While investors are concerned about saving for their children’s education, a new study from Edward Jones finds many do not fully understand the benefits of a 529 college savings plan.
They have been around for many years, but 529 plans have been undergoing numerous enhancements recently to the point where only 25% of more than 2,200 adults surveyed realize that they fund more than just higher education, according to the Edward Jones survey.
Forty-seven percent did not realize the plans can be used for vocational and trade schools, 43% did not know they can be used for room and board, and 41% did not know they can help pay off student loans. About 50% did not even know what a 529 plan is, Edward Jones said.
This gap in education is where a financial advisor can step in to help their client and enlighten them on 529s and their expanded uses, said Andy Esser, a financial advisor at Edward Jones.
“It’s incumbent upon financial advisors to start that conversation about the education goals that might be important for parents, for grandparents, and to be that connection point to help people realize that 529 plans are more robust than they’ve ever been,” he said. “We need to clear that knowledge gap so people can leverage the tool.”
The survey also found that when it comes to planning for education, advisors are very rarely in the loop. Only 33% of those surveyed said they consulted an advisor before making a decision related to saving for their child’s education.
“That’s where the real opportunity exists for us to help connect people with what their education legacy and fulfillment goals are, versus the tools that are available,” Esser said.
Not having professional financial advice has led many to lose faith in their ability to save for their child’s education, the study found. In fact, 60% do not feel they are saving enough to reach their future education goals, which is an indication that they could use financial advice, according to Edward Jones.
Financial advisors are not the only ones who Americans are not consulting when it comes to making decisions about education goals. The children themselves are also not involved; the survey found.
Specifically, 56% of those surveyed said that they will speak with family members before making a financial decision related to education savings. In contrast, only 31% will speak with the child ahead of time, the survey found.
Leaving the child out of these discussions deprives them of having input in how the money will be saved for their education and prevents them from getting exposed to important financial themes at a younger age, Esser said.
“There’s a real important opportunity to create financial fitness for the next generation by exposing the child to the conversation of how their education funding is coming together,” he said. “It begins their first fundamental steps for making sure they’re able to take charge of their financial future.”
For advisors, it is important to establish at the outset of the advisor/client relationship what the client’s goals are in terms of saving for education and how they relate to their plans for retirement, he said.
“The advantage to having an advisor is they provide the wisdom and the context to connect the dots between their priorities, their goals, and the vehicles that are available,” he said.