SIKESTON -- Recent stock market plummets have caused loss in value of college fund investments, prompting parents to develop an education savings plan earlier than ever before.
People today are more concerned about college funds and their children than in past years, said Edward Jones Investment Representative Judy Hobbs.
"What I find in dealing with clients today is that it scares them to death when they find out the monthly cost of saving for their children's tuitions," Hobbs said. "They have no idea how much it will cost them in the future."
For example, if a child is 8 years old now, cost for them to complete four years of a public college will be $77,000, Hobbs said.
Kim Heckemeyer wants to be able to provide her 1-month-old daughter and 20-month old daughter with the same education her parents provided for her. That's why she and her husband began saving for their children's education before their first daughter was ever born.
"Cost of education is just at an astronomical amount right now," Heckemeyer said. "With the cost of education increasing so rapidly every year, you have to start saving now."
The hot item right now is 529 plans, said Raymond James Financial Services Inc. Financial Adviser Dean Wooden. Most states sponsor a plan.
Wooden hasn't seen many parents come in panicking over losing educational savings, although he knows many people haven't had good experiences over the last two to three years.
"A lot of people think one political party runs the economy, but it's Alan Greenspan who runs the economy. He drives the car and he's had his foot on the brake since 1999 and was slowing the economy down. Now -- since Sept. 11 -- he has taken his foot off of the brake and stepped on the gas pedal, particularly in the last 90 days," Wooden said.
Wooden said he sees the economy as more of a positive than negative for investors. People can now purchase quality securities on sale or at reasonable prices, he said.
The 529 Plan (named after its section number in the IRS code) is a savings plan for college education. Investors have a couple of options when opening an account.
"All of the new plans came out after the market came down, and they've been extremely popular," Wooden said.
One 529 plan option lets the investor prepay tuition at a qualified educational institution at today's rates. Another option lets the investor save money in a tax-deferred account to be used to pay for education at future tuition rates.
The idea with either option, is that the investment earnings will grow to meet the higher costs of future education.
Missouri's 529 plan is called the Missouri Saving for Tuition Program or MO$T. The state sets up the plan with an asset management company of its choice. The parent is the owner of the account and the child is the beneficiary.
State-sponsored 529 plans allow students to save tax-free and the plans usually move into more conservative investments as the participants get older.
"If you have children, think early in the child's age about saving for college. The earlier you start, the better," Wooden advised.
Wooden compared picking out a 529 plan to picking out a vehicle. People need to pick the right vehicle to be in and be comfortable with, he said.
"I typically encourage people to plan on a five-year college program because it's tough to finish school in four years," Wooden said.
A lot of parents put funds in CDs, gross stocks and some in mutual funds, Hobbs added.
The 529 plan is great for grandparents, Hobbs noted. For birthdays or special occasions, they can stick money in the college plan, she explained.
"For young couples living on a fixed income, it's hard to put back the money," Hobbs admitted. "It's very difficult to do."
Like many parents these days, Heckemeyer has a fear she's not going to be able to provide her daughters with the same quality of education she received.
But Heckemeyer won't let that fear stop her from trying.
"It's hard for anybody to put back any money, but I can't really think of a better way to spend the money," Heckemeyer noted. "It's probably the most important way for parents to spend their money."