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By Jake LaTurner, Kansas State Treasurer - August 7, 2018
Generational divides make splashy headlines. From the Silent Generation and Baby Boomers, to Gen X and Millennials, one group is constantly compared to another. But over the past several years, another overlapping generation developed: the boomerang generation.
Defined as young adults who share a home with their parents after a period of independence, the so-called boomerang generation is growing in size. Pew Research Center reported in 2012 that three in 10 young adults lived with their parents. A 2017 U.S. Census Bureau report found that number increased to one in three!
Why the shift? It would be impossible to identify any single reason. They may prefer that living arrangement due to convenience or to being a caregiver, or it may simply be more enjoyable. However, I bet a large part of this trend is due to student debt, which is now the second highest consumer debt category—second only to mortgage debt. The New York Federal Reserve calculates that 44.2 million U.S. borrowers have a total of $1.31 trillion in student loan debt. Surely, that must limit many people's ability to pay rent or a mortgage.
Parents of young children often think of college as being an eternity away, and I understand that. There are so many other things to worry about: day-to-day activities, school supplies, summer camps and the list goes on. But, as the saying goes, "the days are long, and the years are short." Your opportunity to turn the tide in rising student debt—and to help your child start his or her life without that burden—starts now by thinking about how you will tackle the costs associated with high education.
Scholarships, financial aid, earned income and college savings are all pieces of a puzzle that can be combined to minimize the need for student loans. The one piece of the equation you can start now, regardless of whether your child is an infant or in high school, is a college savings plan.
As the parent of four small children myself, I know that saving for the future can seem daunting—but that doesn't make it any less important. I've heard too many stories of hard-working families who have given their children the gift of graduating without student loans at the cost of their own retirement savings. You can have both, but you have to start now to get to maximize such benefits as compounding interest.
One of my priorities as Kansas State Treasurer is to make college savings accessible to everyone. With that in mind, I've created a four-step list of how to get started on the path to college savings.
In my experience, most people don't really know how much college will cost. The exact figure will depend on a variety of factors that can't be pinned down until the actual event, but you can get a general idea by visiting a calculator that allows you to get a personalized result based on your preferences. And with that information, you can put together the start of a plan that evolves over time.
There is no one-size-fits-all approach to college savings. For example, 529 plans, UTMA (Uniform Transfer to Minors) accounts and Coverdell (CESA) accounts are all options with different usage guidelines and tax benefits. Do your research, and figure out what works best for your situation.
Some plans let you start with just $25 , and many employers let you send money directly from your paycheck to your college savings account. Experience shows that this type of automatic investing leads to success.
During your child's infancy, the added expense of daycare, diapers, formula and other necessities can feel astronomical. They'll reduce over time—and your income will (likely) rise. Take the opportunity to evaluate whether you can divert some of your disposable income to college savings. Another practical approach to saving is to request contributions for your child's birthday and holiday gifts.
As I visit with Kansans from every corner of the state, I repeatedly hear is how expensive college has become in the past 30 years. It can be overwhelming, but there are ways to make it more manageable and help your child begin his or her professional life with a sense of financial independence. Get started today.
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This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.