BOSTON--(BUSINESS WIRE)--Parents across the country are experiencing sticker shock over the rising cost of higher education and are feeling pressure to prioritize college savings now more than ever. According to Fidelity Investments’ 2016 College Savings Indicator Study, a record 72 percent of American families are saving for their children’s higher education, up 24 percent since the study was first published in 2007. Additionally, more families (41 percent) are saving with a dedicated college savings account, such as a 529 plan, reflecting a 62 percent increase over the last decade. And yet, despite a nationwide emphasis on the importance of higher education, it seems many high-net-worth grandparents haven’t loosened their purse strings to help.
According to Fidelity’s 2016 Family and Finance Study, only four in 10 high-net-worth grandparents (39 percent) are helping with their grandchildren’s college savings, even though most high-net-worth individuals surveyed (74 percent) would be willing to support the cost of their grandchildren’s education when the time comes. Similarly, seven in 10 parents who work with advisers agree that financial contributions from family members will be important to funding their child’s education, but only 28 percent of parents say family members have offered to help with college savings.2 In a climate where the cost of education continues to rise, assisting the next generation with college savings can mean the difference between grandchildren graduating with little or no debt and postponing progress on major financial goals like saving for retirement.
“It’s not surprising to learn that the majority of grandparents have yet to discuss college gifting with their children or grandchildren, despite both a strong desire and the financial ability to assist with higher education,” said Chris McDermott, senior vice president, Private Wealth Management at Fidelity Investments. “These conversations can be challenging on a number of levels, both from a relationship perspective as well as a financial and tax planning perspective.”
Only a third of parents and their adult children agree on the appropriate time to initiate family financial planning conversations. “We encourage grandparents to discuss their desire to help fund major life milestones immediately, and we even help facilitate family financial conversations around topics like funding college, weddings and first-time home purchases,” added McDermott. “The more families discuss financial planning goals and values around money, the more likely their children and grandchildren will develop an appreciation of their financial position and their family’s commitment to their future success.”
Gifting for college education is not a simple as just writing out a check, however. Grandparents seeking to help fund college costs for their grandchildren may want to consider enlisting the help of a wealth management adviser who can explain the tax implications of the most common gifting strategies. This is an important first step when deciding which option could make the most sense, including:
- Gifting to a 529 Plan account owned by the grandparent
- Gifting to a 529 Plan account owned by the parents
- Establishing a UGMA or UTMA custodial account
- Paying the college or university directly
- Waiting until after graduation to gift the funds directly to the grandchild
Wealth advisers can also moderate college planning conversations among families to help bridge any gaps, and ensure families have a comprehensive wealth plan that reflects their entire financial situation. If education is an important part of the family’s legacy, financial professionals can also help reinforce how important education is the family’s core values.
For more information on college savings, Fidelity provides tools and resources for families, including:
- A 529 Online Gifting Service, which lets owners of Fidelity’s retail 529 college savings accounts use social media to encourage friends and family to help them save for college, with just a few easy steps online.
- Viewpoints articles provide insights on college funding for grandparents, including: How grandparents can help fund college.
- Visit Fidelity Private Wealth Management to learn more about Fidelity’s comprehensive wealth planning and investment strategies.
About the Fidelity Investments 2016 Family & Finance Study
The
third biennial Fidelity Investments® Family & Finance Study,
previously known as the Fidelity Investment's Intra-Family Generational
Finance Study, is unique in that it surveys parents and their adult
children separately on a range of financial and retirement planning
topics to identify their level of agreement. The study was conducted
online among U.S. parents and their adult children during the period of
February 26 – March 22, 2016 by GfK Public Affairs and Corporate
Communication, using GfK’s KnowledgePanel®. The total sample recruited
for this study included 1,273 parents of which 238 self-report a high
net worth of $1 million plus and 103 self-report a high net worth of $2
million plus and 221 adult children. To qualify, parents had to be at
least 55 years of age, have an adult child older than 25 and have
investable assets of at least $100,000. Their children qualified if they
were at least 25 years of age, had money saved in an IRA, 401(k) or
other investment account. In addition, adult children 30 and older were
required to have at least $10,000 saved. This qualifier was waived for
the children under 30.
About the Fidelity Investments 2016 College Savings Indicator Study
As
part of the study, Fidelity conducted a survey of parents with
college-bound children of all ages. Parents provided data on their
current and projected household asset levels including college savings,
use of an investment advisor and general expectations and attitudes
toward financing their children’s college education. Using Fidelity’s
proprietary asset-liability modeling engine, the company was able to
calculate future college savings levels per household against
anticipated college costs. The results provided insight into the
financial challenges parents face in saving for college. Data for the
Indicator (number of children in household, time to matriculation,
school type, current savings and expected future contributions) was
collected by Boston Research Technologies, an independent research firm,
through an online survey from May 13 – June 12, 2016, of 2,196 parents
nationwide with children aged 18 and younger who are expected to attend
college. The survey respondents had household incomes of $30,000 a year
or more, and were the financial decision makers in their household.
College costs were sourced from the College Board’s Trends in College
Pricing 2015. Future assets per household were computed by Strategic
Advisers, Inc. (a registered investment adviser and wholly owned
subsidiary of FMR LLC). Within Fidelity’s asset-liability model, Monte
Carlo simulations were used to estimate future assets at a 75 percent
confidence level. The results of the Fidelity College Savings Indicator
may not be representative of all parents and students meeting the same
criteria as those surveyed for this study.
About Fidelity Investments
Fidelity’s goal is to make
financial expertise broadly accessible and effective in helping people
live the lives they want. With assets under administration of $5.6
trillion, including managed assets of $2.1 trillion as of July 31, 2016,
we focus on meeting the unique needs of a diverse set of customers:
helping more than 25 million people invest their own life savings,
nearly 20,000 businesses manage employee benefit programs, as well as
providing nearly 10,000 advisory firms with investment and technology
solutions to invest their own clients’ money. Privately held for nearly
70 years, Fidelity employs 45,000 associates who are focused on the
long-term success of our customers. For more information about Fidelity
Investments, visit https://www.fidelity.com/about.
The UNIQUE College Investing Plan, the Fidelity Advisor 529 Plan, the U.Fund® College Investing Plan, the Delaware College Investment Plan and the Fidelity Arizona College Savings Plan are offered by the state of New Hampshire, MEFA, the state of Delaware, and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments. If you or the designated beneficiary are not a New Hampshire, Massachusetts, Delaware or Arizona resident, you may want to consider, before investing, whether your state or the designated beneficiary’s home state offers its residents a plan with alternate state tax advantages or other benefits.
Units of the portfolios are municipal securities and may be subject to market volatility and fluctuation.
Guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.
Fidelity, Fidelity Investments, Fidelity Advisor Funds, and the Fidelity Investments & Pyramid Design logo are registered service marks of FMR LLC.
The third party marks appearing herein are the property of their respective owners.
Boston Research Technologies is not affiliated with Fidelity Investments.
Please carefully consider each plan’s investment objectives, risks, charges and expenses before investing. For this and other information, contact Fidelity or visit fidelity.com for a free Fact Kit or request a free Offering Statement from your advisor or through advisor.fidelity.com. Read it carefully before you invest or send money.
Investing involves risk including the risk of loss.
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Investments and Fidelity are registered service marks of FMR LLC.
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1HNW is defined as those who self-report assets of $2 million+
2Fidelity
2016 College Savings Indicator Study
