Scaling the Steep Slope of Saving for College, Save Smarter, Says The Hartford, Releasing Results from New Survey
A leader in 529 college savings plans reveals data from second annual study; identifies misconceptions in preparing for major life expense and drives educational campaign to help families start saving smarter
SIMSBURY, Conn., Sep 25, 2007 (BUSINESS WIRE) -- A college education is a universal dream, but can be elusive as education costs continue to climb. Parents and grandparents struggle to put away funds, while the College Board reports that the average four-year private college now cost over $22,000 per year, up nearly six percent from a year earlier. As costs reach new heights, many savers find themselves in the old rut of relying on traditional tools to finance the enormous expense. In its most recent survey, The Hartford Financial Services Group, Inc. (NYSE: HIG) tried to explore why important savings instruments remain underused in a nation that places such high value on college degrees.
For its second annual college savings survey, conducted in June of this year, The Hartford interviewed 2,549 parents in households with children ages 15 and under. The survey polled both households that rely on the services of financial professionals and households that do not. There were striking differences between the 688 households surveyed which stated that they use a financial professional and the 1,861 households surveyed which stated that they do not. The study has uncovered three important myths that keep Americans from saving adequately for college and debunking those myths now forms the basis of a new educational campaign from The Hartford called "Save Smarter!".
Myth #1 - All I have to do is save, no matter how I do it.
Of those surveyed, 70 percent of parents saving for their child's college education confessed they were not using a 529 college savings plan. Many parents seem not to know, or fully appreciate, the significant tax benefits 529 plans offer, benefits which were made permanent through the Pension Protection Act of 2006. Results from the survey suggest that the availability and usefulness of these plans still appear to be a well-kept secret.
Myth #2 - I need a lot of money to start saving for college.
More than 40 percent of parents participating in the survey admitted that they have not started saving because they believe they need a large sum to get off to the right start. In reality, it takes just a small amount to start a 529 college savings plan and regular contributions can make a major impact over time. For example, a parent or grandparent can open a SMART529(R) plan for $250. In West Virginia, where SMART529(R) is sponsored, residents can initiate a plan for as little as $50. Contributing as little as $50 a month beyond that to a 529 plan from a child's birth to the moment he or she enters college (equating to $10,800 contributed during that period) can result in significant investment income and savings.
Myth #3 - I need to focus first on retirement; college savings will take care of itself if my nest egg is large enough.
Think again. Reliance on hoped-for scholarships or other funding mechanisms does not constitute a plan. The Hartford survey showed that 21 percent of parents have put off saving for college because they are focused solely on saving for retirement. Of this group, a quarter eschews education saving plans with the hope that their child may receive a scholarship. That's an unsafe bet for a possible outcome years in the making. Typically, actual college bills begin arriving just when parents reach their peak years for retirement savings.
An alternative approach, hatched well before the time comes to send a child off to school, is to embark on a dual savings strategy taking both priorities into account. And, although 62 percent of full-time undergraduate students did receive a scholarship grant in 2003/2004, the average amount was only $5,600, according to the most recent National Postsecondary Student Aid Study. That leaves a big gap to fill, especially given the significant debt load averaging $20,000, according to the College Board, with which recent graduates find themselves saddled. It's true that loans or scholarships can play a role in the college savings mix, but relying solely on these sources to completely replace private savings can place an enormous burden on both parents and children.
Financial Professionals Help Parents Make the Grade
The differentiator in the survey seems to be the involvement of a financial professional in helping to map a long term savings plan. "We are gratified that our study shows more people are saving for college. In fact, 73 percent of those we surveyed have started some sort of college savings program," said Jeff Coghan, director of 529 Programs at The Hartford. "But to really make a difference, parents need to save smarter. The financial professional can play a critical role."
The Hartford's survey identified the unique role the financial professional plays in helping parents face and dispel college savings myths, as well as getting started saving for college and adjusting their strategies. The survey found that 31 percent of parents started saving for college only after discussions with a financial professional. Among parents already saving for college, 25 percent increased their contribution amount after consulting with a financial professional.
Financial professionals also help parents understand and take advantage of the many benefits of 529 college savings plans. A significant finding of the survey is that parents who work with one are much more likely to participate in a 529 plan. The survey found that 45 percent of parents working with a financial professional participate in a 529 plan compared with only 26 percent who don't work with a financial professional. In addition, parents look to a professional for guidance in finding the best way to save for college. 64 percent of parents view a financial professional's 529 plan recommendation as extremely important.
Building trust between a client and their financial professional is crucial to developing the right relationship between them. Honest dialogue of college savings needs was found in the survey to be a catalyst of a healthy dialogue. Most parents surveyed, a significant 84 percent of those sampled, said they feel their financial professional knows their complete financial situation better after they talked candidly about the college savings challenge they face.
