Thomas and Ginny Chase
Planning and Saving for Their Children's College Education
Jimmy is age 5 and Ella is age 1
Assumed Variables
Amount per child invested today	18,500
Cost per year of College Today	$22,000
Return	8%
College Inflation	6.50%
Years until College for Jimmy	13
Years until College Ella	17
Years in College	4
Inflation Adj return	0.94%
Today's	Cost in	Cost in
Cost	13 years	17 years
$22,000	$49,885	$64,175
Amount needed at Jimmy's college start
$196,772
Amount Needed to save each year for Jimmy
$7,181
Amount needed at Ella's college start
$253,140
Amount Need to save each year for Ella
$5,886
Total Amount to Save Years 1 - 13	(per year)	(per month)
	$13,067	$1,089
Total Amount to Save Years 14 - 17	(per year)	(per month)
	$5,886	$491

Both Thomas and Ginny Chase took the ASI Behavioral IQ Quiz. Below are their scores in Exhibit 1

Exhibit 1

	Risk Tolerance	Loss Aversion	Total Score
Thomas Chase	Medium low	high	30
Ginny Chase	Medium high	low	70

Exhibit 2 presents the expected returns for various asset classes along with their expected standard deviation for each asset class.

Exhibit 2

	Expected Rates of Return	Standard Deviation of Returns
Cash and Money Market Fund	2%	1.5%
Treasury Bonds/Bond Funds	4%	2%
Corporate Bonds/Bond Funds	5%	4%
International Bond Funds	6%	5%
S&P 500 Index Fund	8%	12%
Large Cap Funds/Stocks	8%	13%
Mid/Small Cap Funds/Stocks	10%	17%
International Stock Funds	12%	20%
Real Estate Funds	9%	13%

Thomas and Ginny do not want to save more than $900 per month towards their childrens college education.

Please start with the solution that I have posted. I assumed there are only 13 years to save for Jimmy (age 5) and 17 years for Ella (age 1).

To do Part 2 you have two constraints: 1) building an asset allocation that adheres to their risk profile and 2) the maximum amount they can save each month.

I have posted in BB their risk profile and below is their max monthly contribution. They are a couple and like most couples they have different risk profiles. You need to come up with some type of average. For example, if they are very risk adverse you cannot put them in risky securities. Safer securities mean lower returns. The lower return could mean they would need to save more than their max (which they cannot). These are the issues that make saving for financial goals difficult. There is no one right answer.

Constraint: The max contribution is $900 per month total for both children