More parents have crafted a financial plan to reach their college savings goals this year, with 62% of parents citing a plan that guides savings for college costs, up from 59% in 2014. Parents are also using 529 plans at a greater rate (39%, up from 32% in 2014), according to Fidelity Investments’ annual College Savings Indicator Study.
The study shows parents in total expect to shoulder an average of 66% of their children’s college costs, up from 57% in 2012. However, American families are on track to save in advance just 27% of what they will need. This implies greater debt levels and reduced financial wellness for parents and children, Fidelity warns.
Millennial parents, those born between 1981 and 1997, are even more determined to shoulder their children’s college costs, with Millennials hoping to take on 74% of these costs—more than older generations. In addition, 46% intend to pay the college bills entirety for their children.
Fidelity finds 71% of Millennial parents are actively saving for college, and 68% have a financial plan for this goal. Of all age demographics, Millennials are most likely to save in a college savings account (43%), save every month (79%) and have increased the amount they save every month since last year (58%). One of the reasons why Millennials are planning to be generous, Fidelity says, is that 56% of them are still paying back student loans.
“Millennials have weathered challenging economic conditions for much of their adulthood,” says Keith Bernhardt, vice president of retirement and college products at Fidelity. “Many have channeled that experience into setting college savings goals early, and taking steps to make savings a regular habit. It is critical that parents of all ages establish college savings goals that are practical for their family’s individual circumstances and get the guidance they need to ensure they have an effective savings strategy to help them achieve those goals.”
NEXT: Millennials are seeking help
More than one-third (35%) of Millennial parents are working with a financial adviser on their college savings plan, and of this group, 78% say working with an adviser has helped them get closer to their goals.
“Millennials are optimistic and proactive about covering the cost of their children’s college education, and advisers can provide them with the tools and expertise to reach those goals,” says Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions. “Among some younger parents, there are misconceptions about topics such as eligibility for financial aid, whether financial aid needs to be paid back and when to start saving. Advisers are uniquely positioned to debunk these myths and recommend strategies for effective college savings.”
To help parents determine a savings plan, Fidelity has developed the College Savings Quick Check calculator. It asks them what their total savings goal is and how many years they have left to save and then lets them now how much they should be saving every month.
Boston Research Technologies conducted the survey among 2,470 parents between June 5 and July 6 for Fidelity.