Time to Break Open the Piggy Bank: Parents Expect Kids to Pay for More Than One-Third of College Costs
Fidelity® Study Reports Parents Plan to Cover 64 Percent of Their Children’s College Costs, But Are on Track to Reach Just 28 Percent of that Savings Goal
BOSTON--(BUSINESS WIRE)--With the cost of college doubling every nine years1, many parents are finding it difficult to pay the full bill for their children’s college education. According to Fidelity Investments’ 8th annual College Savings Indicator Study, parents report that, on average, they plan to cover 64 percent of their children’s total college costs. While this percentage is up from recent years (62 percent last year and 57 percent in 2012), parents remain behind in their savings efforts and are on track to save just 28 percent of that goal. Meanwhile, parents expect their children to make considerable contributions to help pay college expenses -- an average of 35 percent –- by tapping their own savings, income from working part time jobs and student loans.
“These findings indicate that even though families that use advisors may have the means to pay for a larger share of their children’s college education, they still want their child to value that education by understanding and contributing to the cost”
Despite these challenges, many families have yet to strategize how to pay future college bills. While most parents (85 percent) agree that their children should help contribute, only 57 percent of parents with kids age 13+ have talked to them about how the family will fund their education. These family discussions are critical to helping children understand the total cost of college, to manage expectations, and to encourage positive saving habits -- yet just one-third (34 percent) of parents have actually asked their kids to start setting aside savings.
Although parents need children to take on more responsibility, they still worry about how student loan debt may affect their child’s future. Eight out of 10 parents are concerned that student loan debt will hinder their child’s ability to be financially independent post-graduation, and are committed to helping.
“Parents are taking a team approach to college funding, which is perhaps a more practical way to look at it, since it can be valuable for kids to have some ‘skin in the game’ when it comes to their education,” said Keith Bernhardt, vice president of college planning at Fidelity.
“Working together to talk through priorities and determine opportunities to save can help families develop a solid, realistic plan that they can stick to—which is imperative, given that most families need to step up their savings efforts to help meet college goals,” Bernhardt added.
More Financial Advisors Bringing College Planning to the Forefront
One-third (33 percent) of families are seeking professional financial advice, and they’re looking to financial advisors for more than just help with how to invest their college savings. More than one-third of families that use an advisor (36 percent) said that they would like their advisors to help them determine the share of college costs that they and their children should bear, and two-thirds (65 percent) of those who use an advisor have talked to their child about how the family will pay for their college education.
“These findings indicate that even though families that use advisors may have the means to pay for a larger share of their children’s college education, they still want their child to value that education by understanding and contributing to the cost,” said Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions. “The results also suggest that families are looking for help in determining ‘who should pay for what’ when it comes to college, and that advisors can –- and should -– have a larger role in these sometimes delicate family conversations.”
Five Best Practices that can Help Step-Up College Savings
According to this year’s study, saving for college is parents’ No. 2 savings priority – just behind saving for retirement. The good news is the majority of families (64 percent) have started saving. Of those, 35 percent are using a dedicated college savings account, such as a 529 plan, and 70 percent are saving monthly, reporting a median contribution of $250 per month. The bad news: many are still significantly off track in reaching their college saving goals. To help families focus their savings efforts and improve their readiness, Fidelity suggests five steps to consider:
1. Create a road map. Fifty-nine percent of parents have a plan in place to help them reach their college goals. Having that plan can help keep college top of mind throughout the year and increase peace of mind. While they still have work to do, those with a plan are more likely to feel on track to reach their goal (52 percent) than those without (16 percent).
2. Commit to college savings using a 529 college savings plan. Ninety-three percent of parents saving in a dedicated college account say it helps them save and stay on track, while also separating college savings from other short-term goals. Families using 529 accounts feel more confident about how best to save, save more each month and are more likely to have talked to their children, creating a family plan to pay for college.
3. Save where you’re already spending. It’s easy to recognize the need to save more, but where do families find those dollars?
