Once we enter adulthood we turn our sights to the future looking towards things like marriage, buying a house, and the always expensive children. The majority of middle class families will often begin saving from the birth of a new child for the large expense of college. The standard way is opening a savings account which parents gradually add a portion bi-weekly or monthly. Once the child turns 18 the money becomes theirs for tuition, books, rent etc.
Trust Issues
From my own personal experience it is a mistake to trust an 18 year old with that amount of money. If a parent contributes a modest sum of 200 hundred dollars a month beginning at a child’s birth by the age of 18 the amount would have accumulated to 43,200 dollars not including interest. The average 18 year old is highly irresponsible especially when it comes to things such as money. Most likely by this age the child would have had a couple of part time jobs to learn the value of money. However, with no bills or expenses to pay a lot of the responsibility that comes with money would not have been taught.
This is essentially what happened with me. While I did not receive the sum mentioned above my family was able to save enough to pay for my first two years of university. Well it should have been able to pay for that amount. I fell into the trap that many students do when they discover their new found freedom. Calling for pizza was easier than making a meal and the bar was much more appealing than studying. With most of the money gone after just over a year the next couple years were looking to be a struggle and upon graduation I found myself with very little money and a lot of debt.
A Lesson Learned
Now I can’t blame my parents for anything they did what they believed was right and they thought they had taught me better responsibility when it comes to money. I chose to do everything I did in university and have had the ability to travel and make some great memories throughout that period. Looking forward now to my own future though with kids planned someday (hopefully not for a while). I have determined not to trust my kids with money as much as my parents trusted me.
While I do intend on helping my kids through college and will definitely have money tucked away for them they will not receive the money all at once. As I mentioned above that sum of money is just too much for an 18 year old to handle. Since it is rare for a student to complete their degree in the standard four years now and more and more are opting for a gap year I believe the correct course of action is to take a section of that saved money and lock it away in a fixed-term savings account.
A Penny Nickel Saved…
Fixed-term savings accounts offer a higher interest for the bank to hold onto the money for a longer period of time. Using BM savings as an example they offer competitive fixed rate bonds at 2.4% for a five year fixed term as opposed to the 1.3% interest in their easy access savings account. By putting this money away a year before a student enters University it generates a fair amount of interest.
Education costs are climbing at a steady rate that is even growing higher than inflation in some cases. Simply put – you can’t waste anytime saving for tuition. If you waste your early years in your academic career, your latter years will suffer. BM savings accounts are one of the places where you can start early.
Upon graduation should they have trouble finding a job or just in general need some help paying back their student loans they have a nest egg to rely on. Trusting an 18 year old with money is hazardous and often upon graduating university students will have a tough time finding a job. By entering money in a term account the money gains interest and the student has some security upon graduation.
As a mom, indeed, I am starting to save for my kids college, My kids are actually 1 and 4 years old. i would probably entrust them with their education funds but not entirely. It is best that they will also learn how to handle finances little by little.
What about all the funds that belong to the student though? I received a good sum from scholarships. Some of those went directly to tuition and I never saw a dime in my bank account, some paid out monthly and some came as decent lump sums.
Parents should be teaching their children about money over time. 18 year olds are adults. Maybe for some, getting a semester’s worth of funds at a time is worthwhile. Some mistakes are great learning opportunities.