A doctor or singer or maybe an astronaut? Young children have plenty of dreams when it comes to what they want to be when they grow up. Parents know those career dreams keep changing as their children get older and learn more about the world around them. Parents can also play a big role in those childhood dreams through both conversations and setting aside a little bit of savings.
New research on college savings accounts for young children suggests that children are four times more likely to enroll in college and about five times more likely to graduate from college than a child with no savings account. These enrollment and graduation rates were found even in families with less than $500 saved for their child’s future education.
It’s not just about the money. When children see their parents setting aside money for their college education, it sends a powerful message to kids about the importance of investing in their future.
In a recent survey by Sallie Mae, one-third of families earning $35,000 a year or less reported saving around 6% of their income for their child’s education. Parents know that children have a lot of present needs and wants. It can be hard to say “no” to those wants in order to set money aside for your child’s future. The exciting news is that even a small amount of savings in a designated college account makes a big difference in a child’s life.
Having a little bit of money set aside for college expenses helps create what we call a “college-bound identity”. Children grow up knowing they are expected to study some type of trade or career after high school.
Children with a “college-bound identity” are found to do better in high school, are more engaged in school, and even get higher grades. Having a designated college savings account is also linked to more interaction between parents and children about finances and the future. Parents also benefit and report higher levels of self-esteem and self-confidence when they are able to set money aside.
Parents have so many competing demands on their money, from covering monthly expenses to saving for their own retirement, that it can be hard to find money in the budget. The good news is that even smaller amounts of money set aside for their child’s college are shown to make a positive difference. The even better news is that children can also contribute to their own college fund by setting aside a portion of gifts or any work earnings. A small amount of savings adds up to big dreams down the road.
One way that parents can begin to save for their child’s college is to invest in a state 529 plan. To raise awareness about the ease and importance of using 529 plans to save for college, May 29 (or 5/29) is designated National 529 College Savings Day. Currently, only 37 percent of Americans correctly identified 529 plans as a college savings tool.
In Wisconsin, an Edvest 529 plan can be opened with a $25 contribution. Earnings in a 529 account grow both federal and state tax-free when used for qualified higher education expenses. You can find out more about Wisconsin’s college savings plans on their website 529.wi.gov or by calling toll-free 888-338-3789.
Resources and tools to help with saving for college are available on the UW-Extension website: fyi.uwex.edu/collegesavings.