Bitcoin for kids: this is why parents are stacking crypto instead of 529 college savings plans
Some Americans are piling their college funds into cryptocurrency, rather than opting for traditional savings plans.
Some parents in the United States are reported to be eschewing traditional college-fund savings plans as a way of paying for their children’s higher education - and are instead turning to cryptocurrency investments.
In a report published this week, Bloomberg News spoke to a number of Americans who are attracted by the greater potential returns from investing in Bitcoin - the best known and most popular form of cryptocurrency - as they contemplate the ever-rising cost of paying for college.
How much does a college education cost today in the U.S.?
According to research by the Education Data Initiative, an organization that gathers statistics about the U.S. education system, the average price of going to college has “more than doubled” since the turn of the millennium.
The Education Data Initiative estimates that it now costs the average student living on campus nearly $60,000 a year to attend an American private university. This amount includes tuition fees, books and daily living expenses.
What is a 529 college savings plan?
Typically, parents in the U.S. take out what’s known as a ‘529 savings plan’ when they set about building up a college fund for their offspring. Sponsored by a state or an educational institution, these plans come with tax advantages, explains Investopedia’s Julia Kagan, such as tax-deferred investment growth.
Among the different 529 formats, moreover, there is the ‘prepaid tuition plan’. A prepaid plan allows Americans to lock in future tuition fees at today’s prices, enabling them to make considerable potential savings on the amounts that institutions will be charging by the time their child reaches university age.
As is pointed out by the finance blog Crypto Coin Toss, 529 savings plans are a stable investment - but may not offer the depositor much of a return. They also come with disadvantages such as penalties if you don’t use them specifically for education, while prepaid plans don’t cover expenses like accommodation.
“The math is pretty clear to me”
One parent who spoke to Bloomberg, 30-year-old Alex Crognale, explained that Bitcoin’s greater potential returns, and lack of constraints on how to spend them, have convinced him to opt for cryptocurrency investment. “The math is pretty clear to me that following the herd and doing this 529 plan will not put my child in the most opportunistic position in the future,” Crognale said.
Another parent whose offspring’s college fund is now in Bitcoin, 43-year-old Travis Headley, told Bloomberg News: “I came to the conclusion that if I’m doing it for my personal savings, why am I not doing it for my kids?”
What are the major downsides to cryptocurrency?
As is noted by Bankrate’s James Royal and Erin Kennedy, Bitcoin certainly does offer the potential for your initial investment to multiply severalfold. After all, the value of one Bitcoin has risen from one-tenth of a cent when the first was bought in 2009, to around $100,000 today.
That said, cryptocurrency represents a far more volatile investment than a traditional college savings plan. While Bitcoin has risen enormously in value over the past decade and a half, this increase has been far from linear. Between September 2021 and the end of 2022, indeed, the cryptocurrency’s value plummeted by around 75%, from nearly $67,000 to just over $17,000.
Royal and Kennedy also stress, however, that Bitcoin comes with a fundamental feature that may well favor its continued growth in value. With the number of coins that can be generated restricted at 21 million, this limited supply paves the way for an “ever-increasing demand”, they say.
The Wall Street Journal’s Alexander Osipovich also highlights this point, citing Bitcoin proponents who insist its recovery from its slump can be expected to persist precisely because of the cap on its supply.
So what’s the best plan for you? 529 or Bitcoin?
For parents who are undecided over the relative merits of a traditional college savings plan versus cryptocurrency investment, Crypto Coin Toss suggests hedging your bets.
In a post in November, the blog advocated spreading your college fund across cryptocurrency and a 529 plan, declaring that this “offers the best of both worlds”.
Parents get “the stability and tax advantages of a traditional college savings plan combined with the flexibility and growth potential of Bitcoin”, Crypto Coin Toss explained. “While Bitcoin carries risks, its potential for exponential growth makes it a compelling addition to any college savings strategy.”
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