Small but steady saving can pay for your child’s education

Saving for your child’s college education or post-secondary training doesn’t have to be overwhelming. With some careful thought early in your child’s life, you can put enough away to give your child has a good head start in adulthood.

Start with small amounts. If you think that you might have trouble adding college savings to your budget, start small. Pick an amount: $10, $15 or $20 per child every pay period. Arrange for a regular, automatic deposit out of your account and monitor the difference it makes in your finances.

Once college savings becomes an established part of your budget, you can steadily increase the amount by small increments, adjusting your budget until you reach a level you can sustain for the long term.

The most important thing is to give college savings a steady, consistent presence in your current budget. You’re taking a large, distant goal and translating it into a set of smaller goals. As the years go by and your family’s income improves, you can increase college savings by an even greater degree.

Start saving now. If you start saving as soon as your child is born, you have 18 years ahead of you to earn compound interest.

If your family saves $75 each pay period for your child’s college education, that adds up to $1,950 a year — just under the 2012 contribution limit for the Coverdell Education Savings Account, which allows you to grow and withdraw earnings tax-free, as long as those earnings are used for the beneficiary’s qualified education expenses.

After 18 years, your family will have contributed $35,100 in principal to your child’s college savings.

If you invest the money as you put it away, you can increase the funds your child will be able to use for his or her post-secondary education.

We’ll assume for this exercise that you’re a conservative investor, and predict an average annual return of 5 percent on your investment. (Discuss the investment strategy that’s right for you with a financial adviser.) With an average annual compounded return of 5 percent, you’ll end up with about $56,200 in that account.

That’s $21,100 in earnings, before taxes and fees, on top of the $35,100 that you contributed.

If you save and invest the same principal amount, $35,100, at the same annual rate of return compounded annually over four years instead of 18 years, your earnings fall to about $3,700, instead of $21,100.

How much you save will depend on your means, your circumstances and your family’s goals for your children. Financial aid can supplement those savings with scholarships, grants, work-study and loans. But there’s no denying the long-term economic gains of a college education or post-secondary training. Education and training influence the decades of work that follow, broadening your child’s earnings potential and ability to pursue a fulfilling career.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. You can email him at


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