College Savings Foundation 2008 Survey of Parents. Survey of Parents Finds Financial Education Pays. Executive Summary:

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1 College Savings Foundation 28 Survey of Parents The State of College Savings Survey of Parents Finds Financial Education Pays Knowing How Much to Save Closes Financial Education Gap Executive Summary: To assess the state of college savings, The College Savings Foundation (CSF), the leading non-profit dedicated to enabling American families to save for their education savings goals, conducted for the second year in a row a survey of parents across the country. The resulting report, The State of College Savings, reveals that financial education, and particularly knowing how much parents need to save for their children s college, is key to achieving their college financing goals. Parents are saving less for their children s college education this year than last year and more people have saved nothing at all, according to CSF s 28 survey of 8 parents across regions and income levels. But the 3 percent of parents who know the amount they need to save to fund their children s college education are much more likely to succeed in reaching their goals than the 7 percent who admit not knowing. Fifty-eight percent of parents in-the-know have saved at least $, compared to only 26 percent of those who don t know how much to save. They rely on multi-media, college savings calculators, college administrators and financial advisors for information. And, they are more likely to employ strategies like saving early, using an automatic savings plan and owning a 29 college savings plan. Not only do parents need to be schooled on how much they should save, but when, where and why, said Kevin McMullen of the College Savings Foundation. Parents are counting on free Federal money in the future that may not be there while leaving money on the table right now by not taking advantage of tax saving investment vehicles. As a result, children end up shouldering daunting debt. Sixty-three percent of parents expect their kids to shoulder debt, the survey found, even though the parents know it will take years to pay off. In fact, 7 percent expect their children to be paying back loans beyond five years and 29 percent beyond 1 years. For 37 percent of parents, student loans will be their number one aid source, as compared to six percent with parental loans. And, even though only a small percentage of Federal and State Grants are merit-based, the survey found that a full 2 percent of parents are relying on Federal and State Grants as their primary source. On the savings side of the ledger, 28 is a bleaker year than 27, the survey found: 6 percent of parents have saved less than $, per child towards college, including 43 percent who have saved nothing at all. This compares to 4 percent who had saved less than $, in 27, including 27 percent saving nothing. 29s, as they are called, are intended to support families in meeting the relentlessly rising expenses of a college education. The average annual tuition costs of attending a 4-year public and a 4-year private college or university in have increased.9% from a year earlier. Including room, board and expenses, the total costs are now $13,89 per year for a 4-year public college and $32,37 for a 4-year private college, according to The College Board. Assuming such costs increase by % a year, the projected cost of college in 1 years will be more than $1, for a 4-year public college and more than $2, for a 4-year private college. About The State of College Savings Survey: The College Savings Foundation surveyed 8 parents across geographic, age and income brackets in a Zoomerang survey. Of those who responded, 37% have incomes between $2, - $7,; 28% have between $7, - $12,; 16% have between $12, - $17, and 16% make more than $17,. The College Savings Foundation (CSF) is a Washington, D.C.-based not-for-profit organization whose mission is to help American families achieve their education savings goals, by working with public policy makers, media representatives and financial services industry executives in support of education savings programs. For more information on CSF and its mission, please access

