Use coins to pay for children's college

Question from Brad: I heard that if I were to purchase a brand new roll of each coin (25¢-1¢) at the birth of my child and seal them in plastic and store them away, never opening them, that when that child is ready for college the coins will then be worth enough to pay for a good chunk of college. Is there any truth to this? Are mint condition, uncirculated coins worth a great deal even at 18-20 years of age.

If so, who would buy these coins, and why would they be worth a lot?

Answer: It’s a novel idea, but I’m afraid it’s rather far from reality. It’s not all bad, for the simple reason that you can’t lose any money. If the coins never go up in value, you can spend them and come out even, so by all means set the coins aside in case I’m wrong.

The thinking behind the recommendation is based on the fact that uncirculated coins become harder and harder to obtain as time passes. As I mentioned, since you paid face value for them, there’s no way you can get less than face value for them, so there’s no risk. But the claim that your upside will pay for college is where I take issue.

I realize that past performance is no guarantee of future results, but it can give you a general idea, so let’s run through a scenario. Let’s say you did this 18 years ago and now, in 2006, you want to send your kids to college with the earnings.

You have the following uncirculated rolls:

  • Cents: $0.50
  • Nickels: $2
  • Dimes: $5
  • Quarters: $10

You spent a total of $17.50 for the coins. I wasn’t able to find exact prices on eBay, but the rolls sell for around these prices:

  • Cents: $2
  • Nickels: $8
  • Dimes: $15
  • Quarters: $25

Now your coins are worth $50, an APY of a little over 6%. That might cover the application fee for applying to college, but probably wouldn’t even pay for a textbook, much less a large chunk of college.

If you had invested that same $17.50 in a 529, which gives you tax free growth and withdrawals for college, and you assume a fairly conservative 8% interest rate, you would have $73.51. That’s still not going to go very far, but it’s a little better.

As a side note, some financial analysts predict that college costs will be in the $150,000 range for a public, in-state 4-year college. They estimate the cost is growing at a staggering 5-7% rate of growth, meaning if you have any money that’s earning less than that, it will be falling behind instead of growing for college.

Even though the uncirculated rolls won’t pay for college, I have nothing against them. It’s a no-risk investment that has the potential to go up dramatically if you get lucky with a rare year, and they’re also extremely liquid.

Out of curiosity I wondered what would have happened if you had waited 40 years. If you set aside a roll of silver quarters in 1964 (okay, 42 years) you could sell that roll for almost $100 now. Sadly, that’s even worse than before at a 5.6% APY. If you had invested that same $10 in the stock market and left it alone, again assuming a conservative 8% return, you would have $284.70 today.

The lesson we can learn from this is that while coin collecting can be a fun hobby, the power of compound interest is where the real money’s at. :)

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