College Savings Falling Short
Saving for college tuition remains a top priority among families–but more in concept than in practice. That‚s the conclusion of a recent study that found 41% of respondents were saving far less than they needed.
"Parents could be in for an unpleasant surprise when the time comes for them to pay for their children‚s college education," says Elaine M. Sullivan, senior vice president and director of education savings for Putnam Investments, which commissioned the survey. "However, if they have a realistic idea of what college will cost and learn to use existing investment vehicles, they will be in a better position to help their children."
The survey–which polled 499 adults with children or grandchildren who plan to go to college–found that 41% expected to save $20,000 or less by the time their youngest children were ready to attend college. That, Putnam says, compares to an average price of $45,000 for in-state residents to study for four years at a state college.
Still, 86% of respondents described saving for college costs as their "top priority." And, despite the finding that 41% were lagging in their savings, 67% felt confident they could pay for their children‚s education.
The discrepancy between what parents feel is important and how well they save is not unusual, says Dr. Richard Geist, a Harvard Medical School instructor and president of the Institute of Psychology and Investing in Newton, Mass.
"Psychologically, most parents focus heavily on their children‚s present needs rather than their long-term financial requirements," he says. "In addition, the future costs of college are so overwhelming that they use denial to cope with their anxiety."
The survey also found that:
• About half of respondents save money on a monthly basis for future college costs, and 59% say they would save more if they could contribute to a plan through payroll deductions.
• Few people were using tax-deferred college savings plans. Only 7% use a Section 529 plan and only 12% use an Education IRA.