Reuters Money

Dan Greenshields is president of ShareBuilder. The opinions expressed here are his own.

Millions of children are getting ready to head back to school. Their parents have a long to-do list before them as well. My wife and I have had to purchase school supplies and new clothes, schedule haircuts, and make sure the kids have finished off their summer reading lists.

Unfortunately, this flurry of activities causes many parents to lose sight of another critical component of any back-to-school checklist: financial planning for our children’s future.

College is one of the best ways to increase a child’s chances for success. But it’s getting more expensive every year. In 2009, private school tuition rose 4.4 percent, to an average of $26,273, according to the College Board. While public school is less expensive, its cost is rising even faster – last year, the average tuition at a public, in-state university rose 6.5 percent, to $7,020.

Planning ahead for this expense will ensure that it doesn’t sneak up on you. Whether you live in Seattle or San Antonio – and whether you expect your child to go to a big state school or a tiny liberal arts college – such planning begins with an assessment of your present situation.

The first questions are easy: How old is your child? And have you started to save?

In the blink of an eye, this year’s fifth graders will be headed off to college. So the sooner you begin saving, the better.  I speak from experience.  My son is 11 and my daughter is 9. College and the costs – times two – that come with it are just around the corner.

While many people focus on 529 plans, other straightforward savings vehicles shouldn’t be overlooked. Both Education Savings Accounts (ESAs) and custodial accounts can be opened with most brokerages using the child’s Social Security number. Yet, each account offers different advantages.

Let’s start with ESAs. You can contribute up to $2,000 per beneficiary in these generally no-fee accounts each year until your child turns 18 years old. ESAs are like individual retirement accounts for educational expenses. They give the account holder choices about how the funds within them are invested – perhaps in stocks, bonds, ETFs or mutual funds, for instance – and how those funds are eventually disbursed.

ESAs offer several advantages. Although contributions aren’t tax-deductible, funds in the account grow tax free until distribution. Education expenses are broadly defined.  Parents can make tax-free withdrawals to pay for qualified expenses – like books, computers, and other school supplies.

Higher-income earners –  singles whose modified adjusted gross income is over $110,000 and couples whose modified adjusted gross income is more than $220,000 – aren’t eligible. But everyone else can easily open an ESA at almost any financial institution that handles investment accounts.

Custodial accounts are another option – especially for parents who don’t qualify for an ESA. You can open one on behalf of your child regardless of how much money you make or how much you plan to put in each year. There are no contribution limits and money can be withdrawn at anytime and for any purpose as long as the child on the account benefits.

These accounts also qualify for the annual $13,000 federal gift tax exclusion, which can help reduce your estate tax burden while keeping assets within your family.

Custodial accounts are designed to give children a financial head start – by law, they can only be used to benefit the child whose name is on the account. If you start early enough, those benefits can be significant. If you put $200 a month into an account that earns 8 percent annually, you’ll have an account worth $36,000 after a decade. Over twenty years that account could grow to over $116,000.

Of course, early planning is key. And the benefits of savings aren’t just monetary.

Talking with your child about his or her ESA or Custodial account will help instill good financial values – no small thing in a country where high school seniors two years ago answered fewer than half of the questions on the Jump$tart Coalition for Personal Financial Literacy’s test of basic financial knowledge correctly. There’s no better way to put your child on the road to financial literacy than by introducing him to the power of compound interest firsthand.

With college costs rising at eye-popping rates, it’s more important than ever to start saving for big educational expenses as soon as possible – even if your children are just starting preschool.

No parent – myself included – wants their child to start the school year unprepared. But your child’s back-to-school prep will not be complete without thoughtful consideration of how you can invest in his or her educational future.