14 Mar Today was Pi Day = Time for an Education Planning Checkup
If you like math, then you might be a dork, and you probably know what Pi Day is. (At Cochran Wealth, we are proud to be dorks.) Pi Day is a day to celebrate knowledge of the mathematical world, and it is also an excellent opportunity to review your plan to fund your children’s education goals. Whether they dream of going to Harvard one day, want to follow in their parents’ footsteps, or too young to dream yet, it’s a good time of year for a check up.
According to the College Board’s 2015 Trends in College Pricing children born today may have to pay over twice the amount it costs today by the time they are college bound. An 8 year old kid (he looks like a Jason) today who wants to stay in-state and go to the largest state school in Georgia, the University of Georgia, will have to pay more than $22,000 a year in today’s dollars. By the time he is 18, that number could be more than $37,000, and by the time he is a senior, it will have grown to a paltry $43,000 per year. That’s assuming a 5% growth rate in college costs per year. Assuming you cover 100% of Jason’s education costs, and you just started today, you need to start saving $675 every month in order to meet his needs. The cost of waiting just 2 more years to start saving could cost $10,000 more dollars today. It could cost a well meaning parent $10,000 extra dollars to start when Jason is 10 years old vs starting when he is 8.
How much do I need to save every month for my kid's college?
Let’s say that little Jason got a scholarship like the Hope scholarship in Georgia, where lottery revenues cover almost all tuition costs for some of the state’s highest achieving high school students. (Let’s also exclude for this purpose the moral argument of having lotteries.) The Hope Scholarship in 2011 covered about 90% of student tuition and books. That leaves room and board and other expenses, and would require about $363 per month in savings to cover Jason’s education goals.
But look on the bright side...
Either way, you should review your education plan today.
Once you know how much you need to save through planning, you can ask your financial planner to help you find the right plan for you. That will depend on where you live. You can check out Clark Howard’s 529 Plan Guideto see how he ranks each state’s 529 plan. Cochran Wealth is headquartered in Atlanta, Georgia. We are fortunate to be in one of Clark’s top 8 states. If you are a Georgia resident, go to the state’s official 529 plan website – Path2College 529 Plan. The plan is run by TIAA-CREF, the costs are around 0.35% for regular Age Based options, and you can get a deduction from your state taxes of up to $2,000 per beneficiary, per year.
For a little off-the-cuff advice...
Finally, I recommend you have your kids work at least a few hours a month to cover some expenses themselves. This gives them skin in the game and can help them understand why you’ve worked so hard to help get them this far. They will be able to understand the magnitude of the your contribution by theirs. Doing that is a great way to pass some of your financial knowledge down to your kids.