2 Retirement (3%) has pulled out ahead of college (4%) as a savings goal in 28, versus 1% and 3% respectively in 27; and more people think of saving for homes this year (26%) than last year (). Reflecting the helplessness parents feel about the rising costs of college and their inability to pay them, the survey found that one in four parents wants the next President and Congress to put a cap on college costs. Complicating parents ability to save is their choice of savings vehicles. Fewer parents owned 29 college savings plans in 28 () than last year (29%); and only 16 percent say it is their primary college savings vehicle. In contrast, 3 percent of all parents are using cash or cash equivalents as their number one college savings vehicle. With better financial education, parents would know that it s possible to hold cash or cash equivalents in 29 plans and still gain the tax benefits, McMullen said. Glimmers of Hope in Savings Strategies On the brighter side, the 28 CSF survey identified strategic solutions that are helping parents get traction in college savings. The 21 percent of parents invested in 29s and the 24 percent of parents habitually saving with automatic savings plans each saved more than parents without them. Other strategies: 22 percent of parents get help from grandparents, and 3 percent trade toys for tuition by asking friends and family for contributions to college rather than material gifts. Grandparents probably wouldn t mind helping their kids reach their college savings goals. In a 28 survey of grandparents, The Hartford Financial Services Group, Inc. (NYSE: HIG) a member of CSF found that 6 percent of grandparents plan to contribute financially to their grandchildren s college education, but less than one third of all survey participants have coordinated college savings for their grandchildren with their adult children. Parents who own 29 college savings plans save more than those who don t: 2 percent have saved between $,1 - $1, per child, versus only 7 percent without one. 17 percent have saved between $1,1 - $2, per child, compared to 9 percent without one. The survey showed the downside of not owning a 29: over half of parents without one have saved nothing. Parents using automatic savings plans save more than those who don t: 23 percent of parents with automatic savings plans have saved between $,1- $1, per child, versus only 6 percent of those without. 18 percent have saved between $1,1-$2, per child, compared with 8 percent without. Another downside: a whopping percent of parents who do not have an automatic savings plan have saved nothing at all. Even saving a little bit helps: 42 percent in automatic savings plans saved $1 or less per month and 29 percent saved $1 - $3 per month. Many parents put the two strategies together: 9 percent of parents who own a 29 also have an automatic savings plan. It s human nature that a person is less likely to miss money or to spend it if it is swept into a budgeted savings plan, McMullen added. The College Savings Foundation believes strongly that any amount of saving will help families with college costs. Any amount of money saved is less money that a family will need to borrow, thereby reducing the burden of debt and the overall cost of education, McMullen said. At the end of the day, financial knowledge is power. Parents who know how much they need to save not only save more, but they are also less likely to fall down the financial education gap: only 2 percent of those who know how much they need to save haven t begun saving at all, compared with 3 percent of those who don t know how much to save. Those who know are also more apt to use successful strategies: 39 percent have an automatic savings plan versus 17 percent who don t know how much to save. 24 percent invest in 29 plans as their primary savings vehicle, versus 12 percent who don t know. 3 percent began saving when their children were born, versus 21 percent of those who don t know. 2 C o l l e g e S a v i n g s F o u n d a t i o n

3 Parents need FINANCIAL education The State of College Savings 28 surveyed 8 parents across the country. We found that parents are saving less this year than last year; and more people have saved nothing at all. Q. How much have you saved for your children s college education (per child)? >$1k (4%) $1k-$2k $k-$1k (4%) $k-$1k $2k-$k 11% 7% $1k-$2k $k-$1k 2% 43% $2k-$k 13% 7% 22% $k-$1k >$1k >$1k (3%) $k-$1k$1k-$2k 6% $k-$1k $2k-$k 8% $2k-$k 11% 13% 1% 14% 7% $k-$1k $1k-$2k $k-$1k >$1k 7% of parents don t know how much they need to save to fund their children s college education. Q. Do you know how much you ll need to save to fund college for your children? 22% $k-$1k $k-$1k 2% 7% $1k-$2k Yes $2k-$k (4%) $k-$1k (3%) >$1k (1%) 3% 7% No 7% $1k-$2k $2k-$k (4%) $k-$1k (3%) >$1k (1%) The 3% who do know how much to save exhibit better saving habits. Q. How much have you saved per child? $1k-$2k $k-$1k 11% 13% $2k-$k 22% $k-$1k 2% 7% $k-$1k >$1k 3% 7% $1k-$2k $2k-$k (4%) $k-$1k (3%) >$1k (1%) Parents who know how much to save: 9% have saved at least $,. Parents who do not know how much to save: Only 26% have saved at least $,. 2 8 S u r v e y o f P a r e n t s 3

