According to a study released Tuesday by Fidelity Investments, parents are ill-prepared to meet tuition costs, with their savings likely to cover only 16% of the bill. The data show that there have been a number of significant alterations in the way parents put away money for their children’s education.
The fifth annual College Savings Indicator, found that while overall preparedness to meet college tuition bills has shrunk since the study began—now at 16% for the second year in a row, down from 24% in the initial year of the study—a greater percentage of parents is putting aside money for college: 67% today, compared with 58% in 2007. Parents are saving earlier, too, with 40% putting away funds in a dedicated account when their children are between newborn and 5 years old, compared with only 27% in 2007.
Another way parents are coping is by asking their children to share the expense of college in a variety of ways—everything from completing a degree in fewer semesters to getting a part-time job to choosing a public college or university—and by getting a second job or sending a nonworking spouse back into the workplace.
Parents are also looking for outside help in their quest to put aside more money for their children’s education, with 33% turning to financial professionals for help—up from 21% in 2007. The difference an advisor can make clearly shows, with advised parents likely to cover 31% of the total cost—nearly double the amount all parents can expect to cover. Advisors also help parents save more systematically, with 61% of them doing so compared with 51% who are saving on their own.
Another distinguishing factor between advised parents and those going it alone is that 56% of advised parents use dedicated accounts such as 529 plans, whereas only 28% of unadvised parents use them. However, only 38% of advisors suggest them—indicating there is room to grow.
Joseph Ciccariello, vice president, Fidelity Investments College Planning, said of the results in a statement, “Families are planning earlier and saving more efficiently, yet with college costs increasing 26% in a five-year period, saving for college will continue to be a challenge. Working with an expert to map out a savings strategy early—and setting up a dedicated account like a 529 plan—can help parents better prepare for rising college costs.”