Wednesday, April 29, 2015

Perils of Saving for College

I'm helping my daughter prepare for her sophomore year of college. Her job is to pick the required courses and mine is to make sure her financial aid is in tact. What a terrible task to look forward to. I can't even remember the number of times I've tried to log into her university account, mail in applications, tax forms, try to figure out her tuition. I personally don't ever remember my college experience being so frustrating.

I started a college fund for my daughter back when she was in elementary school. On the advice of a friend's wife who was in finance at the time, and a Fidelity advisor, I dished out a modest amount to pay for tuition. Long story short, the investment did not perform so well. As I was to learn later, my daughter's investment was saturated with real estate assets that went bust when the industry did. But caving in to the advisor's request, I left the money alone because the real estate market was supposed to recover. It never did and the investment never really gave us much of a return.

Now my daughter is relying on financial aid, scholarships, and her father to pay for tuition. Sad to say, tuition has become a burden even with all the aid and scholarships she's receiving. So my attempt at planning for her future failed for several reasons:

  • Not trusting my instinct. At the time I started the fund for my daughter, I knew absolutely nothing about finance or investing. In fact, I was in a very different profession at the time so I left the investing options to the 'experts' although my instincts and common sense told me otherwise. Even when the real estate market went bust, I knew instinctively the asset mix should have been changed, but I believed that those in finance understood better than I did. In retrospect, I should have been firmer. It was my money the 'experts' were using, and it should have been my decision as to how it was used.
  • Did not diversify. At the time, I had placed that investment in one place. Big, big mistake. I should have opened up other funds, such as a 529 Plan or used another broker. It's never a smart choice to leave any money in one investment.
  • Did not contribute enough. To the fund that is. Once I opened that fund, I never added more money to it, but simply relied on the market to make the stocks that made up the investment grow. It was a good decision at the time because my family was growing and we were living on one income, so there really wasn't much more I could contribute. Reflecting back now, I see that that was merely an excuse. Any small contribution would have helped the fund grow considerably - after I had developed enough confidence and backbone to force the advisor to move the money out of a highly saturated real estate fund.
  • Not filing on time. I must admit, I get very flustered and procrastinate. There are hundreds of scholarships available to apply for, but I never set aside enough time to do the required research. That, and I get awfully frustrated of reminding my daughter to write her essays. I have friends who file for every scholarship they come across, and their out of pocket for tuition is a lot less than what my daughter is being made to pay.
Have I learned anything from my daughter's experience? Certainly. Have I applied those lessons to my son's own futures? Certainly not. I've signed up one son for a state scholarship that guarantees to help with tuition costs once he's in school, but I haven't invested in other options. Mainly because I'm living on my own income now and there's not enough to put aside for two additional sons' futures. Unfortunately, I'm not alone. A new survey shows that although 89% of parents believe it's important to save for college, less than half are still not. Nearly 59% stated they weren't sure they could put enough money aside. We're told that it is possible to save, but continued rising costs of tuition tell another story.

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