4 parents rely on debt and Aid 63% of parents expect their children to shoulder some of the debt. Q. Will your child/children shoulder some of the debt? No 37% 34% Yes, up to one-third Yes, over two-thirds 19% Yes, between one-third and two-thirds 7% expect it will take at least five years to pay off the debt; and 29% beyond ten years. Q. How long do you anticipate it will take you or your child to pay off the average college tuition and costs funded through loans? - years - 1 years 3% >2 years 8% 41% 1-2 years 37% of parents expect student loans to be the number one aid source, and only 6% expect it to be parents loans. 2% expect their number one aid source to be Federal and State grants even though very few will get merit-based grants. Q. What do you anticipate will be your number one aid source? Student Loans 2% 37% 31% Don t anticipate aid 6% Federal and State Grants Student s parent/guardian taking a loan Second mortgage or Home Equity Loan (3%) Credit Card or Credit Line cash advance (1%) Borrowing against my Retirement Account (1%) Borrowing against other investments (1%) 4 C o l l e g e S a v i n g s F o u n d a t i o n

5 62% of parents expect to get financial aid. Q. How much financial aid do you anticipate receiving? None Yes, up to one-third of college costs 38% 33% Yes, over two-thirds of college costs 9% 2% Yes, between one-third and two-thirds of college costs 6% expect their children to contribute through jobs a tall order considering the overall costs of college. Q. Are there other ways your child/children will contribute to college costs? 6% Job Other 8% Financial Aid 11% Own Savings One-in-four parents is looking to the Federal government to cap soaring college costs. Q. What should the next President and Congress do to help families with college costs?, current federal financial aid and tax breaks for college are enough 1% Other 4% % Money for newborns 7% 9% Tax breaks to help lower-income families Tax breaks for employers Regulate college costs 24% 9% 6% More loans More grants Simplify aid process 2 8 S u r v e y o f P a r e n t s

6 THE SAVINGS SIDE OF THE LEDGER Retirement has pulled out ahead of college as the top savings goal in 28, compared to CSF s 27 survey. Q. When you think of savings, do you think of a specific goal? (Check all specific goals that apply) Key % 1% 3% % 26% 1% 2% 9% 12% 37% 31% College House Retirement Car Trip/ Entertainment Health Care No, I lump my savings together Fewer people overall own 29 college savings plans in 28 () versus 27 (29%). Q. Do you know what a 29 plan is? Yes, but I think other vehicles have better tax savings Yes, but I think it is too complicated, I don t understand the benefits (2%) Yes, but I do not own a 29 plan account because I do not want to lose the money if my child does not go to college 9% 2% 38% No, I have never heard of it I have heard of it, but I don t know exactly what it is Yes, I am invested in a 29 Parents are saving in vehicles without benefits of tax-efficiencies: 3% say that their number one savings vehicle is cash or cash equivalents. Q. What is your primary college savings vehicle? Retirement Accounts 29 plan Uniform Gifts to Minor/Uniform Gift to Trust Accounts (2%) Coverdell (1%) Stocks/Bonds % 16% Other 13% Mutual Funds Cash/ Bank Accounts 8% CDs 6 C o l l e g e S a v i n g s F o u n d a t i o n

7 74% of all parents would be highly disappointed if their children could not afford to go to college. Q. How would you feel if your child could not afford to go to college? (Please answer on a scale of 1-1 with 1 being Not At All Disappointed to 1 being Extremely Disappointed ) % 9 8% 6% 1 THE SOLUTIONS There are glimmers of hope for parents interested in savings. The 28 College Savings Foundation The State of College Savings survey identified four key strategies that help: 29 College Savings Plans. Parents owning 29 plans have saved more than those without. Automatic savings plans. Simple as it sounds, parents who save with these plans have saved significantly more than those without. Grandparents. Parents of younger children are more apt to tap this source of college financing. Trading toys for tuition. Parents of younger children are asking for college funds versus material gifts. Saving Strategically: 29 College Savings Plans Q. How much have you saved for your children s college education (per child)? 26% % $k - $1k 2% $1k - $2k 17% 16% $2k - $k 9% 7% $k - $1k >$1k >$1k (3%) $k - $1k (3%) $2k - $k 4% $1k - $2k 9% 8% $k - $1k 2% Parents who have a 29 Plan Parents who do not have a 29 Plan 2 8 S u r v e y o f P a r e n t s 7

