Few Grandparents Saving for Grandkids' College Education

71.2 Percent Say Their Children Can't Save Enough

Dec. 14, 2000--Many grandparents have the means and the desire to help pay for their grandchildren's college education, but few are actively saving for that need, according to a national survey released today by Mercury Funds, a leading provider of section 529 college savings programs. Many other grandparents, according to the survey, are unsure about what investment vehicles exist to save money for their grandchildren's college education.

The findings highlight a curious phenomenon in financial planning circles: Even though greater numbers of elderly people are amassing significant assets - 46.1 percent of the grandparents surveyed had more than $1 million in investable assets - that money is not being allocated or invested in a way to offset rising costs of a college education for their grandchildren. What's more, of those who are putting money aside for their grandchildren, most use savings bonds, a safe but low-yield investment, according to the survey of 427 grandparents with at least $100,000 in investable assets.

Prince & Associates conducted the survey for Mercury Funds. Of the grandparents surveyed, 12.6 percent had between $100,000 and $250,00 in investable assets, 21.5 percent had between $250,000 and $500,000, 21.5 percent had between $500,000 and $1 million, and 46.1 percent had more than $1 million.

According to the survey, 59 percent of the grandparents said their savings and investments would be important in paying for their grandchildren's college costs, but almost 85 percent said they have not specifically saved money for their grandchildren's education. The grandparents were also realistic about the high costs of college education. Asked if their children had the means to save enough for their grandchildren's college education, 71.2 percent of the grandparents polled said ``No.''

``Grandparents want to see their grandchildren receive the best education possible, and many have the resources to help, but many grandparents are unfamiliar with the products and services designed to help them transfer money for this purpose,'' said Mark Cone, managing director for Mercury Funds.

The survey also found:

• 77.1 percent wish college financial planning was simpler.
• 82.2 percent said tax advantaged plans don't let people put away enough money.
• 75.4 percent don't expect their grandchildren to qualify for financial aid.

One possible explanation for the inactivity is grandparents don't know where to turn for advice, Cone said. ``Our survey indicates grandparents are interested in learning more about college savings plans, with 55 percent saying they `definitely' or `probably' would meet with a financial advisor if given the chance,'' Cone added.

Moreover, the survey showed 60 percent of the grandparents said they would definitely or probably be interested in a ``529 Savings Plan,'' a college savings program that is open to everyone, regardless of income, and allows investments to grow tax-deferred.

The 529 plans are now offered in more than 40 states, with several more expected to open savings plans in the next few months. The 529 savings plan is the latest investment strategy for college-bound children. It follows tax-advantaged college savings plans such as the Education IRA, which also lets investments grow tax free, but caps annual contributions at just $500.

Mercury's 529 savings plans require a minimum initial investment of as little as $250 and, over the life of the plan, allow contributions of up to $120,000. There are no earnings limits and the accounts remain in the control of the account contributor known as the participant. The money can be used to attend any U.S. Department of Education accredited post-secondary school.

According to a 1999 report by The College Board, the average four-year state college costs $32,344 in tuition, room and board, while it costs $85,356 on average to send a child to a private university.

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