How the Tooth Fairy Can Help Your Child Save for College

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Kathryn Flynn

By Kathryn Flynn

October 26, 2020

National Tooth Fairy Day is celebrated twice a year, on February 28 and August 22. The tradition of the Tooth Fairy celebrates an important milestone in a child’s life and presents an opportunity to save for college.

Most kids lose their first baby tooth around age six. The child places the tooth under their pillow at night and wakes up to find a cash gift from the Tooth Fairy. Instead of letting your child keep the cash to buy toys or candy, they could use their Tooth Fairy money to save for college.

How much money should the tooth fairy leave?

According to a 2019 study from Delta Dental’ s Original Tooth Fairy Poll, the average Tooth Fairy gift is $3.70 per tooth, and 37% of parents reported that their children received more than $5.00 per tooth.

The Original Tooth Fairy Poll developed a Tooth Fairy Index (TFI), which has tracked the value of a lost tooth in the U.S. for the past 17 years. The TFI typically moves with the S&P 500 Index, which represents the U.S. stock market performance. For example, in 2018 there was a 10% decline in the value of a lost tooth, and the stock market dropped 3%. 

The study also revealed the top factors that determine the amount the Tooth Fairy leaves per tooth. In most cases, a child’s gift is determined by how much cash the Tooth Fairy has (46%), followed by the child’s age (31%), how much the child’s parents received when they were kids (29%), the child’s behavior and how many teeth the child has already lost (18%).

Parents who are unsure about how much money the Tooth Fairy should leave can use a Tooth Fairy calculator or Tooth Fairy calculator app to help make a decision. These tools won’t suggest an amount to give, but they will provide information about amounts given by the Tooth Fairy in similar households.


Contributing tooth fairy gifts to a 529 plan

The Tooth Fairy might consider giving college-bound kids $5.29 per tooth to be contributed to a 529 plan. A full set of 20 baby teeth can amount to $105.80 that you can save for college. Unlike a regular savings account or other investment account, money saved in 529 plan grows on a tax-deferred basis and distributions are tax-free when used to pay for qualified education expenses.

With this tax-free compounding, your child’s Tooth Fairy gifts can really add up over time. For example, a 529 plan contribution of $105.80 may grow to $190.00 over 10 years, assuming a 6% annual investment return. If you save an additional $100 each month, in 10 years your ending balance would be $5,579. 

$5,579 probably won’t cover all of your child’s future college costs, but according to the College Board, you would have been able to pay for the following expenses during the 2020-2021 academic year:

  • Books and supplies at a community college, public 4-year college or private non-profit 4-year college ($1,240 to $1,460)
  • Tuition and fees for a full academic year at a community college ($3,770) or a semester at an in-state public 4-year college ($11,090)
  • A laptop and word processing software ($500 to $1,500)

Every dollar you save for college is one dollar less that your child will have to borrow in student loans.  So, by contributing the Tooth Fairy gifts to a 529 plan, the Tooth Fairy is helping the child avoid more than $10,000 in student loan debt.

Having a 529 plan also increases the odds that your child will one day attend college, since it creates a college-bound culture in your family.  Saving Tooth Fairy dollars is a great way to get your child in the habit of saving money when they are young.

[Editor’s note: Originally published on January 13, 2020. Updated on October 26, 2020.]


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