Children who are no longer in elementary school, but are not yet teens, are called “tweens.” From about ages nine to 12, they are experiencing a major transition—one that parents hope ultimately leads to a successful college education and independence.
The thought of paying for college has many parents of tweens experiencing one of life’s major sources of stress. Limited years to save for rising college costs and worries about recouping market losses can leave them feeling torn between the need to protect principal and opportunities to pursue growth.
If this is you, how can you relieve these concerns with good decisions? For answers, we turned to American Century Investments’ experts in college funding strategies: Stacey Belford, Vice President of 529 Sales, and Teresa Stewart, 529 Business Development Consultant.
1. Focus on remaining years
Stacey believes parents of tweens should focus on the time they have left to invest, including some of the years their child will be in college. “Remember that all costs are not required immediately when college years start. Most parents will have two to three years during college to continue contributing to their funds. If you have a 10-year-old, you still have around eight to 10 years to make progress.”
One solution for making steady progress is to set up a college savings plan with reoccurring contributions. Teresa adds, “Investors can typically set up an investment plan through payroll deduction, or an automatic bank draft into their college account. It’s the most painless way to set money aside for college.”
2. Understand college costs and involve your children
When parents have limited years left to invest, Stacey and Teresa say it’s important to develop a sharper focus on college expenses. 529 specialists can help you project future costs for public and private educations, and even for specific colleges of interest. This information is key to understanding what you should plan to save.
Stacey says parents of older tweens (ages 11 to 12) have an advantage, in that they can begin to involve children in the process. “At some point, parents should talk with children about expectations for going to college, the choices and even the costs. Children should know that college is expensive, and they should be aware of the plan for funding the costs.”
She adds, “Today’s tweens are computer-savvy. As they mature, they can help parents research college choices and costs.”
3. Find the right investing plan for you
The concern parents have over potential investment losses, and their inability to recover in time, is a real issue, says Stacey. “When volatility hits, some parents find themselves caught in portfolios that were too aggressive for their risk tolerance. The number of years you have left to save for college is a key consideration in determining your risk tolerance.”
One answer to balancing risk tolerance and time horizon is an aged-based-investment track portfolio available through many 529 Plans. This type of option automatically “dials down” risk exposure as the child moves closer to college age.
Teresa notes that plans may also offer static portfolios for parents who want different or lower risk exposure. “Parents can often customize a plan by choosing from several diversified portfolios, index options or a money market portfolio. The key is to find the right comfort level for you, and we can walk you through this decision.”
As with any investment, withdrawal value may be more or less than the original investment. The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.