Going to college can be expensive and there is a divide between kids and parents in terms of expectations about just how much of their tuition parents will be able to cover, according to T. Rowe Price’s 2016 Parents, Kids & Money Survey.
With 62% of kids (8-14 years old) expecting their parents to pay up no matter what school they want to go to, and 65% of parents knowing they will only be able to foot some of the bill.
While student loans can be a solution, the study suggests that they can also up the level of financial stress and anxiety for families. In fact, parents who are already carrying their own student loan debt are the ones who are more likely to let the anxiety about how to pay for their kid’s college education give them some sleepless nights (49% vs. 40%). And they typically carry a higher level of credit card debt (67% vs. 54%).
“The benefits of a college education can become overshadowed by the burden of debt, if parents haven’t saved towards a college education and had money conversations with their kids to manage expectations of how much of their college costs they can cover. It’s surprising that most kids expect their parents to cover whatever college they want to go to—and presents a real opportunity to discuss family finances and make sure everyone is on the same page,” said Judith Ward, CFP, a senior financial planner at T. Rowe Price.
College saving trends are up
Even with this divide between kids and their parents around the expectations and reality of paying for college, according to the study 58% of parents are socking away money to pay for school – with many realizing that they need to start saving early. With 68% saying that they need to start socking away cash while their kids are under 10 years old, and 47% of those say they need to get started before they hit kindergarten.
While 37% of parents are saving up using using a tax-advantaged 529 plan, others are using less effective methods to get their college funds up and running. With 42% going with low-interest savings accounts and and 27% using retirement accounts, which will carry a penalty for early withdrawal if their kids graduate high school before they retire.
The eighth annual T. Rowe Price Parents, Kids & Money Survey was carried out between February 4 and 11 by MetrixLab, Inc. They interviewed 1,086 parents and 1,086 kids between the ages of 8 and 14.