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Child savings accounts lead to positive parenting, better developed kids

The lobby of a Chicago Chase Bank was decorated with balloons and offered free cookies, brownies, coffee and hot chocolate to Chase customers for Customer Appreciation Day.
The lobby of a Chicago Chase Bank was decorated with balloons and offered free cookies, brownies, coffee and hot chocolate to Chase customers for Customer Appreciation Day.
(Shamontiel L. Vaughn)

President Barack H. Obama covered a lot of territory in the State of the Union address at 8 p.m. CT, on Tues., Jan. 28: women's equal pay, weapons in Iran, first lady Michelle Obama's fight against child obesity with Let's Move, the Affordable Care Act, the executive order for federal contractors to pay their federal employees $10.10 per hour, climate change, pre-K education, college student loans and more.

Parents of college-age kids may have paid close attention to his take on affordable education.

"We're shaking up our system of higher education to give parents more information and colleges more incentive to offer better value so that no middle-class kid is priced out of a college education," said Pres. Obama. "We're offering millions the opportunity to cap their monthly student loan payments to 10 percent of their income."

But before parents (and students) reach the point of having to take out student loans, what about early college loan savings?

In a recent Reuters Health study, 1,358 children were given a savings account with $1,000 in state funds from the Oklahoma 529 College Saving Plan. Also, 15 percent of mothers opened an additional savings account with $100 for their children. Behavior benefits were seen with or without the second account, mainly because of the attitudes of the parents.

There are differing views on saving money for a child's education, depending on the source. In the Reuters Health study, that was the goal. But in popular money magazines, such as Forbes, college savings accounts are frowned upon for a few reasons: 1) pre-tax contributions to a 401(k) may affect financial aid help; 2) college loans can be borrowed but retirement loans cannot; 3) emergency expenses for at least five to six months should be set aside; 4) immediate expenses should trump long-term needs.

Parents have the right to raise their children how they see fit. However, if immediate expenses trump long-term expenses, parents may still spend the rest of their lives paying off the interest on student loans because they did not save enough in a side savings account. Or save any money at all. Does it really matter if a parent gets less in financial assistance assuming they can already foot the bill for a college education due to a savings account for the child?

With a child's savings account that has regular money set to the side, a parent may just get used to that income not being there. Whether's it's $50 per month or $100 per month, 18 years of saving adds up to a range of $10,800 to $21,600. If a parent sets aside what she can afford to let go of, that's much easier to deal with than setting aside large sums of money while struggling to pay everyday bills.

And immediate bills do continue while a child is in college (in addition to random calls from a college student asking for social money) so sooner or later, the parent will have to balance immediate expenses plus college expenses anyway. Even if the child's tuition is paid off, it may be easier for the parent to deduct money from the child's savings account in installments (or give it to the child to hopefully make responsible deductions) instead of reaching in her own wallet nonstop.

CNN Money calculates the cost of college from 2011-2012 as $15,000 for tuition, fees, room, board, books and incidental expenses. With a savings account, the child can get through at least one year long enough to find out whether college is her shtick. By that time, even the child can apply for student loans and/or be old enough to hold a job while going to a college or university.

In-state tuition is always cheaper than out-of-state tuition, and some very successful people have gone to in-state colleges. If she chooses to stay in her hometown, that's even less of a dent in travel expenses and tuition pricing taken out of a college savings account. From birth, no parent can confirm whether her child will be eligible for scholarships and grants, but that same parent can confirm what the savings account balance is.

Most children aren't set for life should they go to college or not. Middle-income money. Old money. New money. A savings account that a child can depend on is always better than no money.

Follow Shamontiel on Pinterest for all her latest Chicago finance, employment and savings tips, or subscribe to her Chicago Personal Finance channel at the top of this page.

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