30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Part VII. Invest for College

While helping a young couple make over their finances in early 2009 I suggested that they start using 529 college savings plans to begin saving for their two young daughters' educations. I went on to note that the plans offer valuable flexibility: If their oldest child doesn't end up going to college, their younger girl could use the funds for her education.

As I was talking, I could see them shaking their heads. Was there something about the 529 idea that they found disagreeable? No, that wasn't the problem. Rather, they had a visceral—and negative—response to my offhanded mention of the chance that either of their kids might not go to college. "It's just not an option," the mother responded.

As is almost always the case, this young couple had an emotional stake in making sure their kids earn their degrees. Their parents had paid for their college educations, and they wanted to pay back the favor by doing the same for their children. Their goal of educating their children was also rooted in economic reality. College graduates, on average, earn twice as much during their lifetimes as those who have completed high school only, according to U.S. Census data.

Yet, just as earning a college degree has become more important than ever, so has the demand for college degrees skyrocketed, and, so, in turn, have the costs. Tuition and fees at a public university averaged $7,000 in 2008, and private school fees and tuition rang in at an average of $25,000. With college ...