Funding Your Child's Education

While more than half of American families indicate they have a college savings program for their 12-and-under children, chances are the savings are modest and the earnings are slimmer. Families are much more likely to have their savings in cash than stocks, bank savings accounts than money markets, insurance vehicles than 2007 Education IRA or state-sponsored college savings programs. Low savings rates and returns seem to be balanced by optimism regarding future chances for grants and scholarships.

The 2007 Mosaic Funds' Report on College Savings surveyed 604 American families with 1,302 children 12-and-under with the goal of better understanding how many families are saving, and where those savings are invested. The survey also looked into how Americans with younger children expect to pay for their youngsters' college educations. Key findings include:

* College expectations run high

* 90% of American families with children

* 12-and-under expect college to be in their future.

* More than half of American families are saving for college

* 56% of American families have initiated a savings or investing program or account.

* Savings balances are often modest

* The amount of savings is often relatively modest: 43% of the families have less than $5,000 saved per child.

When combined with the 44% of families with no savings programs, this means that 70% of American families with children 12-and-under have $5,000 or less in college savings per child. Investment choices are usually conservative -- Bank savings accounts, insurance vehicles, U.S. Savings Bonds and cash constitute the four most-used investment vehicles. Only 1 in 4 families rely on stocks or stock mutual funds for their 12-and-under children, and those that do average only a quarter of their assets in these growth vehicles.

Americans have great expectations for grants and scholarships. Parents were asked to rate potential sources of college funding by importance on a 1-5 scale. By far, the number one source is expected to be non-loan financial aid. Note: This expectation is not supported by financial aid statistics. Today 80% of all college aid is in the form of loans, and only 10% is distributed on a non-need basis. This finding complements Mosaic's 2007 report on parents of current collegians, who were roundly disappointed in the amount of grants and scholarships -- particularly middle-income families.

Families in the $40-75,000 income range were just as likely to predict a reliance on grants and scholarships as families in the under-$30,000 categories. Even among families with over $75,000 in income, there was a positive belief in grants and scholarships, with 1 out of 3 families giving it their highest source ratings. Education IRAs and state-sponsored plans are just appearing on radar screen. 22% of families have considered investing in an Education IRA; about 5% of have opened an account. 21% of families have considered investing in a state-sponsored college savings program; about 8% have opened an account.

Three out of four respondents did not know their state had a savings program, and only one in five knew the minimum annual investment for Education IRAs.

Education IRA