The Commercial Appeal
By: David H. Lillard Jr.
August 5, 2010
The world is rapidly changing - and no one will feel the effects of those changes more than our children.
For the United States to claim the highest proportion of college graduates in the world, researchers estimate that our country will need to produce an additional 8.2 million graduates by 2020. A recent Education Week article pointed out that, according to some estimates, nearly two out of every three jobs in the future will require some form of college education.
Preparing our children for college really requires a twofold approach. First, students have to be ready for the academic challenges that college presents. Second, students and their families must have the financial means to afford the expenses associated with a college education.
Responding to a new law passed by the General Assembly, the Tennessee Department of Treasury has created the Tennessee Financial Literacy Commission to promote college savings to elementary school teachers, parents and students.
There are many aspects to financial literacy, of course, including household budgeting, retirement planning and sensible debt management. As part of the program, the Tennessee Financial Literacy Commission will set up a web-based clearinghouse to give people access to Tennessee educational resources on various financial topics.
One primary focus of the Tennessee Financial Literacy Commission will be the importance of saving for college early in a child's life. As a parent, I understand that there are few greater gifts that a parent can give a child than an education.
According to the U.S. Census Bureau, a college graduate will earn almost $1 million more, on average, over his or her lifetime than a high school graduate. People with master's or doctoral degrees can expect to earn $1.3 million or $2.2 million more, respectively, over their lifetimes.
Our program will be beneficial to families all over our great state. We will partner with the University of Memphis' existing financial literacy program called Smart Tennessee. Smart Tennessee is designed to train elementary school teachers on how to integrate financial literacy education in the existing K-12 curriculum. We plan to offer a college savings component that will be incorporated in Smart Tennessee's curriculum.
While most people recognize the benefits of college education, some may feel that the financial barriers are too great for college to be attainable for their children.
That does not have to be the case. By setting aside even small amounts of money when their children are young, parents can build substantial college savings accounts over time.
Consider the example of parents who set aside $50 per month - equal to $600 per year - beginning when a child is born. After 18 years, the parents would have saved $10,800.
Assuming that money has been invested at a 5 percent annual rate of return, the parents would have $19,368 - nearly double the amount they invested - available by the time the child reached college age.
There are many options parents may consider when investing for their children's college education. These include Coverdell Education Savings Accounts, savings bonds, certificates of deposit and others.
One program that we are promoting in Tennessee is the Path2College 529 college savings plan (Path2College529.com), which offers families and friends the opportunity to invest money for college savings while enjoying certain tax advantages.
People can open a Path2College account with as little as $25 and choose from seven investment options, ranging from conservative to aggressive. Plan participants may contribute money to the plan as often as they like, although regular monthly contributions are an ideal way to save. Participants do not have to pay taxes on any account earnings and they may withdraw and spend their money tax-free for qualified higher educational expenses.
Whether families choose to save with the Path2College 529 plan or another college savings vehicle, what is important is that they begin thinking about college savings early and start setting money aside early.
I believe the dividends will be obvious in the years ahead.