Arianna has just had a child. She and her husband's net income is $60,000 a year between them. She established a savings account for her child that needs to contain $90,000 after 18 years. What percent of her household's income will need to be set aside for the baby's college fund?

Question

Arianna has just had a child. She and her husband's net income is $60,000 a year between them. She established a savings account for her child that needs to contain $90,000 after 18 years. What percent of her household's income will need to be set aside for the baby's college fund?

A. 5.6%
B. 8.3%
C. 8%
D. 9.6%

Answer 1

The total savings needed for the child's college fund is $90,000.

The number of years until the child goes to college is 18.
Therefore, the amount that needs to be set aside each year is $90,000/18 = $5,000.
The total net income of Arianna and her husband is $60,000.
Therefore, the percentage of their net income that needs to be set aside for the baby's college fund is ($5,000/$60,000)x100 = 8.33%.
Therefore, the correct answer is B. 8.3%.