How Much Could Your Children’s Diploma Cost You in the Future?

June 6, 2016 | by James Behr Jr & Christopher Paleologus

Do you or anyone in your family know someone that will be attending college in the future? Do you know that higher education tuition costs have increased faster than all other expenses for families over the past quarter century? Since 1983, college tuition and costs have risen 722%! J.P. Morgan Asset Management released a study stating that for a child born this year, it would cost an estimated $455,585 to cover tuition and room & board for a four-year private college. Are you currently saving or investing for a loved one’s future education? If you aren’t, you should start today!

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In the graph above, J.P. Morgan Asset Management uses an estimated growth of 5% annually in the cost for tuition and room & board for a four year university. The most important thing you can do to prepare for these costs is to begin investing your savings today if you have the means. There are several advantageous plans for saving for college including custodial brokerage accounts, trusts, and tax-efficient 529 plans. The power of compound interest earned on investments coupled with a plan to steadily deposit funds into an account can outpace bank savings accounts, CDs, and any other short-term investment.

The graphic below from J.P. Morgan shows just how beneficial saving early can be when planning for future college costs. Having a plan where you are investing small increments monthly is much better than no plan at all and your investments will grow much larger the sooner you start saving. In their illustration, the graphic shows contributing either $100, $250, or $500 monthly over a 6 year, 12 year, and 18 year period to a 529 plan. Estimating a 6% annual return on investments, contributing $100 a month every month for 18 years-a total of $21,60-would grow to $37,807. If you were to only contribute for 6 years at $500 a month-a total of $36,000-your investment would only total $41,852. That is a 71.7% return on your investment in the first example versus only a 16.3% return in the second one. Allowing for compounding over longer periods of time, even at smaller amounts, will always benefit more than “waiting” until you think you have enough money to begin investing.

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If you are concerned about saving for your child, grandchild, or any other loved one’s college education, we will be able to help you. Blue Bell Private Wealth Management is a fee-only registered investment advisor with over 80 years of combined investment experience. We are dedicated to helping our clients achieve their financial goals and as your fiduciary, we are legally obligated to act in your best interests. If you would like to learn more about how we can help you save for higher education, grow and protect your savings and investments, or our firm please visit our website or contact us at (610) 825-3540.


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