Higher education is an important priority for parents, so much so that they’re willing to go into debt and forgo their own retirement savings to pay for it. HSBC surveyed more than 6,240 parents in 15 countries and found 60% would go into debt to pay for their children’s education.
The same percentage of U.S. parents agreed. However, U.S. parents spend almost twice as much as the global average: $14,678 a year, compared with $7,631. Least likely to take on debt were parents in the U.K. (43%), Australia (44%) and France (46%).
Furthermore, 37% of parents say education funding is more important than saving for retirement, and more than a quarter say it’s the last thing they’d cut back on, after paying the mortgage, household bills or credit card payments.
This is troubling considering most parents aren’t waiting until the last minute to start planning. Over two-thirds start making financial decisions related to their children’s education before they reach primary school. Almost a quarter started when their child was born, and 15% were thinking about it even before their child was born.
Still, 61% of parents are paying for their children’s education from their day-to-day income, and 58% said it makes meeting other financial obligations difficult.
“Our survey tells us that three in five parents in the U.S. start planning for funding their child’s education before they even started school, yet a similar proportion end up funding it from day-to-day income. It seems planning and taking action are not necessarily going hand in hand,” Michael Schweitzer, group head of sales and distribution of HSBC, told ThinkAdvisor in an email. “This in turn can make it harder for parents to juggle between their several financial commitments, and prevents them from putting money away to support their children’s studies in the longer term. Starting to save or invest early, even small amounts, can help bridge the funding gap.”
That their children should go to college is almost a given among parents; 100% of those under 34 and 95% of older parents said they would consider a college education for their kids. Interestingly, they were only slightly less likely to consider postgraduate education: 96% of younger parents and 91% of older parents said this was a priority.
Paying for school means more than just paying the university. Almost three-quarters of parents are paying for their college student’s insurance, 68% are paying for their phone or internet, and 63% are paying for their books. The students themselves are expected to pick up some portion of the bill, although this is slightly more expectation than reality. While 43% of parents said they expected their child to pay for some part of their education, just 37% of students are currently doing so. Most of that is going toward food, transportation and books.
Schweitzer noted that it’s important for advisors to “help parents put a plan it place so they can achieve their financial goals and ultimately support their child’s ambitions” – something they can likely start right away, considering 60% of parents start planning before their children start school and 15% start planning before they’re even born.
He added that advisors should revisit the plan with parents periodically to make sure they’re still on track.
“Professional financial advice can support parents in saving and investing suitably to minimize any shortfall, and be realistic about the ambitions they have and the costs associated with them. The impact of inflation, the investment horizon they need to plan against or the extra costs triggered by university abroad are some of the considerations professional advisors can help parents navigate.”
— Read Excess 529 Plan Funds: Putting Them to (Tax-Preferred) Work on ThinkAdvisor.