The Majority of Americans Lack Significant Understanding of 529 Plans, According to New Edward Jones Study
Thursday, May 16th, 2019
A recent study by financial services firm Edward Jones found the number of Americans who do not recognize a 529 plan as an education savings tool has risen to 67% – a 5 percentage point increase from 2012, the year the survey was first commissioned. Of those who correctly identified a 529 plan as an education savings vehicle, almost half (48%) were unaware it can be used to pay for qualified K-12 tuition expenses; 50% of parents with children in the household younger than 18 said the same.
"It's concerning to see that in nearly a decade, the number of individuals who do not understand or know what a 529 plan is has increased," said Tim Burke, an Edward Jones Principal. "What's more alarming is that parents with young children, those who stand to benefit the most from this type of savings plan, are not aware of its many advantages, not just for college, but for K-12 education expenses as well."
Saving for Education Takes a Backseat to Other Financial Priorities
When prioritizing five financial goals, Americans across generations ranked preparing for retirement as the most important (30%), followed by preparing for the unexpected (24%), living in retirement (21%), paying for education (8%) and planning for their estates or inheritances (5%).
At the same time, parents with children younger than 18 reported preparing for the unexpected as their main financial priority (38%) compared to only 8% who ranked paying for education in the top spot.
Less Reliable Savings Strategies Favored for College Costs
More than one-third of parents with children younger than 18 (36%) said they do not save any money for future education expenses. Only 11% said they save more than $5,000 per year.
Regarding specific education savings strategies, 529 plans remained the least prioritized strategy at 18%, a slight uptick from last year's results (13%). Respondents indicated that a personal savings account was the most common method Americans used or intend to use (38%), followed closely by scholarships (35%), federal or state financial aid (33%) and private student loans (20%). Of those who did not or are not planning to save for education using a 529 plan, 71% said they were not aware of the features and potential tax benefits.
"By relying on strategies that aren't necessarily guaranteed, like scholarships, federal or state financial aid, Americans leave themselves vulnerable," added Edward Jones Principal Kyle Andersen. "The numerous tax benefits, investment growth potential and flexibility of a 529 plan make it a valuable investment vehicle for parents saving for their children's future education costs. As the cost of education continues to rise, it is crucial for parents to invest in their children's education as early as possible, through an investment vehicle built specifically for this purpose."
As part of its ongoing effort to raise awareness for 529 plans and education savings techniques, Edward Jones branches across the country are recognizing May 29 as "Save for Education Day," a firm-wide holiday derived from the name of the education savings tool. Edward Jones branch offices will be hosting events in their communities to remind investors about the importance of setting education savings goals. Investors are encouraged to visit their local branches to learn more about planning for their children's educational future.