NU Online News Service, Aug. 28, 1:55 p.m. – U.S. parents want sky-high returns when they save to send their children to college, but they have little tolerance for risk, according to a new survey from Yankelovich Partners/Harris Interactive, Norwalk, Conn.
Yankelovich interviewed 510 parents with children under 18 between April 15 and May 15 for AEGON Institutional Markets Inc., Louisville, Ky., a unit of AEGON N.V., The Hague, The Netherlands.
Researchers found that parents had been spoiled by the stupendous stock market results for the late 1990s: they said they expected an average annual return of 24%, even though they had averaged a return of only 11% in 2000, and the average annual return is well under 10%.
But the researchers also found that parents had little understanding of the concept that the market tends to reward investors who take bigger risks with bigger rewards. Eighty-five percent of the parents interviewed said they would never do anything to gamble with their principal, 57% worry about the effects of fluctuations in the stock market, and 61% classify themselves as “conservative” investors.
Two-thirds of the parents told researchers they had started saving for their children’s education, and 40% said they saved regularly. The parents who said they saved regularly said they put aside an average of more than $2,500 a year per child.
More than half of the parents used savings accounts, and more than one-third using savings bonds and mutual funds.
Only 1% of the parents interviewed were using the recently introduced 529 college savings plans, which offer generous federal and state tax breaks on plan earnings, and only 8% of the parents were aware of the plans.
AEGON commissioned the survey in part because it hopes to market stable value funds?insurance-based savings products that rely mainly on investments in fixed-rate securities?through 529 programs.
Offering stable value funds could help bridge the gap between parents’ income expectations and relatively low tolerance for market fluctuations, AEGON says.