The number one way for students to begin saving early for college is to follow Nike's advice: Just do it. The very act of taking money and putting it into a specific account for college savings is important, not just for growing education funds but also for learning a healthy financial habit for life.
Become Financially Literate
This means learning about money: how to save it, how to spend it, and how to make it work for you. Even with digital payment platforms in the process of replacing cash, parents can begin teaching financial literacy concepts to young children. Simple acts such as counting coins and bills, helping them put money into a piggy bank, or opening a savings account leave a big impression. As they grow up and become savvier, older children can be taught about different options for saving and investing. The key is to have regular open conversations about personal finance and money, so kids learn early on that money is valuable and needs to be managed properly. No matter how old your children may be, it's never too early or too late for them to become better financially educated.
Learn To Budget
Recording purchases and expenses over a week or two can be very helpful when teaching the concept of budgeting - and learning about your spending habits. Encourage your children to do the same! Start by recording your income and have them record their allowance or income. Record and categorize expenses to determine how your income is going out the door. Then, most importantly, see how much is left to be allocated to savings. Although they may not have many expenses right now, getting into the habit of doing this now will help it become second nature when more expenses pop up.
There are many ways to budget income, but most differentiate between spending necessary to live, for saving and for charity. For example, the 50/30/20 method of budgeting suggests allocating money income as follows: 50% on needs, 30% on wants and 20% on savings. 70/20/10 calls for 70% to be spent on monthly bills, 20% on saving, and 10% on debt repayment or donating.
These are, of course, just guidelines. There is no "right" answer. What's important is to teach children that budgeting is important to establishing an excellent financial foundation.
Sock Away Some Gift Money
Gifts from birthdays and other holidays are great opportunities to boost a college savings account. Put a percentage of each gift into that account and watch the money grow. One of the most fundamental aspects of starting to save when children are young is that growth from dividends, interest and gains on investment will compound over time and will be worth more years down the line when it's needed.
Get a Job
The best way to increase savings is to make money regularly and put some of it in a savings account. A student's highest priority, especially in high school, needs to be excelling in school and doing what is necessary to build a compelling college application.
Students may be able to also earn money on their terms. Babysitting is a great job for high schoolers because it's flexible and families often need babysitters on the weekends. Other jobs that have weekend shifts include being a cashier at a grocery store or convenience store, working in a bakery, working as a golf caddy, or serving in a restaurant. Students with an entrepreneurial streak might start their dog walking business or make crafts to sell.
Having a good plan in place is important, but what's more important is putting that plan into action. If you plan to save $100 a month, continue to do that. It's important to stick with it until it becomes second nature. You'll be grateful that you did when you approach college and have a sizable savings account to help pay for your higher education.
Parents & Children Work Together
Financial literacy brings families together with a shared goal of greater prosperity. Parents can help set up the paperwork for a college savings plan while their children follow through with their consistent plan to earn and save money.
Keep in mind that savings in a student's name sometimes can reduce financial aid eligibility. Money in a child's name is legally the property of the child, so it's counted as a student asset. This can present an unfortunate situation when it comes to financial aid eligibility because the financial aid formula requires student assets to be used at a higher rate than parent assets. Fortunately, there are ways to encourage student savings and minimize the impact they have on financial aid eligibility. By having a college savings account owned by a parent for the benefit of a student as permitted using a 529 Plan, financial aid eligibility will be significantly less affected.
The idea of getting students to start saving for college early isn't just about growing their contribution to their education savings, though that's important. It's also about children learning to manage their money and starting strong so that they can grow up to be independent adults. It's important because having them pay for a portion of their college costs gives them more ownership over the process because they're investing their own money. Financial literacy is a skill for life; by starting young, children are set up for financial success early.