While many parents consider education a top priority for their children, their savings habits say otherwise, according to a recent survey.
Almost two-thirds of adults with $10,000 in investments said a good education defined the American Dream. But over a third have yet to squirrel anything away for their children’s higher education, and one in seven gave up college savings altogether to meet other financial goals, according to a Wells Fargo/Gallup survey released exclusively to USA TODAY.
Surprisingly, they may be making the right financial moves.
“In some respects, this may indicate that people are prioritizing appropriately,” said Dan Prebish, director of life events services at Wells Fargo Advisors. “They are saving for retirement and building an emergency fund for their families ahead of time. You must put a mask on yourself before taking care for the person next to you.”
But Prebish noted that helping a child get a good education could help parents avoid other financially straining scenarios in the future. A quarter of the investors in the survey said they had to financially support an adult child or parent, and almost half said that support caused considerable money stress.
“If that’s something I’m concerned about, then it would follow that I would try to prepare ahead of time instead of just hoping it all works out,” he said.
College planning for younger kids
Parents of younger children have more time to save for college and can depend on investment growth to help reach their goals. If that sounds like you, check out 529 education savings plans, which allow you to open an investment account to save for your child’s education. These plans offer several benefits:
- Qualified withdrawals are often tax-free at the federal level.
- Contributions may be tax-deductible depending on your state.
- Anyone can make contributions to the plan, and there are no income restrictions.
Additionally, 529 plans are flexible, Prebish said. The plans can be transferred without penalty to another family member to pay for education expenses. So, if a spouse goes back to school before the child reaches college, funds in the child’s 529 plan can be used for that. Funds can also be used to pay for private elementary or high school, thanks to recent tax changes passed by the Trump administration. They can also be moved to an ABLE account, which is a tax-advantaged savings account for people with disabilities.
Kids closer to college
If your child is closer to college age and you have limited savings, Prebish recommends putting any money you’ve socked away into a fixed-income instrument or certificate of deposit.
While the returns on these investments are minimal, the principle amount is secure and can’t be eroded by a falling stock market.
Prebish also recommends that parents research the ins and outs of college financial aid, which may have changed since their coed days. Tap a professional if needed.
“It’s tough because there is a lot to learn and there are a lot of questions,” Prebish said. “As a beginning point, parents should familiarize themselves with choices that are out there.”