Parents are doing a better job saving for their children’s college costs, but their efforts still may not be enough.
More than seven in 10 American parents — an all-time high — are socking away money for their children’s education, according to a new Fidelity Investments survey. That’s up from 58 percent in 2007 when the survey was first conducted. About two in five are using dedicated savings accounts, like 529 plans, up from one in four in 2007.
Parents are saving more each year, too. At the median, they put away $3,000 last year, a record high, and twice the $1,500 reported in 2007.
The problem is their efforts still fall short. Fidelity estimates that parents are on track to meet only 29 percent of their savings goals by the time their children head off to college. That’s why parents are considering other strategies to tackle school costs.
Seven in 10 are considering alternative ways to cut education costs such as having children live at home while attending college or figuring out ways to graduate early. Three-quarters of parents are also thinking of ways to increase their incomes, such as having a non-working spouse return to work or having their child work while in college.
Fidelity noted that if parents save just $50 more each month before their child goes off to college, that would generate an extra $19,368 over 18 years (assuming a 6-percent annual return). An extra $100 a month translates to $38,735. If you can manage $200 extra every month, that’s $77,471 more for your child’s college savings.
Fidelity offers the following tips to help supercharge college savings:
- Open a 529 college savings account sooner.
- Treat college savings like a bill you pay each month.
- Increase your savings by 1 percent or more every year.
- Make college savings a priority over impulse purchases.
- Get a cash-back credit card and put earned rewards toward a dedicated college savings account.
"For many families, finding an extra $50 or $100 per month may seem out of reach, but these extra dollars could potentially boost college savings by nearly $20,000 or even $40,000,” said Keith Bernhardt, vice president of college planning at Fidelity, in a statement. “This potential could be a powerful motivator to consider strategies to carve out additional savings.”