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How to Prepare for Kids’ College Education

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Question: I have three sons and while they are still in grade school, my wife and I would like to set up saving for their college. We know of friends who got educational plans from companies that went belly up. What is the best way to save for college? — Gilda F.

Answer: Even if your sons are still in grade school, now is certainly the time to begin saving for their college education. In fact, the earlier, the better. Remember the saying, “The early bird catches the worm?” In financial expressions, that means the early saver will catch more interest income, thanks to compounding interest.

Before we go into savings strategies, let’s start with something you should do first: Have a target college in mind. This does not mean that your sons have to go there in the future. It will just help you calculate that goal and make it more true and achievable.

There are generally two ways to save for college: through educational plans or through a personal investment strategy.

Educational plans these days are not the same as the traditional plans issued before, when pre-need companies surefire the payment of tuition fees regardless of the amount. Because actuaries did not foresee the deregulation of tuition fees, they were not able to factor in the sky-high increase in tuition fees annually. This led to the fall down of the traditional educational plan.

Nowadays, you can buy an educational plan in units and pay for it in six years’ time. In the future, you will be able to get an agreed amount that you can use to pay off your sons’ college tuition or use it in whatever way you like. The beauty of educational plans lies in its insurance component: If anything unexpected happens to you, the plan will be considered fully paid even if not, and your children will be able to use the money for their college education.Additionally you could make your own investment portfolio. Every month, save a fixed amount (if possible the same amount you would have paid for an educational plan) in a separate bank account. Once there are enough funds in your account, move your funds into a potentially higher-yielding investment such as a unit investment trust fund or a mutual fund. Both of these are pooled funds where small investors’ money are pooled together to be invested in money market instruments, bonds, or stocks.

Investing in a pooled fund allows you the opportunity of growing your money more, as money market instruments, bonds and stocks may potentially give higher yields depending on the market. There is a certain amount of risk with each kind of investment, so go into investments you are comfortable with.

There is no way to predict the way investments will go, but over time, it has been proven that bonds and stocks give higher yield than regular time deposits and savings accounts.

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