Advisor Resources: BMO Wealth Institute

Top 5 mistakes parents make saving for their child’s education

Saving for Child's Education

Parents want the best for their children. And for many, that means the potential benefits that a college education can deliver – a promising career and the enhanced earnings potential that comes from higher education. However, the costs associated with pursuing a college degree have been on the rise. Tuition has been growing at a faster pace than inflation for many years. For example, for the 2012-2013 academic year, the net price (the cost after scholarships, grants, and federal tax benefits) rose 4.6% to $16,510 for in-state students attending public colleges while the net price for a four-year private school rose 5.6% to an average of $27,600.1

To compound the problem, many young people choose to return to school to earn a second degree after facing a challenging job market. Returning to school can exacerbate the issues associated with funding college education costs and mounting student debt load.

Top 5 mistakes parents make saving for their child’s education

With these increasing costs in mind, what are your options to help fund your child’s education? Most parents will do whatever it takes to set their kids on the path to a promising future. Even though the recent economic downturn has led to higher unemployment rates for college graduates, now close to 7%, those with only a high school degree have an unemployment rate of 24%. Further proving the value of a college education, college graduates earn twice as much as high school graduates.2

Setting aside enough to cover the costs of your child’s college degrees without putting other priorities such as retirement or cash flow at risk requires careful planning. For instance, by the time a child is in high school the savings plan for the child’s college education should be nearly complete. To achieve this savings goal without jeopardizing your own future financial security, a good starting point is to begin with a clear vision and understanding of your child’s future higher education costs adjusted for inflation. In other words, start with a financial plan that incorporates education funding for your children. Only once you have a clear plan can you begin to take proactive steps to secure this vision effectively through a savings plan and budgeting plan that maximizes all strategies available to you.

 

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1 “Tuition at Public Colleges Rises 4.8%”, Kim Clark, CNNMoney, October 24, 2012
2 “The College Advantage: Weathering the Economic Storm”, Georgetown University Center on Education
and the Workforce, August 2012

BMO Global Asset Management does not offer tax advice. Contact your tax advisor.
This information cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. This information is being used to support the promotion or marketing of the planning strategies discussed herein. BMO Financial Group and its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors.
Estate planning requires legal assistance which BMO Financial Group and its affiliates do not provide.
BMO Wealth Institute, a unit of BMO Financial Group, provides this commentary to clients for informational purposes only. The comments included in this document are general in nature and should not be construed as legal, tax or financial advice to any party. Particular investments or financial plans should be evaluated relative to each individual, and professional advice should be obtained with respect to any circumstance.

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