Saving for Your Child's Education

Why Save or Invest for Your Child?

What's your goal? A debt-free education? Financial security? Before diving into how to save, let’s explore why—and how your own financial and emotional health play a role.

If you're like me, you grew up without a lot of financial help, and you want your kids to have an easier time than you did. But good intentions need strategy. Here's what to consider:

1. Prioritize Your Own Well-Being

2. Let Go of Control

3. Adolescence Lasts Longer Than You Think

4. Plan for Flexibility

5. Real Gifts Come Without Strings

6. Saving Smart for Your Child's Education

   
   

If you pass out, you're no use to your kid.

Put On Your Oxygen Mask First

This applies to your finances and emotional health. The greatest gift you can give your child is a stable, present parent.

Data backed truth: Helen Pearson's Ted Talk discussing data from the British birth cohort studies identifies the two keys to a child's success:

1. Don't be born into poverty.

2. Have attentive parents.

If you're reading this, you've probably already got the first one under your belt. So let's work on the second.

Attentive parenting looks like:

• Talking to and listening to your kids

• Emotional warmth (even during meltdowns)

• Reading to them

• Maintaining routines (like a regular bedtime)

But how? If you’re stressed, regulating a toddler’s 50th “why?” or a teen’s angst feels impossible. That’s why your emotional health matters. Kids learn to regulate themselves by watching you. Kids can only learn emotional regulation by watching us model it. So that's the work. If you never learned emotional regulation from your parents (like many of us), I recommend reading Self-Reg by Stuart Shankar as a starting place.

Financial implications:

Have an adequate emergency fund and a plan in place for your retirement before you start saving separately for your children.

Parenting is the Gradual Process of Letting Go

When these wondrous little humans first come to us, they are completely dependent on us for food, shelter, and safety. Although it seems like we have complete control over them as infants, this illusion is quickly shattered as our toddlers begin to assert their independence.

You see, they were separate beings from us all along. We never actually had control. We were always facilitators. The more we try to assert control over them the more they pull away from us.

The sooner we accept this and focus on collaborating with our tiny humans, building a secure and resilient relationship, the stronger and more positive our lasting impact on them will be. This doesn't mean no rules or boundaries, but rather that we accept them as separate and equal beings who deserve the same respect we would give an elderly relative who might also need their chin wiped, or to be told no.

Financial implications:

• Your child will make choices you wouldn't.

• Collaborate, don't control. Secure relationships mean they'll choose to seek your advice

If we continually assert control they won't share their struggles, financial or otherwise, they'll hide them from us.

Adolescence Isn't Over at 18

If it seems like your college student is acting like a child, then you're on to something. The adult brain doesn't finish developing until the mid to late twenties. So next time you see a 23 year old making a bad decision, blame their brain.

Even 22 year olds show heightened sensitivity to peer pressure

In fact, during the teens and twenties, people's brains go through extensive synaptic pruning and myelination, two physical processes that make the brain more efficient. The way these processes affect behavior can been observed in the above graph, where it's clear that after 24 years of age there is a significant decrease in risky behaviors around peers.

Emotional regulation and executive function are also affected by brain development, and both play an outsized role in what everyday people call "self control" and "discipline." The mean age for myelination to be complete in our "social" brain is 32 years old! That doesn't mean teenagers can't think clearly and make difficult decisions, it means that emotional regulation and peer pressure affect them more. So give the kids a break, especially the 20 somethings.

What this means:

• Adjust expectations for young adults

• Flexibility in financial planning is essential

So while we need to respect young people as separate from us, and avoid attempts to control them, we also need to recognize that they're operating in an adult world without fully functioning emotional regulation due to the time it takes for their brains to fully develop.

The Future is Unknowable; Plan for Flexibility

Often when a first child is born, parents and other family have so many expectations for what that will look like over the long run. But there are no guarantees. You may end up having more children than you planned, or fewer. Your kids may go on to academic excellence, opt for vocational school, start their own business, or join the circus. We can't know what the outcome will be, so planning for flexibility is key.

While you are in the UAE there are generally no tax considerations to worry about, so you don't need to separate your child's education funds from the family portfolio unless you want to. Even if you do want to segregate your assets for your children, you can do so on "paper", through buying similar but different assets, or by creating sub accounts within your brokerage.

If you are tax resident of a country that taxes capital gains and dividends (this includes all American expats), you might consider a tax advantaged account for your children. However, you will lose flexibility with these types of plans, so it might not be worth it. You end up allocating money to a specific child (and that can end up being unfair if you're unable to do the same for subsequent children) and then that money has rules about how it can be used in the future.

