Father’s Day is a time to celebrate dads. Whether you have a dad to celebrate or you also are a dad worthy of celebration, I think we can all agree on one thing – kids are expensive.
From diapers and formula to little league dues and cars to college and weddings, dads (and moms) shoulder incredible financial responsibility.
So, let’s look at what kids and dads alike can do to help make the most expensive of those milestones a little more manageable. I am talking, of course, about college.
As a dad with kids that will ultimately head off to go to college, the best thing you can do is to start saving early and contribute often. Compounding interest is such a powerful magnifier of your dollars over time, starting early makes a huge difference.
Using a college savings example, if you save $5,000/year for 18 years at 6%, you would have approximately $150,000 on that $90,000 of contributions. Alternatively, if you start late and save $10,000/year for 10 years at 6%, you would have approximately $132,000 on $100,000 of contributions. The power of compounding interest makes saving early and often preferable to playing catch-up.
Let’s say you have committed to a savings plan, where should you put your money? There are myriad tax advantaged ways to save, such as a 529 plan, which is essentially the government’s way to encouraging responsible financial behavior.
Education, like retirement, is expensive. While it is difficult to ask your high schooler to help contribute to your retirement plan, they can and should be focused on making their own future education more affordable. Why should mom and dad shoulder the full burden of education expenses?
Sure, a part-time job bagging groceries or scooping ice cream is great for walking around money and instilling a sense of work-ethic; however, it is unlikely to be sufficient for college savings. But, do you know what would be? Getting good grades. Good grades equal scholarships, which is just as good as money.
College is competitive these days and getting more so all the time. So, in addition to getting good grades, kids can get engaged in extra-curricular activities and pitch-in by doing the research on substantial amounts of scholarship money available to those who seek it out, not just the top academic students. Both can be accomplished during your summer vacation as well.
If you have ambitions of college, school is your job. While you don’t get paid in the traditional sense, the biggest thing you can do to help your parents make college affordable is to excel at that job.
In the end, a 4.0 GPA and some effort outside the classroom could save tens if not hundreds of thousands of dollars when it comes time to pay tuition. Build that roadmap together this Father’s Day.
This article is meant to be general in nature and is not intended, and should not be construed as personal financial advice. The hypothetical example presented is for illustration purposes only and is not intended to be representative of actual results or any specific investment, which will fluctuate in value. The determinations made by the example are not guarantees or projections, and no taxes or fees/expenses are included in the calculations which would reduce the figures shown. Please keep in mind that it is possible to lose money by investing and actual results will vary. You should consult with your tax, legal, and/or financial advisor prior to making any financial decisions. Gary Parsons is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC. (06/21)