By Fernando Diaz, Chief Financial Product Officer, Office of Illinois State Treasurer Michael Frerichs
February 25, 2020
From as early as preschool, parents start asking their kids, “What do you want to be when you grow up?” More often than not, we get an imaginative answer from them about wanting to be a mermaid, superhero or a dinosaur. However, we still ask the question because as parents, we want to set our children on a path to achieve their dreams.
When they’re young, it’s impossible to know if they may one day become a professor, electrician, writer, architect, or any of the thousands of opportunities available in the future. While that uncertainty can seem daunting, it’s easy to plan for any of the possibilities with a 529 college savings account: a tax-advantaged savings account that allows parents to save for their child’s higher education.
I know what you might be thinking, “But how do I know my 3-year-old will one day want to go to a four-year college?” That’s the most common question I receive about 529 plans. The good news is 529 college savings plans are for a variety of higher education options, including two- or four-year public or private colleges and universities, vocational schools, trade schools, or other postsecondary educational institutions eligible to participate in a student aid program. With nearly any career your child decides to pursue, they will likely need some sort of postsecondary education, and a 529 plan can help them pay for it.
These days, it’s becoming increasingly difficult for students to walk out of high school with a diploma in hand and get a good paying job. In order to make a living wage that can provide for a family, you need some sort of postsecondary education to learn the skills or training that is expected in any career.
Unfortunately, the cost of postsecondary schools is making students reconsider that path. A new study by the College Savings Foundation found 83% of students say affordability was a factor in deciding which college to attend, and 71% of students say costs could determine whether to attend any postsecondary school. A college savings plan can ease some of that worry.
As students start to plan for their future, a 529 account can be the push they need to pursue their dreams. If you tell a child that they have a college savings account, you’re telling them you believe in them and are invested in their education. They no longer just have the desire to go on to higher education, they’re also motivated to work harder in school.
Even if your child is an excellent student and is a good candidate for a generous college scholarship, I often remind parents that the vast majority of scholarships won’t cover the entire cost of school.
I encourage families to start putting money aside as soon as their child is born, with automatic monthly contributions to a 529 account. I believe that money never seen is money never missed. If it comes directly out of a paycheck and goes straight into a 529 savings plan, families can quickly see their dollars add up.
If an automatic monthly contribution isn’t an option, I encourage families to save regularly as best they can—perhaps once a paycheck or once a quarter. Even small contributions add up over time. If you can’t save enough to afford their entire college costs, it still makes a difference. Research shows it’s not how much money is saved in an account, but the existence of an account that encourages a child to pursue higher education.
Regardless of what you may think your child might do someday or how they may get there, a 529 plan can be the springboard that jumpstarts the path to their dream career. Every child deserves the chance to see what they can become because who knows—one of them may be our next superhero.
Fernando Diaz is the Chief Financial Product Officer for Illinois State Treasurer Michael Frerichs. Under this role, he leads the teams overseeing the Financial Education Programs, the Secure Choice Retirement Savings Program, the ABLE Program (Achieving a Better Life Experience), and the highly rated 529 College Savings Programs: Bright Start and Bright Directions.