Close
ThinkAdvisor

Financial Planning > College Planning > Saving for College

Millennial Parents Want to Save for College but Need Some Good Advice

X
Your article was successfully shared with the contacts you provided.

Advisors seeking millennial clients, take note: Young parents are more ambitious than older ones when it comes for saving for their children’s college education. But many are falling short of their goals, and they are open to advice.

In an era when many American families are weighed down by student loan debt, an all-time high of 69% of families are saving for college, Fidelity Investments reported Thursday. Millennial parents are particularly ambitious; nearly half want to pay their children’s full tuition. But most parents aren’t on track to accomplish that.

Fidelity’s ninth annual College Savings Indicator Study showed that millennial parents were adopting smart college savings habits at a higher rate than older parents.

Among all parents surveyed, 62% were saving strategically by developing financial plans, up from 59% in last year’s study, and 39% were using tax-advantaged 529 college savings plans, up from 32% in 2014.

Moreover, 66% of parents said they intended to take on a larger portion of their children’s anticipated college costs, compared with 57% who said this in 2012.

Good intentions aside, the study found that families were going to have saved just 27% of their college funding goals by the time the bills started coming in.

This means parents still have work to do on the savings front, and professional financial advice can be a significant factor in this, Fidelity said.

“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,” Keith Bernhardt, Fidelity’s vice president of retirement and college products, said in a statement.

Data for the study were collected by Boston Research Technologies, an independent research firm, through an online survey between June 5 and July 6 from 2,470 parents nationwide with children age 18 and younger who were expected to attend college. Survey respondents had household incomes of $30,000 a year or more, and were the financial decision makers in their household.

Ambitious Millennials

Respondents in the millennial generation planned to defray 74% of their children’s college costs, a more ambitious goal than that of older generations. In addition, 46% said they intended to pay their children’s full tuition bill.

What’s on millennial parents’ mind when looking forward to their children’s college years?

“Millennials have weathered challenging economic conditions for much of their adulthood,” Bernhardt said. “Many have channeled that experience into setting college savings goals early, and taking steps to make savings a regular habit.”

Fifty-six percent of millennial parents who graduated with student debt are still paying off these loans, Fidelity reported.

It said millennial parents were taking several steps to help ensure their children will enter adulthood on better financial footing:

  • 71% are actively saving for college for their children
  • 68% have a plan in place to help them save for this goal and stay on track
  • 43% are likely to save in a 529 college savings account, 79% to save monthly and 58% to have increased the percentage they save monthly over the past year
  • 91% of parents still repaying student debt plan to reallocate those dollars toward their children’s college fund once they are finish paying off their loans

Fidelity’s research showed that over the course of its annual studies, parents showed more awareness and were adopting smart saving habits. It compared parents who were 30 to 34 in 2007 with those who were 30 to 34 in 2015:

  • 58% in 2007 had started saving for college vs. 74% in 2015
  • 25% used a dedicated college savings account vs. 40%
  • Had saved a median $1,000 in 2006 vs. a median of $1,500 in 2014
  • Reported a median $3,800 saved overall vs. a median of $5,000
  • 16% planned to pay for all college costs vs. 48%
  • 15% worked with a financial professional vs. 38%

Even with these changes, 55% of millennials in the current study felt they were not on target in their college savings efforts, an indication additional guidance and education were needed, Fidelity said.

Advisor Alert

According to the study, today’s younger parents are seeking out financial advice at a much higher rate than their same-age counterparts in 2007.

Among all millennial parents in the new study, 35% had established a relationship with an advisor to obtain guidance for their college planning. Of these, 78% said working with an advisor had helped them get closer to their college savings goal.

Millennial parents also showed more willingness than their older counterparts to discuss college costs with their children.

Fidelity said advisors could facilitate these discussions, setting expectations of the debt parents and children may accrue, and help to determine whether it was realistic for parents to assume the full burden of their children’s college costs.

“Millennials are optimistic and proactive about covering the cost of their children’s college education, and advisors can provide them with the tools and expertise to reach their goals,” Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions, said in the statement.

“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. Advisors are uniquely positioned to debunk these myths and recommend strategies for effective college savings.”

To give parents a better sense of their progress toward their college savings goals, Fidelity said it had developed an interactive calculator to quickly give families a sense for how overall savings goals could translate to monthly savings goals and how these savings could grow over time.

It also shows the benefit of starting to save earlier, and the effect a moderate increase in monthly savings could have longer term.

More on this topic