Have you done the math? If you haven’t, check out www.savingforcollege.com for a simple calculator for what to expect for college expenses. To put a newborn through four years of college beginning 18 years from now, you need to save $312,000. Per kid. To reach that, at a 4% return on investment, you would need to contribute $837 per month. Per kid. And that doesn’t take into account the possibility of a devastating loss of account value due to a declining market, like many have seen over the past 18 months.
Let me go out on a limb here. Most parents of newborns are not in jobs where they can easily set aside $837 per month to put into an account earmarked for education. They can scrimp and save, but this is, for most people, unrealistic. What are the options for parents?
Option 1) Just do it — OK, this is the “best” option, but it is unlikely that this kind of extra money falls to the bottom in the average household.
Option 2) Just ignore it — Perhaps the most common situation. Maybe we’ll put something aside, maybe not, but we’ll cross that bridge when we get there. For some people, this works out. For others, it leaves either parents or children burdened with a heavy loan debt.
Option 3) Just ask for help — Parents of newborns usually have parents (grandparents) who are alive and who are willing to help if they were asked. Parents don’t want to ask for lots of reasons, and grandparents don’t always want to “force themselves” into situations where they may not be welcomed — and who wants to have a money conversation with their parents? But we know through research that two-thirds of grandparents would help if asked.
VestMatch comes in at Option 3. Parents can set up a VestMatch plan in just a few clicks, open an account at any bank or brokerage firm, even open a 529 Plan account, and then link that account to their VestMatch plan. They then can invite the grandparents (and uncles, aunts, cousins, godparents, etc.), by way of e-mail, to “join” their plan. At that point, everybody who is part of the plan can see how much is in the account, and they can decide to contribute. Everybody can also see who is contributing to the account and, soon, how that account is invested. This way everyone knows the status and can feels confident about contributing.
While your “Plan Partners”, those people who you invited, can contribute to your plan either every once in a while or on a regular monthly or quarterly basis. They can contribute conveniently through VestMatch, but there is a fee that VestMatch charges to offset the charges that it gets from banks for moving the money. A less convenient but more cost-conscious way is to either contribute by way of check into the bank or brokerage account set up for education, or set up an automated funds transfer from their checking account into the bank or brokerage account. Your bank or brokerage firm would have all the paperwork needed to make that happen.
So now the parents are contributing $300 per month, and each set of grandparents decides to contribute $200 per month. In addition, the godparents and the uncle contribute an extra $100 every birthday. Are the parents at $837 per month? Not quite — but they are a little $715 per month, and are well on their way. Perhaps the parents can think of other friends or relatives who may be willing to kick in $10 or $25 per month to close that gap.
Do you see how VestMatch works? It works because of the power in numbers. If you have a goal, and you can bring others to help you reach your goal, you can.
