Paying for college is perhaps the largest expense families face during the course of their financial lifetime.  And the largest percentage of affluent households believe it is a necessary expense.  So, do families prepare adequately for this expense?  Who pays for this expense?  Do affluent households expect their financial advisor to assist them in planning for this critical financial event? 

Based on research recently completed with affluent investors, it appears that younger investors and households have greater expectations of their advisors regarding how to deal with this expense than older investors.  Perhaps this is because the role of a financial advisor has expanded in recent years.  It’s not surprising that older investors didn’t think to ask their advisor about paying for or planning for college expenses.  Today, investors have a more holistic expectation of their financial advisor, and the opportunities to save for college are very different.  Therefore it’s very realistic that investors would look to their advisor for advice regarding this important event. 

More than 80% of investors who currently have dependent children (85%) or who have grown children (87%) believe that getting a college education is very important for their children.  In contrast, only 64% of those who plan to have children in the future think a college education is important - but that’s another story.  And who is responsible for paying for college?  For the most part, affluent investors do not believe that children need to finance their own education all by themselves.  Only 42% believe that children should finance their own education which translates to 58% who believe that parents are responsible for paying for a college education.

 

         

 

While 34% of households with grown children received no help from their financial advisor regarding college planning, 80% of those currently with dependent children have received some help from their advisor with college planning.  Younger investors planning to have children may anticipate even more assistance. 

A good example of the changing expectations can be shown by the use of Section 529 plans.  Only 18% of households with grown children were able to take advantage of Section 529 plans when paying for college tuition but more than 40% of those currently with dependent children are using 529 plans.  Granted, Section 529 plans may not have been around for all of the older investors, but clearly investors are interested in taking advantage of how to take advantage of products and services that can assist them when dealing with this large expense. 

What do financial advisors need to do? 

• Actively ask your clients about how they are saving for future college expenses.  Our report showed that a significant number of houses ignored this expense until they had to deal with it.
• Become familiar with how scholarships, grants and traditional forms of financial aid work.  In some cases, households may be eligible for various types of financial aid even if their household has high income or net worth.
• Discuss this as part of the overall financial planning process and refer to it frequently.  While most parents indicate they have no financial regrets, about a third wish they had saved more. 

Our new report Parenting and Financial Issues contains a host of financial information related to parenting, from educational costs, to financial values (what should a parent pay for?) and what investors believe a financial advisor should provide advice about throughout their lifetime as a parent.  It may validate what you know but surprise you as you review the generational differences.