Funds for Education
Adrian B Early, Ph.D., MBA, CFP®
Chief Investment Officer, shareGRO™ Practice
An investment in knowledge pays the best interest.
– Benjamin Franklin
Formal education will make you a living; self-education will make you a fortune.
– Jim Rohn
A key goal of many parents is to help send children (and grandchildren) to college. For this and other reasons, there is a range of tax-advantaged vehicles for parents to do that. But, with sharing in the third millennium, a network of investors can help build an endowment for the child, once the caring parent or grandparent starts the child with a shareGRO™ Account. This can dramatically jumpstart their insight and education into capital and investing, much as parents and kids opened savings accounts early to mid last century. The deploying of personal capital in an investment account can similarly, and more powerfully help kids grow crucial expertise in the era of capital. What most financial planners would talk about are tax-advantaged educational funding vehicles. We mentioned in the overview article about Growing Wealth, that a Roth IRA can be a tax-advantaged vehicle, that is quite flexible (and can serve for any child or the parent/holder of the account themselves). So, to the extent annual limits permit, this is the ideal direct investment choice for parents to fund those aspirations (as the child indicates desire).
With integrated finance and investing, the contributions of investors in the sharing community provide cash flow to enhance conventional growth on contributed capital beyond the parent/grandparent/ benefactor contribution alone. This is quite powerful since the growing investment account can establish from birth, both the habit, and vehicle for financial success in the era of capital. Recall the graph at the right, of a person and life, with saving for college but a first key use of the account. Funds not required for college become flexibly available for later needs of whatever nature. The uses can be personal, career, business, mission, investing for later. Finance translates money and value from one time to another with gains. Having a sharing account supplies resources not available to most in previous generations, expertise and cultural insights into the benefits, not just virtues of thrift and capital formation.
How much should parents budget for given expected needs or amount they want to supply? We cannot know for certain; market and portfolio returns are not knowable. But, if we use historical stock market returns in the 10% range, we get the estimates below. Clearly starting earlier is better.
|Years to Need:||2||3||5||7||10||15||20||30||50|
|% of Need / Year:||47.6%||30.2%||16.4%||10.5%||6.27%||3.15%||1.75%||0.61%||0.09%|
You could, at a minimum, provide cash flows supplying the need, and hope sharing cash flow from the community of investors may increase the chance that more than the need will accumulate.
May your children exceed your accomplishments, and you exceed your own life’s expectations.
© 2017 shareGRO™ Practice