Saving for college: What are worried parents to do?
Between the sharp drop in the stock market and the ever-higher cost of a college education, parents like us have every reason to be worried. REALLY, WORRIED!
Even if we started saving dutifully for college when our kids were born, chances are we’ll fall far short of being able to cover the cost of a college, which depending on whether our kids attend a public or private school could cost $25,000 or more a year.
So what are we WORRIED! parents to do?
“It’s a humbling experience when you look at the end price,” said Joe Ciccariello, the vice president for college planning for Fidelity Investments. (I sought out Fidelity because it manages California’s 529 ScholarShare College Savings Program. There are a host of 529 offerings from a host of investment companies.)
Ciccariello’s overall advice: Be calm and methodical.
There’s also a significant advantage to a 529 over a United Gifts to Minors Act account because money in an UGMA account are your child’s assets and have a greater impact on financial aid eligibility than money in a 529, which is your money.
Ciccariello said on average parents open a 529 account when a child is 3 years old, which is significantly earlier than parents did a decade ago when 529 accounts were first introduced. Back then the average parent started a 529 when a child was 9.
Here’s an interesting finding from a 2008 survey Fidelity conducted among parents with college-bound children of all ages. Overall, parents indicated that they are on track to meet only 21 percent of the total cost of their children’s education, while parents investing in a 529 account said they are on target to cover 40 percent of college expenses.
“Save consistently and on a monthly basis,” Ciccariello said. Sixty percent of parents opening new 529 accounts arrange to invest monthly, he said.
Eighty percent of assets invested in Fidelity 529 accounts go into age-based plans, Ciccariello said.
If your risk tolerance is higher, you could consider keeping your assets in an age-based plan. No matter what your decision, keep saving on a regular basis.
“Maximize retirement first and college second,” Ciccariello said. “That would be my guidance.”
Fidelity maintains 234,000 California direct 529 accounts; Ciccariello said the average account balance is $13,000.
To learn more: Read Such A Smart Mom’s “Simple suggestions and great Web sites for college planning this summer”
