It's no secret that raising kids is a major financial commitment. Among the more common financial concerns parents have is the ability to help fund a child's education.
The cost of higher education has skyrocketed over the last two decades, leaving many feeling unable to predict how much they need to put away to make a dent in the total. Knowing how to save for that cost is also a concern for many.
A new study conducted by The Harris Poll on behalf of Intuit Credit Karma found that 66% of parents are saving in some way for their children's future educational costs. About 65% of parents say they are putting money away in a type of savings account, but just 24% are using a 529 plan.
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A 529 plan is a tax-advantaged savings account that can be used to pay for educational expenses. These accounts can be leveraged at all stages of a child's life, from K-12 tuition to college, vocational and technical schools, internships, and even student loan repayment. Experts widely agree that 529 plans are among the best ways to save for educational expenses.
Perhaps ironically, a lack of education seems to be the driving factor behind the underutilization of 529 plans. According to the study, 43% of parents aren't using a 529 plan because they have never heard of them or don't know what they are.
Other reasons for the 529 plan blind spot include the desire for more flexible savings options (17%), concerns about the plans impacting financial aid (14%), concerns about the future of higher education (18%), and worries over the state of student loan debt (16%).
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However, just because a parent isn't aware of, or isn't using, a 529 plan, that doesn't mean they aren't preparing for the future. In the study, parents reported a handful of other ways they are planning to handle potential higher education costs, like helping their children apply for scholarships and grants (34%), recommending community college starts (29%), or preparing their kids to take on debt in their own names (22%).
Many parents also signified that they'd use their own resources to help a child finance higher education. Nearly one-third report that they're prepared to dip into savings or investments to cover the cost. While 14% say they'd refinance their homes, 19% will take on student loan debt in their own name, and 13% will re-work retirement contributions to come up with the money.
On the other end of the spectrum, 34% of parents say they aren't saving for their children's future education at all. Most of the time, that's because they simply can't afford to (67%) or because they feel like it’s too early to start (25%).
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"Raising children is expensive, especially when it comes to education-related costs, which can be among the largest and most unpredictable expenses families face," Intuit Credit Karma Consumer Financial Advocate Courtney Alev said in a statement. "It's crucial for parents to start saving for their children's future, if they can."
"Even small, regular contributions can grow substantially over time," she said. "While there is no one-size-fits-all approach to saving, exploring options like 529 plans can be beneficial… Ultimately, how parents choose to save depends on their goals and preferences, but understanding all the available accounts and tools available can help them make the most informed decisions for their children's future."
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