - How lovely to speak to a fellow aussie. :) You've got a really good plan set up there. Now that we're free of non mortgage debt, I'm looking at allocating some $ into a term deposit for the four. The kids will also be living with us while studying, assuming they are accepted into one of the universities in our state.

Try not to worry too much about your super.. I don't think they'll cut the aged pension (think of all the stay at home parents), so there will always be some sort of assistance available in the decades ahead. I've got zilch in my super (was always a SAHM). I'm hoping to go back to uni and get a teaching degree, but that's a long way off (once I'm finished home schooling). I might have to set up a college fund for myself. orngbiggrin.gif

post #7 of 13

Oh no, I didn't mean to imply that post secondary education or your health care was "free".  Nothing is free of course.  I just think ya'll have a far better system of subsidising things so no one is hit with a huge financial burden.

 

It IS good that you see the handwriting on the wall with the way funding is being reduced for universities and are planing to prepare for the worse.  That is very smart.  No, it sure doesn't hurt to over estimate.  Better to have too much than not enough!

 

I will say $25-30K for a degree is not bad.  I hear of plenty of folks here in the states with $60-$100K in student loan debt.

post #8 of 13
Thread Starter 

We do have a decent system of subsidising various things. I'd say we're lucky in that respect. We're taxed to the hill though. Personally, we lose 30% of our gross income to tax. With all my whining, I still wouldn't move.. I think overall, we're doing okay as a country. I just wish more of our tax dollars were spent on bettering the education system as well as the medicare system. Actually, I'm sure a lot of Australians want that too!

 

60-100k is a little outrageous! I can now see why americans are so into setting up college funds for their children :) I'm getting closer to figuring out what I'm going to do for the college fund. I found something that I believe is similar to your 529 plan in the US (Lifeplan Education Investment Fund). Just have to dissect all those pesky conditions and fees now. ;)

post #9 of 13
To answer the original questions, we plan to have a separate account for each child. I do not believe in trying to make everything equal. Life doesn't work out that way.

And the parents I know who do that end up short changing both kids in the long-run. Example: "we can't afford to send them both to private school so they're both going to public school" instead of "we can only afford to send the eldest to private school so we're fundraising / applying for scholarships etc to try to get the youngest in as well, but til then he's at public school."
post #10 of 13
Thread Starter 

Marsupial-mom, thank you for your input. :) FWIW, I do think things should be equal between children. My sister (who is in her forties) still believes my mom loves me more than her. Why? Because I was afforded opportunities that she wasn't. My parent's financial circumstances were a little better when I was in my teens (as opposed to when she was in her teens) and she doesn't see it as "that's life". It's something that really cuts her deep and it's sad to go through life feeling like your parents favored a sibling's financial well being, over yours. What I took from that experience is that if one of my children receives something, then they all do and vice versa. It's probably not the most sustainable approach and yes, things have been denied in the past, but I refuse to give to one and not the other.
 

post #11 of 13
Quote:
Originally Posted by LoveOurBabies View Post

Marsupial-mom, thank you for your input. smile.gif FWIW, I do think things should be equal between children. My sister (who is in her forties) still believes my mom loves me more than her. Why? Because I was afforded opportunities that she wasn't. My parent's financial circumstances were a little better when I was in my teens (as opposed to when she was in her teens) and she doesn't see it as "that's life". It's something that really cuts her deep and it's sad to go through life feeling like your parents favored a sibling's financial well being, over yours. What I took from that experience is that if one of my children receives something, then they all do and vice versa. It's probably not the most sustainable approach and yes, things have been denied in the past, but I refuse to give to one and not the other.

 

It's not a sustainable approach, nor it is a healthy one IMO. Do your best in each stage your kids and you are in. That is the definition of good and "fair" parenting.

My parents were flat out broke when I was a child. We had nothing, and got toys from the toy drive. Baby Sister 3 was a "surprise!!" baby when I was 23--at the time their youngest was 17, and during those 20 years my parents actually had built a good and steady income. Baby sister is raking in the "things" that weren't even vaguely on my radar--but she doesn't get to grow up with two other sisters to play with. Pretty sure if life were a competition between sisters, we would both agree that I win.

I know my parents do feel guilty about all they buy and do for D. Sis 3, but that is not my business. Possibly, I feel this way because I am the oldest and watched my younger sisters get progressively "more" than I did (because my parents could finally afford it when they needed it). I personally think it was a really good lesson in money management and just plain life. I am happy for my siblings that got "more" than I did, at times $10,000 or so "more". My parents were always clear about the fact that they were trying their best at all times.

So yes plan for "even", but don't be afraid to shoot for the stars when a situation arises and you can afford it. Even if you are not sure you can afford it for each of your children. Honestly, if children were a financial balance sheet our eldest would owe us a ton of money now. We've spent gads of money on her health needs, and the others are very healthy. It's not going to matter in the end, nor should it.
post #12 of 13
Unfortunately I am still paying off my own student loans for the next 12 or so years, my son will be ready to go to college in about 8-9, so he will need to get student loans and scholarships for his college education.
Edited by LittlePlumHill - 7/31/13 at 8:00pm
post #13 of 13
Thread Starter 

Thank you for sharing your own experience with this issue, Sarafi. :) I should note that I have very strong opinions regarding this issue :) I will still aim to keep things even because I do think it creates resentment in the end. I would like to think it doesn't, but apart from my own sister's complaining, I've heard stories from close friends on how their parents "gave X to their sibling and they didn't get anything like that". One might think that it's simply general conversation material, but constant casual mentioning has a deeper root in my books. I think the resentment is there for many people but they don't want to admit it because they feel they might be perceived as narcissistic.

 

I don't want to create that resentment between my children and if that means they have missed out because it wasn't fair for all of them overall, then I will chalk it up to: that's also a good life lesson to learn. There are times in life when we miss out because it's not for the greater good of everyone and we have to learn how to deal with that type of disappointment too. My mom is one of those "Well, why should you miss out just because it wasn't fair for others?" type thinkers and IMO it's an incredibly selfish approach. She raised me using with that motto and now I sit back and deal with all the resentment it has caused. I vow not to repeat history. I'm kind of annoyed that my parents gave me more overall, because now I have to deal with sibling resentment towards me when I did not actually do anything to instigate it. I did not find out until much later (adulthood) that my sister never had what I was afforded. If I could take it back, I would! It's always thrown in my face and I have to live with this type of relationship for life.

 

There are few stages in life where two or three of my children won't get what their sibling has and it's where age appropriateness is a concern. But they know that once they hit the age their older sibling is at (and it becomes age appropriate) then they too, can have their turn.

 

It takes a fair amount of foresight to try and keep things fair all the time and as I was saying in a previous post, it is not the most sustainable approach. However, it's what I feel is right for our family.

 

Littleplumhill - Student loans suck don't they! :( It took us quite a few years to pay off ours too. Here's to those months going by as quickly as possible!

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