Did you know that most American families aren’t doing enough to prepare financially for their children’s college education? Saving for your child’s college education requires an earlier start with smart savings and investing and an overall financial strategy. Doing this well has additional benefits beyond college graduation. You can seize the opportunity to teach your child life-long good habits on saving and investing for everyday living. And help them understand the important of sound financial management.

Only half of U.S. families with children younger than 18 are saving any money for college; a decrease from 62 percent in 2009, notes Marketwatch. Almost 60 percent of the nonsaving families say they don’t have enough money to save, while 22 percent expect their children to qualify for financial aid or scholarships sufficient to cover costs. Just over 20 percent say they simply haven’t gotten around to it.

Start at the best time: now

The first rule for properly saving for your child’s college is to start now, experts say. Time is on your side if you start when your child is young, as Yahoo Finance points out.

For children born now, four years at a state college likely will cost at least $150,000. Parents who save $250 each month from the time their baby is born could cover nearly a third of that amount with just that savings, U.S. News & World Report notes. If you wait to start saving until your child is a high-schooler, you’ll need to save six times more each month. Experts say many parents plan to make the ultimate misstep when it comes to financing education: waiting until “college time” and deducting money from retirement accounts.

Don’t bank on the cash-only plan

Most people wouldn’t pay cash for a house, and it’s probably unrealistic to plan to pay for your child’s education solely with cash savings. Instead, plan to fund a third of the cost with savings over time, a third from money earned during your child’s college years, and a third from future income in the form of credit along with any scholarships and financial aid.

As part of an overall credit management strategy, you may prefer that you or your child not take on so much debt for college. In that case, plan to save two-thirds of the cost as you go along. Saving costs less than borrowing, notes Yahoo Finance, since every dollar you borrow costs $2 by the time you pay it off.

Put savings on autopilot

Saving is easiest when you make it a no-brainer by setting up automatic weekly or monthly transfers into a college account. Any time you receive an unexpected windfall such as a gift, a work bonus or an income tax refund, use at least half for college savings, experts advise. If a regular expense — like daycare — ends, consider sending that money straight to the college savings account.

Choose the right vehicle

When parents do save, they’re often doing it incorrectly, notes Marketwatch. The most popular way to save for college is with a general savings account, but it’s certainly not the best way. To maximize the interest you earn, consider an investment vehicle like a 529 plan.

With a 529, your investments grow tax-deferred, and you won’t owe federal tax on future distributions when your child needs the money for college. In 34 states and the District of Columbia, 529 plans also receive state income-tax deductions.

In addition, if your child chooses to start “the next Facebook” instead of going to college, you can transfer the money to another child. However, if you end up not using the money for college, withdrawals are subject to a 10-percent penalty, and you’ll pay income tax on any earnings.

Several other investment vehicles also are suitable for college savings, The Simple Dollar reports:

  • Roth IRA: Roths are popular tax-advantaged retirement accounts that also can be used for college savings. Money is contributed after taxes, and investment gains aren’t taxed at withdrawal. There are restrictions on income and contributions for using Roth IRAs, however: Single people who earn more than $129,000 annually aren’t eligible, and contributions are limited to $5,500 per year for people under 50 and $6,500 per year for people over 50.
  • Coverdell Education Savings Account: Unlike 529s, Coverdell plans can be used for any educational expenses, like costs of private primary school tuition.
  • Prepaid college tuition plans: By prepaying portions of a child’s tuition expenses now, you can lock in current prices. A number of states offer prepaid plans, and any gains generally are exempted from federal taxes.

You’re building a personal identity and a “nest egg” for your child.

Often forgotten in this data-driven age is the importance of protecting one’s personal and financial information as you grow up. From the minute you arrive in the world, you get personal data assigned to you. As your child develops the social networking life, it may expose a lot of information that could end up in the wrong hands too. If your child’s personal or financial data is used fraudulently, your child could face difficulties in securing jobs, loans, and more unless their data and financial records are cleared up. Therefore, it’s suggested to monitor this information and watch out for potential data breaches through an identity management or identity theft protection plan.

You may think you don’t have enough money to protect now, but if you’re investing properly and saving, you will eventually help your child get the education they deserve. An by monitoring their personal data through some sort of identity plan, you’ll help safeguard them from the potential harms of a data breach.

For information on identity management to protect your good name, contact AmTrust Identity Management.