Few Parents Using 529 Plans

May 29, 2002 (PLANSPONSOR.com) - Although awareness of tax advantaged 529 college savings plans among parents has doubled in the last year, most parents still have never heard of them, a survey found.

The second annual college savings survey by AEGON Institutional Markets, an investment adviser for the college plans, showed that a scant 16% of parents know about the 529 vehicles while a microscopic 4% of the sample actually use one.

Parents may not be flocking to 529 plans, but they are apparently socking money away for their children’s higher education expenses.

According to the survey, 61%, are either saving for college or have saved in the past, with 38% of respondents saving on a regular basis. Yet, the majority of parents surveyed, 75%, admit that they don’t know enough to make good investment decisions.

Two-thirds or 67% of those who save for college say they begin to save before their children are five years old. Some 31% begin to save when their children are less than a year old. Almost 20% of American parents are starting to save when their children are five to nine years old.

The most popular college savings method cited was a bank savings account, used by 61% of parents, up 7% from 2001.

Other savings vehicles include:

  • mutual funds, used by 44%
  • US savings bonds, 37%
  • stocks, 30%
  • money market accounts, 25%
  • certificates of deposit, 23%, and
  • education IRAs 21%

Big Bucks

Parents now believe they must save $80,400 on average to feel adequately prepared to pay for one child’s college tuition, an increase of nearly $35,000 from what they believed they had to save a year ago.

Not surprisingly, the poll conducted by Harris Interactive for AEGON found that parents are risk-averse when saving for their children’s college expenses – with nearly nine in ten believing that some investments are just too risky for their children’s college funds.

Seven out of ten parents described themselves as “conservative” investors when saving for their children’s college expenses, an increase of 9% from 2001.

The study was conducted by telephone between March 22 and March 29, 2002, and included 500 interviews with parents of children under 18.