Employment figures are poor all around, but if there’s any class of workers that’s held up relatively well, it’s the college educated. Unemployment stands at only 4.7% for those with college degrees, versus 9.7% for those holding just a high school diploma, according to the latest figures from the Labor Department.
As much as a college diploma may assist today’s youth with their future employment, paying for that education is giving their parents a severe headache. New surveys released by Fidelity Investments, the College Savings Foundation, and Sallie Mae have found that parents understand they’re not saving enough, are worried about it, and are even planning to delay their own retirement to pay their kids’ tuition.
Saving for college nowadays has been like trying to climb a sand dune: While 63% of parents have started saving for college (versus 60% last year), 43% say that they’ll have to delay retirement to pay for it, up from 35% last year, according to Fidelity.
Some other tidbits from the research:
- Families in the Northeast have saved the most on average for college ($15,846) followed closely by the West ($15,589) according to Sallie Mae and Gallup. Southerners have saved $13,722, and Midwesterners come in last $9,693.
- 44% of parents are “not very confident” that they’ll reach their college savings goals, up from 31% in 2008, says the College Savings Foundation. Only 12% say they are “very confident.”
- Despite that, a full one-third of parents say they’re saving less this year for college than last year. Forty-one percent haven’t saved anything at all.
Make no mistake, college is expensive. This year’s numbers aren’t out, but college costs have risen 23% since 2000, after inflation. It’s great that many parents are willing to delay retirement a few years. But if it comes down to a decision between retirement savings and college savings, don’t feel guilty for making your kid finance his education or work his way through school. If you’re able to save more down the road, you can always help him pay off his loans, but no bank is going to lend you money to supplement your retirement savings if you come up short.
If you’re able to save for both and are just getting started, sticking your money in a 529 is your best option. 529s let you withdraw your earnings tax free when it’s time to pay for school.
You’ll find that the options within plans are similar to mutual funds. But make sure to choose conservative funds with expenses less than 0.5%. The older your child is, the more bond and cash-heavy your portfolio should be. Unlike saving for retirement, where your time horizon can be 40 years, you’ll only have a few years to make up for losses if stocks take a big dive.
You might be tempted to stay within your own state’s plan because of the tax break it gives you, but most of the time, those breaks are insignificant if you’re tied to options with high fund fees. Instead, just pick the best plan you can find. Savingforcollege.com lets you compare fees across plans. Some of our favorites include Utah’s Educational Savings Plan and Ohio’s CollegeAdvantage Savings Plan.