76 percent of families have college funds by first grade

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To recognize College Savings Month, the College Savings Foundation (CSF) released new data from their annual State of College Savings survey. The non-profit organization asked over 800 parents across the country about their savings behavior and found that 72% of families have put money away for college. What’s more, 76% of these parents began saving when their child was five years old or younger, and 44% of the savers are taking advantage of 529 plans. Here’s why starting to save early and using a 529 plan is a winning combination:

You can get help from friends and family. A contribution to a 529 plan makes a great gift for a niece, nephew or grandchild. Most plans make it easy for friends and loved ones to make a contribution by giving a check or even making an online deposit. In some cases you can even ask for gifts through email or Facebook. This is probably one of the only major expenses a family encounters where it’s socially acceptable to ask for help paying for it!

And what better time to ask for a monetary donation to your child’s college fund than when they’re very young? Does your one-year-old really need a stuffed animal? No, but when they get older and learn to talk they’ll be asking for specific toys or games. Until then – you’re in charge of what they get, so why not make it worthwhile? Even a small gift will grow over time and can reduce the amount the child will have to borrow in the future. So when Aunt May asks what baby Suzie wants for her birthday, ask her to put back the Leap Frog toy and consider donating to the little one’s college education.

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Your family finances will change. Believe it or not, if you’re a parent, your life is going to get more expensive. You may decide to have more kids, your grocery bills will eventually go up, your kids will get invited to birthday parties, or you or your spouse may decide to take time off of work to spend more time with the family. But if you start saving for college in a 529 plan while your child is very young, you’ll be prepared for one of these events when you might need to put your savings on hold for a while.

And of course, there are plenty of situations where a family’s income will rise. A parent may go back to work after taking time off, get a promotion or receive inheritance money. These are all great opportunities to boost your 529 contributions. If you set up the account early, you can easily make the changes quickly so you don’t miss the chance to build your savings. According to CSF’s survey, 81% of families reported saving as much or more than they did just one year before.

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Waiting will cost you. Big time. The most compelling reason to save with a 529 plan is also the most compelling reason to start early. You know that it pays to start saving for your retirement early, and the same holds true for saving for college. A 529 plan works similar to a Roth IRA, where you deposit after-tax money that grows tax-free and it won’t be taxed when you withdraw as long as the money is used to pay for college. The interest you earn compounds, which means you earn interest on your deposit, plus interest on top of your interest. You can think of it like a snowball, where you start out with a small round piece of snow that you created, but as you roll it down a hill it collects more snow and continues to grow larger and larger on its own. If you decide to start saving later, you miss out on all that extra compound interest.

So just how much could it cost to wait? Let’s say you have a newborn, and you plan on sending him to your state’s public university. According to the College Board, the average four-year public college costs $18,943 today. In 18 years, assuming a college inflation rate of 4%, your four-year total will be about $163,000. If you start saving in a 529 plan today, you’ll need to make monthly contributions of $352 to meet your goal (assuming a 6% annual investment return). But if you wait until your child is a first grader (six years old), you’ll have to contribute $608 each month to catch up! You can figure out just how much waiting can cost you with Savingforcollege.com’s Price of Procrastination calculator.

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