In a prior blog post, I had compared the two most popular vehicles for establishing Educational Funds for Minors—the Uniform Transfers (also called Gifts) to Minors Account and the 529 Plan—linked, as follows: https://thetruthoncommonsense.com/2013/08/05/ugma-vs-529-plan/#comments. I prefer the UTMA, since: investments may include all types of securities, and there is more flexibility as to using the money. The investment process might also be educationally valuable to the child(ren), as well!
There was an interesting book, “Age Wave”, written by psychologist Ken Dychtwald, back in the late ‘80s. In it, he traced the economic impact of the Baby Boomer Generation, as they passed through life’s stages: infants; toddlers; young children, pre-teens; teenagers; to young adults. Think about it: Gerber’s; Mattel; Disney; cosmetics; Nike; autos, etc. I believe that the investment process, behind funding an education, can be a learning process for the child, and a relationship-building opportunity for the parent or grandparent.
My Wife and I started an UTMA Account for our Grandson, Henry, when he was six months old. Anyone can make annual additions to such an account up to $14,000 ($28,000 for a couple), and to each child, which would be exempt from the Federal Gift-Tax. Personally, we believe that lifetime gifting is much more satisfying than just leaving a legacy through your Estate.
Henry will be four years old in six weeks; so, he is still too young to participate in the investment process. But, I have been laying the long-term groundwork by investing in companies, as I see fit. Once he’s approximately seven or eight, however, we’ll let him know that we have established such a fund, and point-out older cousins or family friends who have been to college—to build an interest. But, great careers can certainly be made from vocational school and apprenticeships, as well!
Once Henry decides whether, or not, to become involved, he can initially suggest products that he likes; and over time, we can do computer searches to see if the sales have grown—as more of his age group wanted those products or services. As he sees his account grow, he might find interest in tracking it on a spread sheet and, at some point, begin to see the advantages of products that he doesn’t use from an investment standpoint, and that the products he does like might not be economically feasible as an investment. Any detailed analysis would only be at his suggestion. Seriously!
The important goal here is to establish an account to fund higher education, if you can; but, it should not be used to force a child to go to college. Likewise, allow the child to be as involved as they wish to be in the investment process, or prefer not to be. Likewise, permit them to engage at times of their choosing! Besides preparing early for education, the other important goal should be to have things that parents and/or grandparents might do with the children and young adults.