Monday, June 1, 2015

How I Plan to Save for My Children's College Costs

College is obscenely expensive these days. Tuition, Room & Board, and Other Fees can total into the $50k/year range. My wife and I plan on fully funding our children's college educations. My parents funded mine. Her parents funded hers. The cycle goes on. I'm convinced that the cost of tuition needs to slow/fall, but no matter what, saving for the cost is going to require some effort.
There are really 4 ways to pay for college:

1) Student Loans: Gives students their first taste of debt! While this product can be useful for certain people, the burden of having a student loan payment isn't something I wish to saddle my kids with. Unless they want to become teachers or work for the government (where loans are forgiven after a period of time), I won't let my kids take on student loan debt.

2) Scholarships: You can earn scholarships for academics or athletics. I had a few small scholarships for academics, as did my wife. I think it would be wonderful to hope for some level of scholarships for our kids, but building plans based on hopes doesn't leave a backup plan. Thus, I'll fully embrace scholarships, but will use other methods to fund college for my kids.

3) Savings: This is the traditional route pushed by most. You (typically) funnel money into a 529 Plan or Coverdell or some other form of tax-advantaged account specifically designed to pay for educational expenses over time and then use the money when your kid enters college. While this is fine, I don't like the lack of flexibility in these accounts. Saving in a regular account and/or a  custodial account is more appealing to me - maximizing flexibility with just a few relative tradeoffs.

4) Cash Flow: Some people make enough to use cash flow to pay for college. This is how my dad funded his college education - working during the summer to get enough to pay for that year's schooling. It's getting tougher to do this from the student's perspective, but isn't unheard of for parents. My parents funded my college with cash flow.

My Plan:
I plan to use mostly savings to pay for my kids college. My novel idea is to purchase shares of companies that were representative of what they used/liked during a year, repeat each year, and hold until college comes. I envision a portfolio of diaper companies (PG, KMB), toy makes (HAS, MAT), athletic wear (NKE, UA, ELY), food, (MCD, SBUX, PNRA), and entertainment (DIS, RGC). It will serve as a time capsule and teaching lesson. I'd obviously make sure the companies continue to fit the goals of the fund, but see very little trading. I can teach about dividends and compound interest, among other things. Any shortfall will be funded by my own savings and/or cash flow.

The cool thing about saving for college in this portfolio of stocks is that if my kids choose not to go to college to become something that doesn't require a degree, they will be given the portfolio. It's a nice headstart in life for them.

1 comment:

  1. I agree with you on the college price. I am even thinking to put my kids to colleges abroad. It may be cheaper in there. But we still have time, so we are just saving.