Financial tips:

• In the UAE: No need to segregate education funds unless you want to.

• For U.S. taxpayers: Tax-advantaged accounts (like 529 plans) reduce flexibility. Weigh trade-offs.

Cut the Strings or It's Not a Gift

If you want to give a gift to your child, that's great. Keep in mind that it needs to become theirs. Otherwise it's not a gift at all, but rather a disguised form of control. If this makes you uncomfortable, it would be worth reflecting on why.

Often our discomfort around our children's behavior and choices comes from how we were expected to behave as a child. Most of us didn't have emotionally mature, respectful parents who understood child development. That's a high bar. So when we find ourselves bumping into discomfort, it's a sign that there's some unresolved emotion lingering from our past. No judgement, this is something we all face in one way or another. It's how we deal with it (or not) that makes the difference to our kids.

Discomfort? Dig deeper: Is this about my child? or my unresolved past?

Saving for Child's Education: Practical Tips

Given all of this, I still want to help my kid have a leg up in life by paying for their school fees through university. I graduated with tens of thousands of dollars in student loan debt, and I would prefer if I can spare my child from that.

So how do you go about planning for university fees?

1. Estimate the annual cost of university fees + room and board today

2. Divide that number by your current monthly savings

3. If the number you get is less than 12, then you probably don't need to start saving for university until a year or so before you child sets off. If the number is more than 12, you will need to plan further ahead.

Let's say you want to cover the entire cost of tuition, room, and board for your children at a mid-range public university in the US. The US is one of the more expensive places to attend university, so it's possible you'll need less than this for your child.

You can expect university to cost about 40,000 USD a year (an average of US universities including room and board in today's dollars) and if you can save that in about 24 months, then you'll want to start saving about 5 years before your kid goes off to school.

Meaning, that until your kid is 13, you'll be putting your annual savings of 20,000 USD per year into your family ETF portfolio, but 5 years before you expect them to start university, you will divert new savings into a high yield savings account, money market fund, or maybe even an i-bond ladder.

The idea here being that you front-load your equity investments for the long term, and you wait until just before you need it to start building up cash for the university fees. It also gives you flexibility to use that cash in whatever way makes sense for your family.

Taking the scenario above, but adding an additional child starting school 2 years later means you would need to start saving cash 11 years before your oldest heads off to school.

If you have multiple children and/or a lower savings potential the math gets tougher.

So what is a parent to do?

Here are a few options to consider that might make university more affordable for your family:

• Choosing a less expensive school/country.

• Establishing residency or nationality in a place that will offer lower tuition to locals.

• Work study, where your child works part time during the school year, or during summers to cover part of their costs.

• Lowering room and board costs by going to school where you have family nearby, or by your child living with roommates and cooking for themself. Sometimes living off campus is cheaper than staying in the dorms.

• Delaying university, maybe while your child builds up work experience and additional savings.

• Scholarships, if your child is eligible, come in many forms and can cover part or all of the costs of university.

• Starting off at a less expensive school, like a community college, but then transferring to a more expensive (and more well known) school for the final 2 years of university. As long as your credits are transferrable (check in advance) you get half of your education at a discount, but a full diploma from a reputable school just the same.

My college yearbook photo from 2003

When I attended university in the US more than 20 years ago, I had an academic scholarship from the school for half of tuition room and board, along with a need-based grant, and a few other state-based academic scholarships. Even though I worked throughout university I still ended up with substantial student loan debt because I chose a more expensive private university and my parents were unable to help me financially. Had I chosen to go to a public university instead I likely would not have needed any loans. However, when I went back to graduate school, I funded it entirely on loans.

I bring this up to say that student loans are still an option if university is unaffordable otherwise. Although it puts a significant financial stress on students in the early years of the their careers (I know because I experienced it!). It's often a better option than not completing a degree.

I don't regret going to the school I chose, even though it was expensive. I believe it was the right choice for me at that time. I learned so much being in a smaller more intimate educational setting where I was able to have a meaningful relationship with many of my professors.

However, one regret I do have is not pursuing a semester abroad. At the time I thought it would be prohibitively expensive, but since I never even looked at the numbers, I didn't realize until later that the lower cost of tuition in France would have meant it cost less to study there, even including flights and accommodation, than continuing at my American school.

The take away: Always run the numbers. Often our assumptions are wrong.

If you want help running your specific numbers, schedule a free call to discuss how I can help you do that.