Experts report that boomer families are increasingly recognizing 529 college savings plans as a flexible and valuable medium for funding their children’s higher education. A new study suggests, however, that many families are falling far short of their college savings goals.
The study from OFI Private Investments, a subsidiary of OppenheimerFunds, compared the college financing knowledge and goals of “savers,” who are currently saving for college, vs. “future savers,” who say they plan to begin saving for college in the future.
OFI’s study, the Private Investments College Savings Confidence Index, measured consumers’ stated beliefs–as well as actual behaviors–to provide an annual grade and consistent year-to-year evaluation of college savings.
OFI says it developed the index in part to show the gap between what families hope to achieve and what their behavior is likely to accomplish.
In the benchmark first year of the Index, OFI assigned a “D” to savers and an “F” to future savers.
On average, both groups were in the young end of the boomer generation: around 40-years old, with children averaging around age 9, meaning college would be typically about 9 years away.
Notable differences between savers and future savers: 72% of savers had college degrees vs. 39% of future savers, and 72% of savers were employed full time vs. 58% of future savers. Average household income for savers was around $116,000, compared to $67,000 for future savers.
Only 32% of families who are currently saving for their child’s college education are confident they will achieve their savings goals, according to the study, conducted by Cogent Research, Cambridge, Mass. Among future savers, faith in their college savings was even worse, with just 14% expressing such confidence.
The index also showed that only 3% of U.S. households currently have enough saved to pay for college.
Despite the benefits of 529 college savings plans, OFI found vast numbers of Americans are not taking advantage of these tax-advantaged accounts, which were established under Section 529 of the Internal Revenue Code.
“Now is the time for state-sponsored plans and financial services firms to reconsider their approach and more aggressively educate the American consumer about 529 plans and other savings options,” advises Raquel Granahan, director of 529 College Savings Plans for OppenheimerFunds.
While savers clearly know more about their choices than do future savers, the index shows that both sides are not fully informed, especially about 529 savings plans. For example:
o Only 51% of savers currently use or intend to use a 529 plan.
o For savers, 529 plans account for only about one-fifth of actual college savings
o Just 40% of future savers intend to use a 529 plan.
o 56% of future savers claim that they could “not explain a 529 plan at all to a colleague or a friend.”