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Parents Reveal Top College Savings Strategies
Most families have a long list of savings priorities – from paying day-to-day expenses to saving for retirement, or building a home improvements fund, just to name a few. So where does saving for college fit? Fidelity recently surveyed parents across the country to find out what college savings goals families have set for this year and how they intend to stick to them.
According to the College Savings Resolutions Study1 , 85 percent of parents report saving for college as one of their top three savings priorities for 2014, along with saving for retirement and building an emergency fund. One-third of families say it is their top savings priority this year. Parents also report that they are setting specific goals. Sixty percent say they intend to save more than they did last year, with the average family planning to set aside at least $405 per month towards their college fund.
The most important step towards saving is to get started early. The earlier you start, the more time your savings have to grow. For families just starting to save, consider opening a dedicated college savings account, such as a tax-advantaged 529 college savings account. Saving in an account dedicated specifically for college can often help parents avoid tapping into those funds for other expenses. As well, families that save in a 529 college savings account can withdrawal earnings federal income tax free for qualified higher education expenses when the time comes for their child to head to campus. In our study, 50 percent of respondents report already having a 529 college savings plan in place, and 53 percent intend to contribute more to their accounts in 2014.
In order to achieve this year's college savings goals, parents are employing a number of strategies. Among families that have a plan in place for college savings, the number one strategy is to save monthly: 81 percent of parents say they have set a monthly savings target. Other strategies include: saving part or all of their 2013 tax refund (37 percent), ear-marking a portion of a bonus or raise (36 percent), reallocating funds previously allotted to day care or after school care (24 percent) and reallocating funds previously allotted to other savings goals (29 percent).
Parents are also engaging friends and family to help. Many are planning to save a portion of monetary gifts their children may receive throughout the year for birthdays or other holidays (37 percent), and half of parents surveyed report that family and friends already contribute to their child's college savings fund. Grandparents in particular are playing a big role, with 41 percent contributing.
Parents are focusing on college planning goals as well. On their college 'to do' list:
- Talking to their children about how much college costs and how their family will pay for it (58 percent)
- Researching scholarships and grants to help offset costs (53 percent)
- Considering talking to a financial or planning expert for help (48 percent)
- Learn more about how the financial aid process works (39 percent)
- Ask their children to save some of their own earnings (30 percent)
Establishing savings goals is a great step forward in planning for college. But for many, sticking to them is where the real work comes in. To help, Fidelity created a Calendar of College Savings and Planning Tips, which offers month-by-month savings strategies. For example, early in the year getting organized is top of mind for many families. Automating contributions to a college account can help streamline savings. 'Spring cleaning' your closets and your spending habits can also identify hidden dollars that can be repurposed for college saving. Small changes can sometimes make a big difference. Whether you're just getting started, or looking for ways to save a little more each month, these tips may help keep you on track throughout the year.
For additional tools to help stay on track, resources are available at our College Savings Resource Center.
Keith Bernhardt is the vice president of college planning at Fidelity Investments.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Fidelity Brokerage Services LLC, Member NYSE, SIPC,
900 Salem Street, Smithfield, RI 02917 679203.1.0
© 2014 FMR LLC. All rights reserved.
1Fidelity Investments, College Savings Resolutions Study, January 2014: Respondents of the survey are parents with college-bound children of all ages. The survey respondents had household incomes of $30,000 a year or more, have started saving for college, and were the financial decision makers in their household.