Survey: Children Expect Parents to Cover College Costs
Hard Lesson
T. Rowe Price’s 2016 Parents, Kids & Money Survey, which sampled 1,086 parents nationally and their 8- to 14-year old children, found that many kids (62%) expect their parents to cover the cost of “whatever college I want to go to.” Yet, most parents (65%) will only be able to contribute some to the cost of college.
The results also suggest that student loans can lead to increased anxiety and financial stress. Parents with their own student loans are more likely to lose sleep over college costs (49% vs. 40%) and are significantly more likely to have credit-card debt (67% vs. 54%) and payday loans (19% vs. 7%).
There are positive findings, however, as most parents are indeed saving for their kids’ college (58%) and recognize the need to begin saving when their kids are young, with 68% saying under age 10, including 47% who say under age 5. And while some parents may not be using the most appropriate type of account to save for college, which include low-interest savings accounts (42%) and retirement accounts that penalize savers for withdrawing money before retirement (27%), a significant percentage of the parents who are saving are getting it right by using a tax-advantaged 529 plan (37%) to save for their kids’ college.
Preparing for college entails more than studying for the SATs and should begin before kids have even started kindergarten. It starts with saving for college in a 529 account and having regular money conversations at a young age, so they’ll later be able to conceptualize the financial tradeoffs involved in selecting a college.”
“Preparing for college entails more than studying for the SATs and should begin before kids have even started kindergarten,” said Judith Ward, a senior financial planner at T. Rowe Price and mother of two college graduates. “It starts with saving for college in a 529 account and having regular money conversations at a young age, so they’ll later be able to conceptualize the financial tradeoffs involved in selecting a college.
“The benefits of a college education can become overshadowed by the burden of debt if parents haven’t saved towards a college education and had money conversations with their kids to manage expectations of how much of their college costs they can cover,” she added. “It’s surprising that most kids expect their parents to cover whatever college they want to go to — and presents a real opportunity to discuss family finances and make sure everyone is on the same page.”
T. Rowe Price encourages parents to invest in their kids’ futures by talking to them about money matters weekly and saving for their college. The survey found that parents who discuss financial topics with their kids at least once a week are nearly twice as likely to have kids who say they are smart about money (68% versus 36%). To help, the firm created MoneyConfidentKids.com, which provides free online games for kids and tips for parents that are focused on financial concepts such as goal setting, spending versus saving, inflation, asset allocation, and investment diversification, as well as lessons for educators.
Among the other survey results:
• Some kids think their parents are saving for their college when they are not: 67% of kids say their parents are saving for their college. But, nearly a quarter of those (23%) have parents who said that they actually are not saving for their college.
• That makes many parents feel guilty: 63% of parents agree with the statement, “I feel guilty that I won’t be able to pay more for their college.”
• Parents are willing to work more to cover college costs: 76% of parents would be willing to delay their retirement and 68% would be willing to get a second or part-time job to pay for their kids’ college education.
• Parents tend to underestimate college costs. While the total cost of a four-year education at an in-state university is currently about $80,000 on average, according to the College Board, only 35% of parents think that the total cost of a four-year education at an in-state university is $80,000 or more.
• Some parents are willing to take on considerable student-loan debt: 57% of parents are willing to take on $25,000 or more in debt to pay for their kids’ college education, with 19% willing to borrow $100,000 or more.
• They are also willing to let their kids take student loans: nearly half (47%) are willing to let their kids borrow $25,000 or more, with 14% willing to let their kids take out $100,000 or more in student debt.
• Parents who have their own student debt are more willing to take on higher levels of debt. Parents who are paying back their own student loans are more willing to borrow $100,000 or more themselves to pay for their kids’ college (24% vs. 18%).
• More parents have money saved for their kids’ college than their own retirement. While 58% of parents said they had money saved for their kids’ college education, only 54% indicated they had money saved for their retirement.
The eighth annual T. Rowe Price Parents, Kids & Money Survey, conducted by MetrixLab Inc., aimed to understand the basic financial knowledge, attitudes, and behaviors of both parents of children ages 8 to 14 and their kids. The survey was fielded in February 2016, with a sample size of 1,086 parents and 1,086 kids. The margin of error is +/- 3 percentage points.
Founded in 1937, Baltimore-based T. Rowe Price Group Inc. is a global investment management organization with $776.6 billion in assets under management as of June 30, 2016.
