In today's technology-driven world, to earn a job at the upper end of the growing service sector will require young people to obtain an education beyond high school. While higher education is a great investment for parents, it's becoming prohibitively expensive. Over the last two decades, college costs increased an average of 8 percent a year. Given the magnitude of future college expenses, many couples with children younger than 5 may need to save between $200 and $500 a month to accumulate enough money to fund their child's higher education.
Those with older children and a shorter accumulation window, however, will have to save more. Because of their unique tax-shelter-ing characteristics, those funds could go into fixed, indexed, or variable life insurance and deferred annuities. Sales of this size are well worth the efforts of most agents.
Adjusting spending priorities
Young families often wonder how they can manage to accumulate the necessary funds. Setting money aside requires extraordinary discipline, especially when there are strong demands on available money for nice homes in safe neighborhoods, furnishings, cars, and expensive activities for their children.
Before your prospects will set aside money to defray future college expenses, they must have the desire to save additional money, have the discipline to adjust their lifestyles, and have a clear-cut set of objectives.
If sufficiently motivated, most people can adjust spending in one budget area to accomplish savings in another. When reviewing your prospects' current budget to "find the money," try to discover whether better money management will achieve monthly savings, any debts that are about to be paid off, and whether debt consolidation is worthwhile.
Four-step process
To assist your prospects in setting clear-cut college funding objectives, review with them the four planning steps below.
1. Define costs parents will assume. Most parents put a priority on preparing their children for successful adulthoods. However, philosophies differ on how much parents should pay for their children's higher education. For example, a parent who worked to pay part or all of their own expenses may want a child to benefit from a similar experi-ence. Others whose parents paid for their entire education may feel it is their duty to do likewise. Either is fine. Your role is to help prospects set positive plans in motion.
Key interview questions:
- What total dollar amount do you feel you'd be able to accumulate?
- What methods do you believe will best accomplish your college education fund goal?
- Why do you say that?
2. Determine the annual college payout. When more than one child is involved, parents must understand overlap if they will have more than one child in college at the same time.
