For the past two weeks I've talked about investments for teenagers, specifically on how to help them understand diversification and to find ways for them to begin saving in their custodial account portfolios. But, does all this hard work pay off when it's time for the kids to go to college? What if little Jane and Joe saved so much that they've knocked themselves out of the running for college funds? On the other hand, what if they (or their parents) haven't saved enough for their college education?

First, a look at how much your child could possibly save if they begin to invest at age thirteen and if they plan to attend college at age eighteen. If they follow the investment plan mentioned last week, where a parent invests for their teen $40 per month into two stocks over a period of five years (with parental financial help), that teen would save $2,400 ($40 x 12 months = $480 x 5 years = $2,400). This figure does not include any gains or losses incurred over that period, nor does it reflect yearly inflation or increases in college costs over that same time frame. You'll need to go to a search engine and type "college savings calculator" to find those figures.

I went to the Motley Fool for help, where I plugged in $18,000 for the college cost per year. This amount will vary widely based on which college your child chooses to attend. I chose that number because it represents on average what I was charged annually over the past four years for my college education. The other numbers used to calculate this cost included years of college (4); years until college (the difference between the age of your child now and the age when they plan to attend college); college savings to date ($0 for this household); amount saved monthly ($40 based on the plan mentioned last week); savings rate (8% - an average based on historic yearly stock market returns); inflation rate (left this at 3%); Federal tax rate (15% +, check IRS tax tables); state tax rate (this will vary, dependent upon where you live). Please remember that the securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results.

After I filled out this form, I discovered that Cora - my 16-year-old daughter - would save $1,579 over the next three years based on the $40/month plan, but that she (read: her parents) will need to accumulate $73,770 to pay for her tuition if she attends a college that charges $18,000 per year. One alternative to help save for this tuition is to increase the amount that Cora (or her parents) invests (through her parents) to $1,039 per month. Or, we could look for an investment with a return rate of 201.03%, but that's a little like looking for the proverbial needle in the haystack. Or, we could plead "need" and look for funds for her education.

When it comes to college funds, a teen's net worth and income is just a small part of the picture when that teen is still listed as a dependent on his or her parents' income tax forms while she attends college. Other variables that alter eligibility for college funds include whether that teen has military experience, is married and living at home or away from home, and/or whether that teen has dependents as well. One way to determine how your teen will be affected by these variables is to visit the FAFSA (Free Application for Federal Student Aid) Worksheet, a PDF file that helps future students and their parents determine eligibility for grants or loans.

The FAFSA worksheet has changed little over the past four years, so the use of this tool to help determine your child's educational future within the next four years is appropriate. What has changed and will continue to change are specific college funds. Funds available from various colleges vary widely and are dependent upon whether the college is state-run or if it is a private school. State colleges are usually less expensive and may have a wider range of funds available. But, if your teenager wants to save money by going this route you might want to check to see whether his or her grades will be accepted by larger institutions if Jane or Joe wants to reach for a Masters degree or a Ph.D. after finalizing that undergraduate degree.

Ambition certainly plays a role in funding for college, because grades affect whether funds outside of loans become available for further education. For instance, if your teen recently suffered through the ACT (American College Test) or the SAT recently, you may know how important these scores are when it comes to college acceptance. You may not know that these test scores also affect whether your child pays full price for college or if they get a break on tuition.

The best way to determine whether your child is eligible for merit funds rather than "need-based" funds is to look for scholarships. Each merit scholarship is different, with some based on grades and scores alone, and with some based on competitive skills, which include writing. Other scholarships are granted to students based on their ethnicity, their military experience or a parent's veteran status, and whether the student has physical barriers such as blindness, but many of these scholarships also add the criteria of high grades and test scores. Search engines, like the one located at GoCollege, help with scholarship research, but colleges also maintain specific scholarship programs that should not be overlooked.

So is it really worthwhile to work with your teen to develop a diversified portfolio with the focus on saving for college, especially if the savings will equal the price of one college class? I believe so, because saving and investing means more than plopping a monthly sum into that portfolio. A college search and a way to pay for that experience is a lot like research for stock market choices because higher education represents an investment laced with discipline. This process begins way before college applications are dropped into the mailbox and ends - hopefully - with an increase in employment monies based on that degree.

Until Next Week,
Linda Goin