Personal and family money is money that is contributed to education from your child’s personal savings, employment, and any other help that can be contributed by parents, grandparents, and other relatives.

Personal Savings

Personal money consists of your child’s personal savings. Generally, if your child helps pay for their own education, they will use their resources more wisely because they are spending their own money. Start the process of teaching your children to become financially self-reliant as soon as you can and help your children to finance as much of their own education as possible!

Personal Employment

While there may not be a federal work-study program at your school, (BYU has a work-study program for international students only) there are plenty of employment opportunities both on campus and off campus. Studies show that working less than twenty hours per week will not typically have a negative impact on grades.  Undergraduate student enrolled in 12 or more semester hours should work no more than 20 hours per week which may cover room and board expenses.

However, if your children work while in school, they will have to be more careful with their time. If they manage their time wisely, they will be able to go to class, put in the necessary study hours, work, and still have time for Church and social activities.

Experience has also shown that high school students should work no more than 0-10 hours per week while in school. Working more hours reduces their GPA and the likelihood of attending college and increases their chances of trouble with alcohol, drugs and promiscuity.

Family Savings

Saving for your children’s education should be a family activity.  Remember, saving for your retirement is your first priority, and saving for your children’s education is second.  There are better ways to save for your children’s education.  The best is tax eliminated, then tax-efficient, and finally tax-deferred investing.

Tax-eliminated education saving is where you invest money for your children’s education in investment vehicles where you pay no taxes on the earnings from your investment savings.  Examples of these investment vehicles include 529 Savings Plans (which offer the broadest category of things that can be purchases with these funds), Education IRAs (which are the next best alternative), and certain types of US Savings bonds (which are the most restrictive).  Investment earnings on these vehicles are not taxed.

Tax-efficient investing is where you save for your children’s education in a tax-efficient and wise manner.  Invest in mutual funds that are no-load, have low expense ratios, are diversified, and that have low turnover ratios.  Then keep your money in those funds until they are needed.

Finally, tax-deferred education savings is where parents save for their retirement and use some of their retirement money to help pay for their children’s education.  While I do not recommend this alternative, parents can take up to $10,000 of their retirement 401k and Roth 410k for their children’s education without the normal 10 percent penalty.  However, if you take the money from a tax-deferred account, such as a 401k account, you will have to pay taxes on the distribution as ordinary income.