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Should holiday gift season include college funding for children?


We are quickly approaching the holiday season. Retailers are getting their displays in order, while online merchants retool their websites and search engine optimization to prepare for the gift-giving frenzy.

Children are often on the receiving end, as annual sales for gifts to kids are generally quite robust. The NPD Group estimates that $26.5 billion was spent on toys in 2016. Action figures alone accounted for $1.4 billion in gifts.

Think about it – $1.4 billion on plastic people and characters? Really?

Granted, plenty of research studies establish the importance of toys in child development. Certain studies document the importance of toys and play in developing creativity and social skills. Even the most curmudgeonly and penny-pinching of parents usually gives in somewhat to their child’s plea for toys. In fact, the Toy Industry Association estimates the average family will spend $6,500 in a lifetime on toys.

You certainly can’t place a value on childhood happiness and could argue that it’s priceless. Conversely, there is an equal and opposite sentiment often experienced by those same kids after they grow into young adults
and get stuck having to repay student loans.

A 2016 study by the College Board indicated cumulative student loan debt is larger than automotive or credit card debt. In fact, student loan debt now totals $1.4 trillion. With this new reality when it comes to financing a college education, maybe there’s a different way to think about that money families spend on toys.

A forward-thinking compromise might split resources and spending on children between toys and college savings during the holidays. There are a number of savings vehicles a parent, relative or friend can consider. One of the more often discussed and widely known college savings vehicles is a 529 plan. These plans were initiated over 30 years ago and allow individuals to put after-tax money into a tax-advantaged savings account designed to pay for college.

When used to pay qualified education expenses at an accredited college, earnings on these accounts are free from federal and state income taxes. In addition to the tax advantaged savings, some state plans offer their residents income tax deductions or credits on contributions.

Aligning with the spirit of the season, many state 529 plans also have a Ugift function where the 529 account owner can provide a Ugift code to a family member or friend, and that individual can then contribute into that 529 plan by using that code on the Ugift website. Since there are tax and other financial implications with this type of transaction, it is important to discuss these matters with your tax and finance professionals whenever opening or contributing to a 529 account.

So will this be the season of action figures or taking action on financing the future? Maybe a combination
of both can keep us all happy.

Dr. Jerry Inglet is the director of college and education advisory services at Wilmington Trust / M&T Bank.

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