I firmly believe in planning for the future. I have two children, ages 7 and 3. I realize that in 10 years, my oldest will be going to college. I feel that it is (partially) my responsibility to pay for her college education. I choose to use an ESA to save for college. ESA stands for Education Savings Account. (These accounts are also known as Coverdell Education Savings Accounts.) To read about the three main types of college savings accounts, check out this page over at TD Ameritrade. I use TD Ameritrade for my ESA. WHY? I opened an account for my daughter with them back in 2002, when I new very little about personal finance, so I’ve decided to stick with them. I really just don’t want to deal the hassle of moving the account. I have fully funded my daughter’s ESA for fiscal years 2006 and 2007. (The annual contribution for those years is $2000.) I sent a two checks from my bank account, one labeled “2006 Contribution” and the other labeled “20007 Contribution”. After waiting for the checks to clear and be deposited to the account, I sat on the money for a few days. I pulled the trigger at 10AM and purchased some more shares of RSP, an ETF which tracks the S&P 500. For more info about RSP, you can click this link to read about it over at Yahoo Finance. (I am NOT endorsing this ETF! I know very, very little about investing, and that’s why I’m purchasing a basic ETF.) Now I have to turn my energies towards my Roth IRAs and (maybe) my son’s ESA. My son is only 3, so I feel that I have a few more years before I have to REALLY begin to worry about his college savings.
I believe you are doing a great service for your children regarding college. However, do not forget your own (and that of your wife) retirement. Students can get low cost, around 2-3% student loans. The interest is tax deductible plus there have been more tax incentives to students and their paying parents. I am sure even 11 years from now there will be more beneficial tax incentives. Congress is always working on that.
Your children will be still young enough to pay off their low cost student loans when they graduate. You and wife, however, will be 15 years older and maybe unable to earn a higher salary. You must think of yourself also.
This is what I did with my own children: I paid 1/2 of their tuition, they paid the other half through summer jobs and low cost student loans. Their higher education led then to fantastic, higher paying jobs upon graduation (each of them earn more than myself and husband combined) The youngest one was able to pay half her student loan from just one Xmas bonus, and she has only been working for 3 years!
In other words, the kids will do and be just fine. Worry a little for them and prepare but worry a little bit for yourself also and prepare much.