8 Making it Easy: Automatic savings plans Although only 24% of parents surveyed used automatic savings plans to help them save, those who did had significantly more. Their success showed that every little bit helps: 42% saved $1 or less per month; 29% saved between $1 - $3 per month. Q. Do you currently have an automatic savings plan set up for college savings and if yes, how much do you save? $11-$3 Yes 24% 76% No $1-$1 29% 11% 1% $31-$ >$ <$ Parents who have automatic savings plans How much they save per month Q. How much have you saved for your children s college education (per child)? (3%) >$1k 9% $k - $1k 7% 14% $2k - $k 26% 23% $1k - $2k $k - $1k >$1k (2%) $k - $1k (3)%) $2k - $k % $1k - $2k 8% 7% $k - $1k 2% % Parents who have automatic savings plans Parents who do NOT have automatic savings plans Grandparents: Untapped Source of College Financing Q. Who else, if anyone, is helping or will help pay for college? % Other No one 69% 22% Grandparents Aunt/Uncle (2%) Friend/Guardian (2%) 8 C o l l e g e S a v i n g s F o u n d a t i o n

9 Trading Toys for Tuition: Ask for College Savings versus Material Gifts Q. Would you ask friends or family to contribute toward college instead of material gifts? % Already doing it No 6% 3% Yes knowing how much to save closes financial education gap Parents who know how much to save have better saving habits. 39% of parents who know have an automatic savings plan vs. 17% of parents who do not know have an automatic savings plan. Q. Do you currently have an automatic savings plan set up for college savings? Yes 39% 61% No Yes 17% 83% No Know Don t Know 24% of parents who know how much to save invest in 29 plans as their primary savings vehicle, versus 12% of those who do not know. Q. What is your primary college savings vehicle? 3% 2% 2% 2% 3% 24% Key Knows how much to save to fund college for children Does not know how much to save to fund college for children 1% 17% % % 11% Mutual Funds 6% 8% CDs 12% 9% Stocks/ Bonds Cash/ Bank Account 6% % Retirement Account 12% 29 Plan 3% 3% Uniform Gift to Minor/ Uniform Gift to Trust Accounts 1% 1% Coverdell 12% Other 2 8 S u r v e y o f P a r e n t s 9

10 3% of those parents who know, began saving when their children were born, versus of those who do not know. Nearly half of parents who do not know how much to save have not begun saving at all. Q. When did you start saving for your child/children s college education? (If you have more than one child, and you started saving at different times for each, check all that apply). % 4% 3% 3% Key Knows how much to save to fund college for children Does not know how much to save to fund college for children 49% 2% 13% 7% 24% 1% 11% 7% 8% 3% 4% 3% 19% % Proir to children s birth When children were born When child was 1- years old When child was 6-1 years old When child was years old When child was years old I haven t begun saving 1 C o l l e g e S a v i n g s F o u n d a t i o n

11 Key Parents of newborns to years old Savings Strategies by Age of Children Parents of younger children are better at using the four Savings Strategies: Key Parents of children from 6-1 years old Parents of children form years old Parents of newborns to years old Parents of year olds Parents of children from 6-1 years old Parents of children form years old Parents of year olds % 3% 3% 29% 38% 3% 3% 29% % 29% 34% 22% 29% 22% 1 Using automatic savings plan 1 Own a 29 plan Using automatic savings plan 8 Own a 29 plan % 41% 67% 67% % 36% 7 73% 41% 67% 67% % 24% 36% 22% % 22% Started saving when child was born 2 Expect children to shoulder some of debt 1 3 Started saving when child was born 3% Expect children to shoulder some of debt % 3% 26% 17% 17% Expect grandparents to help % 39% 3% 42% 39% 3% Would trade toys for tuition Expect grandparents to help 2 8 S u r v e y o f P a r e n t s 11 Would trade toys for tuition

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