Tis The Season! To Start Contributing to a Loved One's 529 College Savings Plan
One of the major obstacles preventing children, especially children of lower-income families from obtaining higher education is the belief that it is out of their reach. In order for these children to form a “college bound” mentality, a savings account with as low as $1 can be all it takes. Studies show children with college savings of $500 or less are three times more likely to attend college and four times as likely to graduate compared to their peers without any college savings.
Unfortunately, without proper financial literacy, parents far too often spend their income without putting any into savings, let alone a college fund. Currently, there are plenty of programs already available to help incentivize savings behavior. For example Individual Development Accounts (IDAs) match contributions towards an asset such as a college fund. Also, there are tax incentives such as a 529 college savings account (CSAs), which allows contributions to grow and be withdrawn tax-free. However, a 2012 report showed that less than 3% of U.S. families have opened a 529 college savings account indicates, many parents are still not utilizing available incentives to save for their child’s college education.
Now there is a new tool attempting to catalyze parents to begin saving for their child’s higher education. Offered by Blackrock financial institutions, and other organizations such as LEAF College Savings and Gift of College, family members, friends, and community members can buy special gift cards that are only redeemable in a 529 CSA. By gifting a child one of these 529 college savings gift cards, parents are more likely to be aware of, and start a 529 college savings CSA for their child in order to obtain value from the gift. Once the parent goes through the process of opening the account, they may be more likely to see the monetary value in contributing to the 529 accounts themselves, which can kick start savings habits in other area.
Although these gift cards have traditionally only been available online, the gift cards offered by Gift of College will be available for purchase at Toys “R” Us and Babies “R” Us brick and mortar stores. The visibility of the card within these stores will not only raise awareness of 529 college savings accounts, but will also allow access to unbanked or cash-preferred families and friends to make contributions towards a child’s 529 college savings account.