Parents & Kids are Pulling Together to Meet College Expenses
Recent economic conditions have impacted families in many ways, one of which is in regards to saving for college. Today’s competitive job market has emphasized the importance of having a college degree, while making the strains to fund it even more difficult.
I was interested to know how parents and students were coping with this reality, and if any changes were being made as a result. Through some research, I found a recent study Fidelity conducted which surveys how well parents are prepared to meet future college expenses.*
The survey indicates that more parents are saving, but the funding gap has widened:
- 63% of parents have started saving for college vs. 60% last year
- These parents are on track to cover an estimated 18% of future expenses vs. 21% last year
There are two main factors causing the gap; (1) the market downturn has caused many college savings accounts to decrease, and (2) while the current economic environment has kept costs for most goods and services low, college tuition continues to rise.
To compensate for this savings shortfall, the survey indicates:
- 17% of parents plan to have a non-working spouse return to work (vs. 13% in 2008)
- 17% plan to have themselves or their spouse take a second job
- 50% plan to have college students live at home and commute (vs. 44% in 2008 and 38% in 2007).
- 43% will delay retirement in order to pay for college expenses (35% in 2008).
The last solution is one that makes me uncomfortable. As I wrote in an earlier post – I believe parents should place a higher priority on saving for their own retirement, but I can understand why you would want to help your children (in fact my wife and I have started a 529 plan for our son). With all the alternatives available today, my personal opinion is to utilize any other options first before you even consider sacrificing your retirement goals.
The good news is that you don’t have to carry the full load – it appears from the survey that children understand the financial constraints many families are facing and are willing to help out:
- 73% of students are selecting colleges based on cost
- 42% would help by using their personal savings
- 76% plan to work during school
- 36% plan to take classes at a less expensive school and transfer credits later
- 36% are taking advanced placement class to earn college credit
In a perfect world, we’d all love to be confident about covering our kids’ education. Even with careful and early planning, this may not always be obtainable due to unexpected events along the way. As I look back on my personal experience, I found that covering some of my education was actually beneficial. Juggling work and school taught me important lessons about time management and made me treasure my accomplishments.
*For more information regarding this survey, click here (look for the survey from Sept 17th).
You can also listen to an interview our Chief Investment Officer, Adam Bold, conducted on the topic of finding the right school at the right price.
Do you have any suggestions or ideas on how to best prepare for college expenses? Please add your comments below.
Kevin Jaegers, Senior Investment Advisor
