Clients dawdling in saving for college? This should straighten them out

A new online tool could help financial advisers educate clients about the perils of putting off saving for college. The virtual calculator, devised by Learning Quest — which runs the Kansas Section 529 college savings plans — is called the “Cost of Waiting.” It's an apt name. The calculator shows, for example, that a parent seeking to fund a full four-year private education for a current eighth grader would have to save $3,426 a month for the next five years, assuming a 5% average return rate. By waiting an additional year to start saving, however, that parent would need to put away $4,395 a month to pay for the same education. That's an increase of nearly $1,000 every month during those four years of saving, according to the calculator. “Typically, we see calculators that show what college is going to cost,” said Stacey Belford, vice president of 529 plans at overseen by American Century Investment Management Inc. “This one shows you not just that it will be expensive, but what it is costing to delay saving.” One of the most difficult things about helping people with college savings is that there is no real deadline for starting, she said. “Inertia is something that we really battle,” said Ms. Belford, whose firm manages the three 529 plans offered by Kansas, which have a combined $3 billion in assets. “Now instead of focusing on a big number, this can encourage people to have a plan.” The calculator creates two charts, one showing the savings amounts needed per month and the other displaying the savings amounts needed if the investor were to make annual lump sum payments. Thus, it demonstrates the power of compound returns. The results are produced within seconds of adding five data points, including how many years until the student begins college and the expected average annual investment return rate. The tool can create a PDF file that an adviser can either present to a client or e-mail to them.