Student loan debt has reached astronomical amounts according to an article in Time magazine. Graduates are now leaving school with on average $27,300 in debt. So, how can students, your kids, avoid such debt and hopefully, get a better start to their adult life after college? Believe it or not, it’s possible for kids to graduate school with minmal or no debt these days. Here are a few tips to consider:
Start Saving Early
When we say start saving early, we recommend that mom and dad start teaching the importance of saving money when children are in grade school. Parents should be aware there are childrens savings accounts available such as the Orange Kids savings account from ING Direct. Such an account can help your child understand the importance of preserving their money for the future. These accounts teach children about interest and how their money can earn money. However, this savings account shouldn’t necessarily be used for college savings. A 529 plan is better for that. But, such savings can help children save for a new car, or create an emergency savings account if needed when they graduate college.
Set up a 529 Plan
529 plans are excellent investment vehicles parents can use to save for their children to go to college. With 529 plans earnings are withdrawn tax free and must be used for college expenses. Anyone can contribute to the plan, such as grandparents and there are no limits. If your child decides not to go to college the money can be used for another child, given as a gift or as a last resort, withdrawn for other expenses (although, penalties will be incurred). Check your states 529 plan as some states will allow you to prepay tuition. Most states provide the plan as an investment vehicle which can make your earnings go the furthest.
Teach Money Lessons Early
While saving is important, teaching your child the importance of earning and spending wisely is equally important. Teach your child how to earn money through good quality hard work by creating work tasks around the house. Once you pay your child, teach him or her how to spend some, save some and even give some of their money to a worthy cause, such as a church offering. These money lessons can begin very early for a child and will help support your efforts to teach savings principles as mentioned in the first tip.
It’s certainly possible to help your child avoid school debt. Even if your child has to borrow some money, it may not be as much if you will teach your children to save using some of the best childrens savings accounts, begin investing in a 529 plan and provide them regular money lessons at home.