Why Age 5 is a Tipping Point for College Savings
It’s no secret that the earlier you start saving for college, the better off you’ll be. But just how early should you start?
According to MassMutual College Planning and Savings, parents who started saving at birth or before their child’s first birthday have saved an average of about 25 percent more than those who started saving when their child was between ages one and ten and about 40 percent more than those who started after age ten.
The real boost seems to come if parents start saving right away, but saving for college is no easy task, especially for new parents who are juggling new financial priorities like childcare costs.
MassMutual’s college savings calculator estimates that a family with a five-year-old child entering kindergarten today can expect to pay a hefty amount when their child enters college in 2030, with averages for these youngsters looking like:
- Private 4-year college: $368,739
- Public 4-year out-of-state college: $287,466
- Public 4-year in-state college: $163,279
- Public 2-year college: $44,763
For those who haven’t started saving, age five is an interesting tipping point because that’s when many parents can stop paying for full-time childcare expenses. By putting a percentage of the money freed up from childcare expenses towards saving for college, parents can save more without having to change their current spending habits.
For example, a family who takes $200 each week spent on childcare and saves it from when their child starts kindergarten through high school graduation, more than $135,000 will be saved for college (assuming a conservative average 1.5% interest rate over the time period).
Here are five tips to help families plan and save for college:
1. Start early. Start saving what you can at birth, and for those with child care expenses, increase at age 5 by putting the money you freed up towards saving for college.
2. Make it automatic. Consider automating checking account or payroll deductions to interest-earning savings accounts specifically designed for higher education, such as a 529 savings plan.
3. Encourage monetary gifts (including 529 plan gift cards) from family members and friends for college savings plans for gift-giving events.
4. Know how much you need to save. Determine how much you need to save using free online tools such as MassMutual’s college savings calculator.
5. Protect your loved ones for unexpected events. Life and disability income insurance are solid considerations for parents with children.