Why Most Parents Aren’t Saving for Their Kid’s College


College SavingsIf you had $5,000 floating around in your budget, what would you do with it?

A. Spend it on a family vacation to Hawaii or
B. Put it in your child’s college savings account

The responsible response would appear to be putting it in a 529 fund, but it seems a lot of parents are doing the opposite. A new survey from the Certified Financial Planner Board of Standards and the Consumer Federation of America reports that today more Americans save for big purchases, like cars and vacations, than for their children’s college education.

We all know that the cost of college is rising (to the tune of 15% between 2008 and 2010 for the average four-year university, actually), so we were left wondering–what’s up with that? Have parents just stopped bothering to save?

And if so … is that smart?

Studies Show Saving for College Isn’t a Priority

If we’re to believe the stats, college just doesn’t appear to be a top saving priority for Americans, anymore. Another study, this time from Country Financial Security Index, reported that only 57% of Americans believe that college merits the price tag—down from 81% in 2008.

Meanwhile, only 48% of respondents in the Certified Financial Planner (CFP®) Board of Standards survey who said they have the goal of sending a child to college have actually saved money or invested for college, down from 56% in 1997, and half of the survey respondents who plan to send their kids to college admit to feeling behind in their effort to save.

The numbers all point to the fact that parents don’t seem to be socking away money like they’d need to  … but why?

To Save or Not to Save?

To get to the bottom of this trend, we spoke to a few parents who admit to not saving for their kids’ college educations.

For dad Leighton Campbell it’s not a matter of not getting around to saving. It’s not even about not knowing how to do it. On the contrary, he and his wife have actually made a conscious decision not to save for college for their three children. “An expensive college education isn’t a good investment,” says Campbell. “Going to college is a requirement—it’s what opens doors—but getting a diploma from a good school no longer assures you will land a decent job. A student’s goal should be to get the cheapest accredited degree he can find.”

So what’s the plan for the Campbells? Mr. Campbell says that when his kids, who are currently under the age of five, enter high school, he will encourage them to get good grades in the hopes they can receive scholarships. They will also be responsible for getting jobs to cover college expenses.

Whether C. Lee Reed and her husband think college is worth it is besides the point: They’re putting any extra money they have towards their retirement funds in lieu of college saving. “There simply won’t be anyone around to help us out, unlike the opportunities for college-bound kids,” said Reed. (And financial planners would agree with her: Here’s more on why you should always tend to your retirement first.)

The Reeds’ daughter intends to go to a four-year college, and they’re fully aware that the costs will be great. “There are many funds available for children,” Reed added. “We fully believe she will appreciate [college] more having to earn or locate her own funds.”

Other parents who aren’t saving pointed to circumstances out of their control: Layoffs and mortgage payments put college saving on the backburner, and the combination of having large families and the rising costs of living make college saving a low priority for others.

If parents aren’t chipping in for college as much anymore, then who is? A lot of the burden of paying seems to be falling to the students themselves. In May, The New York Times reported that about two-thirds of bachelor’s degree recipients in 2007-2008 borrowed money to attend college, compared to 45% in 1992-1993.

Is Not Saving a Bad Choice?

So, is it really all that bad that parents aren’t saving for college?

The short answer: Yes, if your plan is to help them.

LearnVest Financial Planner Sophia Bera, CFP® weighed in on the new trend: “I think that a college degree is even more important now because it’s the baseline for most jobs,” she said.

According to Bera, a lot of parents are behind on their own financial goals, so when it comes to college, they may be thinking, “I don’t have anything saved now, so what’s the point?” But that isn’t the right attitude. “Save for college like you would for retirement,” says our financial planner, “As soon as you have a kid, put in as much money as you can, and increase the contribution each year.”  And if you’re torn about your options to save for both long-term goals at once, a LearnVest financial planner, like Bera, can help you prioritize.

Starting a 529 when your child is born means you won’t feel as strapped to save for it 10 or 15 years down the road. Of course, if you’re dealing with a timeline that’s much shorter than that, we talked all about the different college financing options here.

One final question we had was, with the rising costs of college, will a 529 plan be enough to pay for your child’s education in 15 years? “It can be, depending on how you fund it and what college your kid goes to,” Bera said.

Need to crunch the numbers? Other helpful college resources include our What to Sock Away for College Calculator, and this list of 529 resources.

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  • Clist

    I’m in agreement with the Reeds. My parents did not help me out, and I appreciated college a lot more than most of my friends whose parents assisted them. I will give my kids the same gift of being stingy.

  • Meijhen

    I do contribute to both of my children’s 529 funds, but it is minimal at this point.  We are struggling to pay off debt first.  Then, as the Reeds point out, there will not be anyone else to take care of us once we reach retirement age, whereas our kids will have plenty of options for dealing with university costs.

  • http://twitter.com/Gradsave GradSave 529 Savings

    I agree that saving for retirement is extremely important but with a new online college savings registry, called GradSave, parents, friends and family can pull together and donate to a child’s college education, instead of going toys or cloths for birthdays or holiday, making saving a lot easier.  It’s essentially “crowdfunding for college”.  www.gradsave.com

  • Cmoody975

    if you open a 529 for your child, let them use it no matter the size of the balance. all I’m going to say

  • sjdemo

    my dad paid for all of one degree — i have two bachelors’ — and i got loans and grants for the other. he also paid for housing, etc. while i was in school. hindsight and all, i wish i’d had to work for one and not gotten the other, or at least had to pay my own housing. i think i might have done better in school and figured out what i wanted to do sooner.
    we’ll have small savings for our kids –10k or so — by end of high school, but that’ll pay for what? one semester in 2025?

  • http://profile.yahoo.com/PDNGD7KDUVNLOSKYLCE7RX42WY B.C.A

    We were advised by a college financial planner (at an evening meeting at my daughter’s high school) that unless you had enough money to pay full price at college DON”T SAVE FOR IT! 
    Since few people can save enough for four years of college the first year the money will be considered available in full for your kid’s school (leaving you with nothing) and then the next year you are much less likely to get financial aid to cover, well, everything. 
    On the other hand if you have nothing most schools will assist you in cobbling together scholarships, grants and loans with the understanding that since you have no money in year 1 this will be an annual ritual.

  • Jeffrey Meek

    If it is free, it has no value.

  • Tom

    My parents pay for my college, 100% of it, but they don’t pay for me to party and BS, they would cut me off quickc it’s “pay for what I pass”, so far I have passed everything since starting college.

    When I have kids someday, they won’t get to travel the world like other kids, but they will get to go to college debt free, if you save $5/day per kid, that is the price of a cup of coffee every morning, or less than the cost of lunch out everyday, for 18 years+interest, it is over $32,000, send them to a junior college for their first 2 years(that’s what my parents did), have them live at home and commute to school. You can easily pay for a bachelors degree.

    If you can afford a vacation every year for your kids, you can afford college. You just have to pick one or the other.

    Reading articles like this tells me why Americans can’t build wealth.