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Education Planning: Getting Started

Many people put off planning for their children's educations until the kids are well into their teens. Often, they discover they've waited too long. With a late start, they have little time to accumulate the assets they need, and miss the chance to plan opportunities to maximize available financial aid. Ideally, the best time to begin planning for your children's education is the day you learn you're going to be a parent.

There are many factors to consider when planning for your child's education. These include whether you favor public, private, parochial, or home schooling, and how to pay for education. Many families even plan where to live by choosing which primary and secondary school districts their children will attend. Then there's higher education. College or trade schools?

The College Cost Environment

Paying for college is not a one-shot, one-year affair. Parents and grandparents will have to think in terms of four years for a baccalaureate, six years or longer for a graduate or professional degree, and an eternity if they have seven bright students spaced two or three years apart. Since you may be paying college bills for many years to come, it is essential to understand a bit more about the overall college cost environment.

Tuition costs continue to outpace inflation. According to the College Board, average tuition and fees for four-year public colleges have increased at a rate almost three times that of inflation. There are several reasons for the rapid increase in tuition

• Faculty salaries must be raised to attract new professors and to keep tenured ones from leaving.
• Maintaining old buildings is very expensive.
• Colleges must continually update technology to remain competitive.
• The number of high school seniors is declining, so fixed costs are spread among fewer paying customers.

Asset Allocation For College Planning

Junior has just arrived home from the maternity ward, and like the model parent you are, you want to start investing to send the little nipper to Harvard. What should your asset allocation strategy be for this investment goal?

Unless you are wealthy, you will need to generate lots of capital to fund an Ivy League education. Fortunately, you have a fairly generous investment time horizon of 18 years or so. You might well consider placing most of your investment capital in stocks to generate as much growth as possible--keeping in mind that you might have to endure the occasional dip or even a couple of bear market years. If you are concerned about exposing all of your capital to the market, you might want to place a small portion of it -- say 20 percent -- in safer investments such as bonds.