By Paul Curley, CFA
Director of College Savings Research, Strategic Insight
June 22, 2015
As a society, we seem to focus quite a bit on trends. While not all trends are great, there are a few that can help your children excel in some pretty incredible ways.
First, the world is becoming more digital. Just look around you, most people have multiple devices. While some have multiple devices to divide work and personal emails, others have wearable devices for more technical purposes such as keeping pace during a marathon. Is it that these devices are so ingrained in our culture that we do not even notice them, or is it that we have become more detached than ever before? For example, the late spring season marks the beginning for many things including college graduation and baseball. In Boston where I grew up, the trains this time of year would be flooded with people going to a Red Sox game and the air would be electric from the overall excitement for the game, but now interaction through technology devices is typically higher than face-to-face communication. Further, the expansion of robo advisors shows a push by technology into the financial service industry and replaces what has typically been completed by meeting in person with a financial planner.
A second trend is your friends. Despite the world becoming more digital, the value of people and the people in our lives continue to important. To a certain extent, the value of in-person interaction increases as the world becomes more digital. Based on a consumer survey of parents by Strategic Insight in 2015, four of the top-five sources of information for college financial planning include people such as family, friends, financial advisors and financial aid officers. This is fairly impressive from a data perspective as parents were offered over 15 sources from which to choose. Therefore people continue to be an important go-to source for information.
A third trend is the value of education. Historically, higher levels of education are correlated with lower levels of unemployment and higher levels of lifetime income. Together, these factors create more stability in one’s life. Additionally, the value of higher education continues to grow as the workplace becomes more complex and the time needed to adapt to changes becomes shorter. While some families have a goal of education as part of legacy planning, other families seek education for aspirational attainment. In either and all scenarios, the demand for education only continues to grow. Despite this growing demand for education, 26% of parents are not saving for college as reported in the chart. Of the 74% that are saving, 27% are saving with 529 plan and 47% are saving outside of a 529 plan. As 529 plans are tax-advantaged investment vehicles with financial aid benefits, this means that 73% of parents are missing the optimal path to save.
529 plans leverage the first trend by using technology to encourage families to save and by providing easy, online methods to open and maintain accounts. Many 529 programs report that word-of-mouth ranks high when participants are asked how they heard about the plan. And, obtaining an education beyond high school continues to provide positive outcomes for families. Learn more about 529 plans and how they can help your family by continuing to read this blog at www.collegesavings.org.