The Hartford Introduces "Save Smarter!" To Help Financial Advisors Suggest Smarter Strategies to Save for College
Based on survey findings, The Hartford has developed and launched its new "Save Smarter!" educational campaign to encourage financial professionals to help their clients cut through the myths and develop a realistic plan for paying for college. The "Save Smarter!" campaign will be rolled out this fall through broad-based activities around the country, including distribution of educational materials, online tools and resources, a public awareness campaign over the radio waves, and events including an online webinar designed expressly for financial professionals to help them start the conversation with their clients. Central to this campaign is a three step strategy that addresses the college savings myths and gets parents on track to both save for retirement and fund future college education expenses.
Step 1 - Use a Smart Savings Vehicle. Although the survey found that 85 percent of parents working with a financial professional say they have already begun to save for college, professionals can help make sure parents are using the best investment vehicle for their situation. In many cases, the 529 college savings plan makes sense for investors saving for college, given its tax benefits, target-date investment options, and design to encourage regular contributions over a long period of time. "Save Smarter!" encourages financial professionals to discuss with their clients the benefits of the 529 college savings plan.
Step 2 - Start Saving at a Smart Time. The Hartford survey found that parents see the benefit of starting to save for college early. Most parents - 84 percent of those surveyed - feel that the best time to start saving is either before birth or within the first two years of a child's life. Turning that feeling into real action is where the financial professional can help. "Save Smarter!" encourages financial professionals to start the process with educational resources, such as online calculators, available at www.hartfordinvestor.com that will help create a roadmap for families to meet their goals.
Step 3 - Build a Smart Strategy. The process only begins with actually opening an account. Financial professionals can play a long term role with their clients by ensuring that parents are taking advantage of every opportunity to save for college as their child gets closer and closer to the day when they leave to get their degree. "Save Smarter!" provides strategies to help financial professionals help their clients adjust contribution amounts, set up a disciplined contribution plan, and take advantage of additional resources to fund college expenses. Few families know, for instance, a child's grandparents, or members of his or her extended family, can participate equally in a 529 plan with the same tax advantages that their parents enjoy.
"These survey findings help focus The Hartford's college savings educational and marketing efforts," commented Coghan. "We now better understand the positive impact the financial professional has on parents' and grandparents' college saving strategies, and we hope our efforts can help drive the conversation."
SMART529(R) is a qualified tuition program of the West Virginia Prepaid College Tuition and Savings Program Board of Trustees and administered by Hartford Life Insurance Company. For more information about SMART529(R), please visit www.hartfordinvestor.com or contact your financial advisor.
The Hartford, a Fortune 100 company, is one of the nation's largest financial services and insurance companies, with 2006 revenues of $26.5 billion. The Hartford is a leading provider of investment products, life insurance and group benefits; automobile and homeowners products; and business property and casualty insurance. International operations are located in Japan, Brazil and the United Kingdom. The Hartford's Internet address is www.thehartford.com.
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The Hartford survey, which was conducted via the Internet by Praxis Research Partners in June of 2007, interviewed 2,549 parents in households with children ages 15 and under. Of the total survey group, 688 use the services of a financial advisor and 1,861 do not. The margin of error for the entire survey is +/- 1.9%.
Some of the statements in this release may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about our future results of operations. We caution investors that these forward-looking statements are not guarantees of future performance, and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ. These important risks and uncertainties include, without limitation, those discussed in our Quarterly Reports on Form 10-Q, our 2006 Annual Report on Form 10-K and the other filings we make with the Securities and Exchange Commission. We assume no obligation to update this release, which speaks as of the date issued.
You should carefully consider the investment objectives, risks, charges and expenses of SMART529(R) and its Underlying Funds before investing. This and other information can be found in the offering statement for SMART529(R) and the prospectus or other disclosure documents for the Underlying Funds, which can be obtained from your investment representative or by calling 866-574-3542. Please read them carefully before you invest or send money. SMART529(R) is distributed by Hartford Securities Distribution Company, Inc. Member SIPC.
If you reside or have taxable income in a state other than West Virginia, you should consider whether your state has a qualified tuition program that offers favorable state income tax or other benefits exclusively to your state's program that are not available under the SMART529(R) program. Taxpayers and residents of other states who are interested in exploring such tax consequences should consult with a qualified tax advisor.
This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.
SMART529(R) is a program of the Board of Trustees of the West Virginia College Prepaid Tuition and Savings Program, State Treasurer John Perdue, Chairman. The Board has selected Hartford Life Insurance Company to provide program management services for SMART529.
Investments in SMART529(R) are not guaranteed or insured by the State of West Virginia, the Board of Trustees of the West Virginia College Prepaid Tuition and Savings Program, the West Virginia State Treasurer's Office, Hartford Life Insurance Company, The Hartford Financial Services Group, the investment sub-advisors for the Underlying Funds or any depository institution. Investments in SMART529(R) are subject to investment risks, including the loss of the principal amount invested, and may not be appropriate for all investors.
"The Hartford" is The Hartford Financial Services Group, Inc. and its subsidiaries.
SOURCE: The Hartford Financial Services Group, Inc.
The Hartford Financial Services Group, Inc. Maggie Dietrich, 860-843-6679 maggie.dietrich@hartfordlife.com or Tim Benedict, 860-843-5150 timothy.benedict@hartfordlife.com
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