- Put everyday spending to work. Consider using a rewards credit card that can help earn money toward college savings – one either directly connected to a 529 plan, or one earning cash back that can be earmarked for college savings. Twenty-four percent of families are already taking advantage of these rewards, and it’s a simple change for those families who haven’t yet started.
- Ask friends and family. Many family members would likely welcome the opportunity to support college goals, rather than figure out the latest toy or game to buy. In fact, Fidelity’s Grandparents and College Savings Study found an overwhelming 90 percent of grandparents said if asked, they would be likely to make a gift to college savings in lieu of traditional gifts for birthdays, holidays or other special occasions. Currently, only 21 percent of parents report asking family and friends to consider gifting to a college fund.
- Remember to re-allocate the pre-school dollars. Parents report shelling out an average of $790 in monthly fees for daycare and afterschool care – dollars that could be redirected to a 529 or other dedicated account once your child “graduates” in the years to come. Fifty-six percent of those currently paying these fees plan to re-allocate some of those dollars to college savings as kids get older.
4. Do your homework. While parents may recognize the need to save more, many are unfamiliar how to start. Approximately half report they need additional education when it comes to how best to save for college, saying they either don’t know, or need more information about: what accounts are best to save (49 percent), how to invest savings (50 percent) or where to go for advice about college savings (48 percent). This lack of clarity can lead to confusion, which reinforces the need for parents to educate themselves about the college savings and funding process.
5. Expand your family’s college savings team. While six out of 10 parents report feeling overwhelmed by saving for college, they should remember they don’t need to tackle the college saving and planning process alone. Financial professionals, school counselors and college planning pros are available to help. Seven out of 10 families working with a professional feel confident that they have a good understanding of how best to save for college.
Fidelity’s College Savings Resource Center Can Help
Fidelity’s College Savings Resource Center provides families a range of online planning tools and calculators, an overview of savings options and strategies, as well as resources to learn more about how to search and apply for financial aid and scholarships. Also, a series of Viewpoints articles provide additional insights on college topics, including: The ABC’s of 529 college savings plans, How much college can you afford? and the Student loan guide.
In-person guidance from college planning representatives and college planning seminars are available at Fidelity’s 183 nationwide investor centers. Fidelity also provides financial advisor clients with 529 plan information, marketing support and online tools such as the 529 State Tax Deduction Calculator and the College Savings Planning tool. Financial advisors can get more information at advisor.fidelity.com/529 or 1-800-544-9999.
About the Fidelity Investments 2014 College Savings Indicator Study
As part of the study, Fidelity conducted a survey of parents with college-bound children of all ages. Parents provided data on their current and projected household asset levels including college savings, use of an investment advisor and general expectations and attitudes toward financing their children’s college education. Using Fidelity’s proprietary asset-liability modeling engine, the company was able to calculate future college savings levels per household against anticipated college costs. The results provide insight into the financial challenges parents face in saving for college. Data for the Indicator (number of children in household, time to matriculation, school type, current savings and expected future contributions) were collected by Boston Research Technologies, an independent research firm, through an online survey from June 3 – June 30, 2014 of more than 2,500 parents nationwide with children aged 18 and younger who are expected to attend college. The survey respondents had household incomes of $30,000 a year or more, and were the financial decision makers in their household. College costs were sourced from the College Board’s Trends in College Pricing 2013. Future assets per household were computed by Strategic Advisers, Inc. (a registered investment adviser and wholly owned subsidiary of FMR LLC). Within Fidelity’s asset-liability model, Monte Carlo simulations were used to estimate future assets at a 75 percent confidence level. The results of the Fidelity College Savings Indicator may not be representative of all parents and students meeting the same criteria as those surveyed for this study.
About Fidelity Investments
Fidelity’s goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $4.8 trillion, including managed assets of $2.0 trillion as of July 31, 2014, we focus on meeting the unique needs of a diverse set of customers: helping 23 million people investing their own life savings, 20,000 businesses to manage their employee benefit programs, as well as providing 10,000 advisors and brokers with technology solutions to invest their own clients’ money. Privately held for nearly 70 years, Fidelity’s 41,000 employees are focused on the long-term success of our customers.
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