TAMPA, Fla. — Tampa Bay area mom Stacy Morris and her husband know the importance of saving for their three children while they’re young.
“The rising cost of tuition is just astronomically high, and we wanted to make sure that when our kids graduate from college, they weren’t burdened with a ton of debt,” Morris said.
It’s why they opened a college savings plan called a 529 account for each child. While it may not pay for their entire tuition, the goal is to help lighten the load.
Raymond James Financial Advisor, Justin Granit says that’s the power of compounding interest.
“Albert Einstein’s quote is my favorite one, Granit said. “The 9th wonder of the world is compounding interest.”
Time does heavy lifting for you.
Granit is also a father. He says he gives the same advice to clients that he uses for his own family. “We know if we set aside $100 a month that’s $21,000 over 18 years for that child. With an 8% return, it’s going to be $46,000 over those 18 years. So, you more than double that money for your child by just putting away $100 a month for them.” Granit said. “The more money you put away, the more significant it grows.”
Other ways to build wealth include starting an LLC and hiring your child as an employee.
“It’s absolutely a great idea as long as the child is truly working,” Granit said. “Let’s say your child is on a baby commercial, they’re on Gerber, and they get paid $3,000 for that commercial. You can open a custodial Roth IRA for them. All that money has already been taxed. You can invest it for the child. They can’t touch it until they are 59 and a half years old or older, but that money is going to compound 40, 50, years for the child.”
Granit says getting guidance from a financial advisor is helpful. “I don’t care the level of income, or what the situation is financially, everyone can carve out a little piece. Even if it’s $10 for that child,” Granit said.
While Stacy and her husband are working hard to save for their children, she says they’re also teaching them to learn how to spend wisely.
“I think it helps them understand the value of a dollar,” Morris said. “I think communicating to your kids about money helps them have financial acumen in the future.”
In addition to education, a 529 account allows your child to pay for things like off campus housing, books, supplies, meal plans and even student loans. There are also deferment options if your child doesn’t go to college or receives a scholarship.