The study found that 67% of parents have begun saving for their children’s college expenses, which is up from 58% in 2007. However, the percentage of college costs these parents are expected to accumulate is only 16% of the total expense. In 2007 when the survey was first conducted, parents were expected to save 24% of total costs.
However, this harrowing statistic can be expected to change in the coming decade. Fidelity found that the number of parents of preschool-aged children who are saving for college is growing dramatically. Over 40% of parents with preschool-aged children (ages 0-5) have started saving for college in a dedicated account versus only 28% of parents with children already in high school (ages 14-18). And because they’ve started saving while their children still have more than 10 years until college, they will have accumulated much more savings than parents who waited until their children were older to start saving.
“As parents see the cost of college continuing to increase each year, they are realizing they need to start saving earlier to meet those rising costs,” said Joe Ciccariello, vice president, Fidelity Investments College Planning. “While starting early is a critical step, it’s never too late for parents with older children to start contributing or, at the very least, engage in conversations with their children about paying for college.”
Fidelity also produced new college savings guidelines to help parents quantify how much they should save annually in a 529 savings account in order to be prepared for future college expenses. These new guidelines calculate the true cost of tuition for public and private schools after scholarships, grants and expected family contributions are factored in, and provide guidelines of what the percentage of income parents should save each year to meet these costs.
In its press release, Fidelity used as an example a family making $75,000 a year who expect to send their child to a four-year public college or university. Fidelity calculated that they would need to save 3% of their salary in a 529 plan each year (roughly $2,250 a year or $190 a month) over an 18-year period in order to have saved sufficient funds to cover all qualified college expenses after grants and scholarships are factored in.
With the majority of parents aware of the need to save for college, why are so many families still falling drastically short of what college actually costs? As with nearly everything these days – the economy is largely to blame.
Nearly a third of parents surveyed withdrew from their child’s college savings account to meet other financial needs, with 13% saying it was due to a job loss. Other reasons reported for accessing the accounts were to help pay basic living expenses (25%) and to pay for unexpected medical costs (14%).
Fidelity found that in this volatile marketplace, more parents of high-school aged children sought help from financial advisers than in previous years – 33%, up from 28% in 2009.