There’s No Bigger Opportunity Than to Talk College with Clients – and No Better Time to Do It
For the first time in years, parents say that saving for college ranks higher than all other savings priorities, including retirement. But they still aren’t anywhere close to reaching their goals.
Skyrocketing student loan debt. COVID and school closings. The Great Resignation. Rising interest rates. Inflation. While these realities have combined to catalyze a mass reckoning about the value of college, it hasn’t soured parents on the prospect of higher education for their own kids: 81 percent of parents agree that the value of a college education is worth the cost. In fact, according to Fidelity Investments’ 2022 College Savings Indicator (CSI) study, families are prioritizing college savings more than ever before. To achieve their goals, however, parents need the kind of help they can only get from a financial advisor.
Of course, all the good intentions in the world don’t amount to much on their own, and that may be the case with parents who aspire to great academic accomplishments for their children. Respondents in the survey are on track to cover only 27 percent of college costs. So why the disparity between hope and action?
According to Ron Hazel, vice president of Fidelity Advisor 529 and individual retirement products, “nothing says that families aren’t taking college savings seriously. They’re ranking savings for college even ahead of savings for retirement.” In addition, survey respondents indicate that saving for college is more important than building an emergency fund, saving for a house/mortgage, or paying down credit card debt.
Hazel also notes that the number of parents saving for college has risen from 58 percent in 2007, the year the CSI study launched, to 76 percent this year. So, if parents are intent on saving more for college, and if more of them are dedicating money to it, why aren’t they seeing better results?
It all starts with knowledge, or in this case, a lack of it. “A fair amount of parents have no idea what college costs,” Hazel says, adding that 60 percent use their “own best guess” to calculate their children’s projected needs. This disconnect between the desire to help pay for college and the dearth of knowledge about how much it will cost provides a tremendous opportunity for financial advisors to grow their client base. An overwhelming majority (85 percent) of those who work with an advisor to establish a plan feel closer to their savings goal, are more knowledgeable about the savings process and products, and have greater peace of mind, which in this time of uncertainty and market volatility is arguably the most important statistic from this year’s survey.
The role of advisors in the journey toward college savings includes an opportunity to address what has traditionally been a weakness: keeping their clients’ children as clients. Children often seek out new advisors rather than using those who their parents came to rely on and trust, and for this reason, Hazel encourages advisors to identify clients who have children and invite those young people into the conversation, so that they can share their goals and aspirations.
In the study, parents say they expect their children to have saved a median of $5,000 by the time they graduate from high school. Even so, 45 percent have yet to talk to their children about saving and paying for college. Including children in the planning process helps to clarify variables such as potential colleges and their costs, and it further encourages them to strive to attain the necessary savings goals. In this collaborative process, the interaction with an advisor gives children first-hand experience in building a trusting relationship and seeing the effects of that relationship on their financial well-being.
Such early successes can promote loyalty to the advisor and make the children less likely to seek financial advice elsewhere as they achieve their educational goals and eventually embark on a career and start families. And because 66 percent of parents believe that contributions from grandparents and other family members will play an important role in funding their children’s education (up from 54 percent just two years ago), it further benefits advisors to include more than just parents and their children in their college planning conversations.
For Hazel, the path forward is clear. More than 90 percent of parents plan to maintain or increase their college savings, even amidst economic uncertainty. That’s all the more remarkable considering that 54 percent of those same respondents believe that the U.S. will one day offer tuition-free college.
“Advisors can play a huge role in giving parents peace of mind about the college planning process by engaging parents early on the topic,” Hazel says, “Having a good understanding of how to save for college is an important first step for parents in achieving those college savings goals.”
Benjamin Lev is a freelancer at RIA Intel and based in New York City.