How to Save (and Not to Save): U.S. Families Yearly College Savings Shockingly Low
Posted 01 Oct, 2009
Though the economy has been tough, college costs are still on the rise–and it doesn’t look like that is about to change any time soon. Unfortunately, the myriads of bad press about college prices has created a deep-seated funding fear for many families–and it may be contributing to the low college-savings rates of the average American family.
Less than $3,000 Per Year!
Well known private lender Sallie Mae, in conjunction with the Gallup Organization, recently released the results of their college savings research. Their survey, which focused on 1,200 families with children ages 0-17, found that on average, U.S. families save only $2,676 per year for a total of only $14,000 by the time students reached college age.
Earn Less, Save More
One of the most surprising bits of information that came out of the survey was the rate of saving based on household income. Families who made more than $50,000 tended to save 3.6 percent of their annual household income for college expenses. However, families that made less than $50,000 saved double that–an average of 7.5% of their annual income!
Overestimating and Under-saving?
Back in 2007 I discussed the fear-factor involved in saving for college, and how overestimating the cost of college could actually discourage families from saving, because the projected numbers seemed so unattainable. As an example, I discussed a report from Upromise, which showed that the average family guessed that the cost of attending college was 2 to 4 times as much as the actual price.
According to the Upromise report, the average parent thought yearly public college tuition was $25,155 per year (real average cost at that time: $5,836) and expected to pay $46,712 for private schools (the actual average that year was only $22,218).
Taking Small Bites
Have you ever heard the phrase, “You can eat an elephant if you take small bites?” I think that concept definitely applies here! With those exaggerated numbers in our heads, it’s no wonder many parents don’t feel up to the task of saving. In fact, some parents of newborns may already be resigned to taking out loans to pay for their child’s education!
Just like any goal, however, I suggest you break down the big goal of funding college into smaller, “bite-sized” goals. Start by calculating a realistic estimate for your child’s education, then break it down into a yearly and then month-by-month saving plan. Consider setting up an automatic deduction from your checking account each month to make deposits into your college savings plan. Out of sight, out of mind!
Crunching the Numbers
Okay, now that you have that number ready, how do you feel? You’re probably wondering where all that money is supposed to come from! Isn’t your budget already maxed out? Maybe, but for most families this is not the case.
In fact, I work with clients every day to reassess their cash flow, making their money work for them.
You can try this for yourself on a smaller scale. Start by looking for areas where you can economize. Maybe you can shift a little of the annual vacation fund into college savings. Maybe you could call your cable or cell phone company and ask for a discounted rate, and then put the savings toward your child’s college fund. Perhaps you could move your savings into an account with a higher yield, and transfer the interest to your child’s college funds. There are probably hundreds of little things you could do, and together they could add up to a big increase in your child’s college funding plan!
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
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Related Posts
Though the economy has been tough, college costs are still on the rise–and it doesn’t look like that is about to change any time soon. Unfortunately, the myriads of bad press about college prices has created a deep-seated funding fear for many families–and it may be contributing to the low college-savings rates of the average American family.
Less than $3,000 Per Year!
Well known private lender Sallie Mae, in conjunction with the Gallup Organization, recently released the results of their college savings research. Their survey, which focused on 1,200 families with children ages 0-17, found that on average, U.S. families save only $2,676 per year for a total of only $14,000 by the time students reached college age.
Earn Less, Save More
One of the most surprising bits of information that came out of the survey was the rate of saving based on household income. Families who made more than $50,000 tended to save 3.6 percent of their annual household income for college expenses. However, families that made less than $50,000 saved double that–an average of 7.5% of their annual income!
Overestimating and Under-saving?
Back in 2007 I discussed the fear-factor involved in saving for college, and how overestimating the cost of college could actually discourage families from saving, because the projected numbers seemed so unattainable. As an example, I discussed a report from Upromise, which showed that the average family guessed that the cost of attending college was 2 to 4 times as much as the actual price.
According to the Upromise report, the average parent thought yearly public college tuition was $25,155 per year (real average cost at that time: $5,836) and expected to pay $46,712 for private schools (the actual average that year was only $22,218).
Taking Small Bites
Have you ever heard the phrase, “You can eat an elephant if you take small bites?” I think that concept definitely applies here! With those exaggerated numbers in our heads, it’s no wonder many parents don’t feel up to the task of saving. In fact, some parents of newborns may already be resigned to taking out loans to pay for their child’s education!
Just like any goal, however, I suggest you break down the big goal of funding college into smaller, “bite-sized” goals. Start by calculating a realistic estimate for your child’s education, then break it down into a yearly and then month-by-month saving plan. Consider setting up an automatic deduction from your checking account each month to make deposits into your college savings plan. Out of sight, out of mind!
Crunching the Numbers
Okay, now that you have that number ready, how do you feel? You’re probably wondering where all that money is supposed to come from! Isn’t your budget already maxed out? Maybe, but for most families this is not the case.
In fact, I work with clients every day to reassess their cash flow, making their money work for them.
You can try this for yourself on a smaller scale. Start by looking for areas where you can economize. Maybe you can shift a little of the annual vacation fund into college savings. Maybe you could call your cable or cell phone company and ask for a discounted rate, and then put the savings toward your child’s college fund. Perhaps you could move your savings into an account with a higher yield, and transfer the interest to your child’s college funds. There are probably hundreds of little things you could do, and together they could add up to a big increase in your child’s college funding plan!
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
Subscribe in a reader
Subscribe by Email
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