Why Saving for Your Kid's College isn’t a Pass-Fail Proposition

Investing even a modest amount now can make a noticeable difference down the road.

illustration of graduation caps thrown in the air

In the long list of priorities during the early years of parenting, saving for your kid’s college may fall somewhere between achieving rock-hard abs and learning a foreign language.

It’s not usually high on the list, in other words.

And while the number of 529 plans, a tax-advantaged investing account designed for education expenses, continues to grow (15.7 million), that still makes for less than 1 plan for every 4 people under the age of 18 according to the latest U.S. Census numbers.

The relative lack of saving in this space should come as no surprise when you factor in the financial commitments of early childhood—daycare alone can feel like a second mortgage—but the statistic also presents an opportunity. Start saving for college a few years earlier, or even at all, and that’s more time for compound interest to potentially work its magic. The stakes are high considering the skyrocketing costs of college.

Before we dive into some practical budgeting tips to address this topic, let’s pour out some whole milk for the unique struggle that is saving while also supporting a family.

A financial planner’s first-person account from the parenting front lines

Bryan Stiger became the proud father of a baby girl last year. He also just so happens to be a Betterment Certified Financial Planner™. So he’s uniquely situated to talk about the money management challenges facing heads of households.

“Since becoming a parent, it’s been a rollercoaster for me and my wife for sure,” says Bryan. “A few other things that feel like a rollercoaster when you become a parent are your expenses and your savings.”

A big part of the problem is that kids create a financial double whammy, Bryan says. They appear suddenly and start demanding, among other things, a share of your limited money supply. At the same time, they introduce a series of potential new savings goals. Think not only a college education but more immediate big ticket items like braces.

When you heap these goals on top of your pre-existing ones, it can quickly feel overwhelming.

So how do you save for them all? Bryan suggests you don’t. Pick and prioritize only a handful, he advises, then define those goals more clearly. While this is a personal decision, his recommended order of importance for clients usually goes something like:

  1. Retirement (contribute just enough to get your employer’s full 401(k) match, assuming they offer one)
  2. Short-term, high-priority goals
    1. High-interest debt (any loans at 8% and above)
    2. Emergency fund (3-6 months’ worth of living expenses)
  3. Retirement (come back to your tax-advantaged 401(k) and/or IRA and work to max them out)
  4. Other (home, college, etc.)

Your kid’s college fund, as you can see, shouldn’t come before your personal goals. That’s because you can usually finance an education, but few banks will finance your retirement.

That doesn’t mean your hopes of helping your kid with college are doomed, however. The key, according to Bryan, is to first size up your priority goals. This involves crunching some numbers and answering “How much?” and “How soon?” for each goal.

In the case of college, “How much” will depend on a few factors, decisions like private vs public, in-state vs out, etc. A calculator tool such as this one from calculator.net can help you with a rough estimate.



In terms of “How soon?”—or in finance-speak, your “time horizon”—we recommend using the year your kid turns 22. That’s because parents tend to continue saving for college while their kids are enrolled.

Once you have a rough idea of these two numbers, Betterment’s tools can tell you how much you should contribute each month to help increase your likelihood of meeting your goal. Do this for each of your priorities, and you very well might find you don’t have enough cash flow to cover them all.

This is normal!

Bryan likes to remind clients in these moments that short-term goals, by nature, won’t soak up their cash flow forever, especially if they doggedly pursue them. Once met, you can redirect that money to other pursuits like a down payment on a house – or your kid’s college.

Above all, forgive yourself if you fall short

When it comes to saving for your child’s education, two things are true:

  • You have precious few years from an investing perspective for compound growth to potentially work its magic.
  • You may not be able to save as much as you’d like—or at all in the beginning—due to higher priorities.

Given these realities, it’s okay to lower the bar. If you’re still working on high-interest debt and/or an emergency fund, set a goal of achieving those in 2-5 years so you can focus elsewhere afterwards.

Or set up a seemingly small recurring deposit toward an education goal now. It could be $10, $25, or $50 a month. It can still make a difference down the road. If you ease your child’s student loan burden by even a little, you’ll have done them a huge favor. It’s a favor they probably won’t fully appreciate for a while, but since when was parenting anything but a thankless job?

Ready to take the next step? Read up on 529 plans. While we don’t currently offer them, they’re a great option for tax-advantaged investing in the name of education. You can also consider supplementing a 529 with a taxable investing account and education goal from Betterment. Taxable accounts offer more flexibility when it comes time to access your funds.

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