Financial Literacy - Families and Finance
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A college investment plan for all ages

Unless your kids win the lottery the day they turn 18, you'll probably be paying for at least part of their college educations.

It is hoped you foresaw this eventuality and began a college investment plan the day they were born.

Not everyone is an overachiever in the savings department, however. If you woke up one day to suddenly discover that your child turned 12 years old, you can still save up a tidy nest egg for college.

How much you need to save

Do you plan on encouraging a private college? Ivy League even? Your savings plan should reflect that.

Before starting your college nest egg, find out now how much a college education will cost the year your child heads off to the dorms.

A college calculator on Savingforcollege.com (a Bankrate.com company) will project the likely total cost of an education in the year your little tyke heads off to college -- as well as how much you'll need to save every month to hit that goal.

You may be amazed at the monthly savings tab, even though your child may still be in the crib. True, the cost of higher education is spiraling out of control, but saving for your children's education isn't an all-or-nothing proposition.

According to Nicholas Yrizarry, founder and president of Nicholas Yrizarry & Associates, a wealth management firm in Reston, Va., it's not necessary to kill yourself trying to save the entire cost of college.

"The greatest thing that a parent can do -- and this is from a parent -- is to make your children invest themselves in the college experience and make them pay some. In my case it was half," he says.

"They're incentivized to try and get scholarships because they know that is part of their half," says Yrizzary.

With a solid foundation of financial literacy education, kids should know that avoiding loans, if at all possible, is in their best interest.

That said, it's easier for kids to get student loans than it is for parents to get loans to fund their retirement. Parents should not consider saving money for college unless their retirement funds are already flush.

10 or more years until college

Paying for college involves more than just savings in most cases. To determine how much you should squirrel away each month, take into consideration how much you plan to pay and whether your family may qualify for need-based financial aid.

This may be a good time to visit a financial planner to investigate all of the available options. Financial planners have some tricks up their sleeves that can help shelter college savings from financial-aid calculations.

For instance, some parents may be able to use a life insurance policy or a tax-deferred annuity to pay for some college costs.

"They are considered retirement vehicles for the federal formula for financial aid and therefore they are excluded from the calculations," says Michael Gaer, president of Gaer Financial Group in Rochelle Park, N.J. "The benefits of sheltering the money from financial aid more than outweigh the tax ramifications." The right savings vehicles depend on your child's age and your family situation. While 529 plans are a good fit for most college savers, they are far from a one-size-fits-all solution.

Once the account of choice has been established, parents who begin saving early can afford to be aggressive with their investments.

Experts recommend putting at least 80 percent in equities at this point, with 20 percent of a college-savings portfolio devoted to fixed-income investments, such as bonds, CDs and Treasuries. Many 529 plans offer age-based portfolios with this type of mix for long-term investors.

Just like when saving for retirement, small contributions add up -- and consistently adding a little bit is the key at this point.

"Contribute money every month, perhaps by signing up for an automatic investment plan. Contribute extra money whenever possible," says Mary McConnell, director of college savings products at Charles Schwab.

5 to 10 years until college

Parents with kids around 8 years old to age 13 still have a long time until they will need to take their first withdrawal.

Those who have been investing all along will probably want to re-evaluate their needs and recalibrate their strategy.

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