“Are you serious??? Have you actually been saving for my college since I was born? Is that why you don’t have the latest iPhone and fancy cars? I can’t believe that you and Mummy have enjoyed your life a lot less than you could have since I was a baby to save for college!”
Several years ago, one of my older son’s acquaintances was having a tough time as he got ready for college. He is an incredibly accomplished young man and had gotten into his dream school, which also happened to be one of the top private universities for his field of study. Unfortunately, due to financial constraints, he was unable to go to that school. He ended up going to another good school where his family was able to manage the finances, but definitely one lower in the rankings.
My son was telling my wife and me this story and how he felt that it was both very sad and a big loss to society as his friend had the potential to really change the world. He also started lamenting how expensive college is in this country and wondered if he would be in a similar situation. At that point, we let him know that we had been saving for his and his brothers’ college education since their births as we knew how expensive college was. We had started 529 plans as soon as each of them was born and had been making monthly investments into the plans since then. Fortunately, their plan balances had grown through the magic of compounding. While they weren’t tremendously large sums of money, they would help us support funding the kids’ education across a good number of colleges. So, in short, he shouldn’t be in that situation.
My older son has now started Senior year in high school and is going through the college application process. While he goes through the application process, we are also going through a parallel financial process – determining what paperwork we need to fill out (hello FAFSA), determining how much we can afford outside of the 529 plan, etc. We will need to know all of this information when he starts getting accepted to colleges and we make the final decision as to where he will go.
At this stage, my son is thankful that we had set up the 529s and had planned for the future. However, he still finds it hard to believe that my wife and I were willing to give up some of the “luxuries of life” over such a long time period to save for their education. I often let him and his brother know that we hadn’t made any great sacrifice as we save a small amount in each account on a monthly basis. These amounts had grown over time due to the magic of compounding. It is at the times when this subject comes up that I go into “Dad” mode and try to teach my kids a life lesson about the importance of savings. I repeat to them that, just like every other aspect in life, there are tradeoffs with money. You can spend today on the latest iPhone, biggest TV or the fanciest car or you can save for tomorrow. While you should enjoy your life, you should also be thoughtful in what you spend your money on and that there are always other, important things where you will need resources for when you’re older. Those things can range from contributing to funding a graduate degree to buying a house or getting ready for their kids’ college education.
Whatever that future expense is, there are simple ways to save for it in ways that don’t become major sacrifices:
- First, start small with a specific goal in mind. Small sums make it easier psychologically to get started and that’s typically the reason most people don’t end up saving. Having a goal helps dimension how much you need to have saved so you can build up your small initial sum to the amount needed to get to your goal.
- Next, automate it as much as possible. Setting up a recurring withdrawal from your checking account right after you get your paycheck, for example, takes the onus away from you to actively “save”. Also, by not having that money easily accessible, it makes it harder to spend.
- Third, start early so you can take advantage of the magic of compounding. This one has been easy to explain to my children as both my sons are very smart kids (I know, I’m biased) and have grasped the mathematical concept of a geometric series pretty quickly.
- Fourth, invest your savings. Having your money work to grow by itself is the easiest way to make your savings go far as they can.
I’ve had this conversation many times with my kids. Hopefully, the lessons above on how to save are percolating into their mindsets. In the next post, I’ll talk about a concrete step I’m taking with my kids to get them to start trying the advice I’ve outlined. I look forward to sharing that next post with you soon.
About the Creator
Sudhir Sahay is a Sales and Marketing executive and a father of two young men. Sudhir hopes to share his journey building basic financial literacy for his children and providing savings and investing advice to their friends and peers.