5 Tips For Financing Your Child’s Education
Written By Abena Sey
September 20, 2020
One of the best gifts that you can give your child is helping them achieve a positive financial start in adulthood. This includes using strategies to finance their post-secondary education so that they complete their studies with little to no debt. This is important because if your child starts adulthood with a large amount of debt, it sets them back from pursuing other financial goals. Student loan debt is burdensome on your finances. It can have an impact on your ability to grow forward financially. One of the challenges with student loan debt is that it continues to accrue interest, whether or not you are making payments. Ignoring the debt does not make it go away, in fact, it makes the problem even bigger. This does not have to be a part of your child’s financial story. There are strategies that you can start now to help your child achieve their educational dreams without it ending in a nightmare of overwhelming student loan debt. I share 5 tips for financing your child’s education that serve to teach your child the values of careful planning and financial responsibility.
1 - Start As Early As Possible
It is good practice to begin saving towards your child’s education as early as possible. If your child is very young, you can start with a small monthly amount that you put aside in a savings account. You can open an educational savings account as soon as your child is born. There are government programs that are designed to assist you in achieving your financial goal, so be sure to inquire about the programs that can help you reach your savings goals from your financial adviser.
2 - Save In An Interest Yielding Account
The keys to increasing your child’s educational savings are compound interest and frequent contributions. There are many savings options available. Choose a savings account that has the highest interest available. You may also choose a government registered savings account to park your money. Be sure to investigate the benefits of all savings products, and choose the plan that works best for your financial situation. We have personally chosen to register our children’s educational savings in an investment product that protects the initial amount we invested. It is a modest interest rate, but we are investing money for a long period of time with the hopes of seeing growth over the years that the money is invested. Ask questions, do your research, and choose a plan that makes financial sense for you. Do not use your children’s educational savings to invest in risky ventures. That type of investment should be done with money that you are okay with possibly losing. Your children’s educational savings should be invested in an account that is protected.
3 - Teach Your Child To Save Towards His/Her Education
When you teach your child to save money towards their education, they learn financial responsibility and build habits to support their financial literacy. The best benefit is helping them feel involved in funding their education. Here are some age appropriate savings strategies for children:
For younger children: Encourage your child to save 80% of what they earn. This could be savings from a small allowance you provide, or from gifts they receive for birthdays or other special events. Since you are providing for your child’s needs, it is not necessary for them to have access to large amounts of money. Encourage them to save, and explain what the money's for. It’s great to get your child thinking about their educational future - dreaming about the future can start early.
For teenagers: I believe the same strategy regarding savings goals applies. Your teenager should save as much money as possible from gifts, their part-time / summer job, or their allowance, but the difference is in the percentage of money saved. Teenagers typically need a little more spending money for socializing or purchasing personal items, such clothing or gifts. A teenager can save 60% or more of their earnings to finance their education. You want to teach your teenager the value in saving money as well as feeling satisfaction at purchasing items that they worked and budgeted for. These are all lessons in being financially responsible.
4 - Encourage Your Child To Apply For Scholarships Or Grants
Applying for scholarships or grants is an excellent opportunity for your child to get involved in financing their education. When your child is in grade 10, they can start researching scholarship opportunities. If your child is not old enough to apply for those particular scholarships, doing research in advance will help your child understand what the qualifications are and what actions they can take now to become qualified in the future. For instance, your child may choose to take on extra curricular activities or get involved in causes for which they are passionate to increase their leadership skills. I recommend that your child applies for as many opportunities for which he/she meets the qualifications. As a parent, it is important for you to understand that applying for scholarships is a lot of work. Consider this the work that your child is putting in to achieve their savings goals. Through this process, your child is not only learning skills such as organization, time management, research, and communication, but also they are developing a sense of financial responsibility for their education. As in tip #3, applying for scholarships or grants is an excellent way to ensure your child has some skin in the game. They are working hard now to secure their financial future.
5 - Make Financially Responsible Choices In The Areas Of Educational Institution, Program, Transportation, and Housing
It is important to look at all areas of your child’s post-secondary educational experience to make a decision that is financially responsible. Essentially, this strategy will support your savings goals both in the short term for financing your child’s education and in the long term for avoiding extra expenses that may arise if you do not do your research. When it comes to choosing the school your child attends, there are important considerations:
What is the reputation of the school?
What is the quality of the program?
Is it necessary to go to a school outside of your city of residence?
If so, is it better to live on campus or off campus? Usually students choose to live on campus for the first year, then transition off campus in the next year with a roommate.
What are the transportation options available to students in this city? Is there a reliable public transportation system?
Are there amenities, such as a grocery store, medical / dental services, a pharmacy, or a convenience store close to campus? Are they within walking distance?
If there is no public transportation, does your child need their own vehicle to get around town?
All of these factors can help you make a wise choice for your child’s education and financial future. Remember to look at the big picture - the end goals you hope your child achieves are a good education and financial responsibility.
It is possible to help your child succeed in attaining a positive financial outlook after they graduate from post-secondary school. It is not necessary to go into large amounts of debt to obtain a positive educational experience. Your child can achieve their dreams with little to no debt, and this paves the way for a bright financial future in adulthood.