Jonathan Hughes: [00:00:00] There are things that you say so often that you get sick of hearing yourself say them. Maybe that happens to me more often than most people, but I’m about to give you one of them. Over my years at MEFA, the most common question I’ve heard from parents about paying for college is how do people do this?

Now, this question is typically from parents who are staring down a college bill or trying to decide whether they can really afford their student’s top choice college, and I understand. Everyone knows college can be expensive, but regular people do seem to make it happen, right? You see them on TV. Maybe you know them.

Maybe they’re your relatives or your neighbors. But how? So in these circumstances there’s some practical advice I can give, but the message I really want to leave parents with is that it doesn’t really matter what other people do or even what you think other people do. What can you do? What’s possible for your family?

That’s the question to [00:01:00] focus on when you’re faced with actual numbers. What can you afford? What’s the plan that will work best for you and your family Let’s back up for a moment, because there is a time when I think it can actually be beneficial to look at the bigger picture and understand what other families are doing.

How are they preparing for college? The best thing you can do to prepare your child for college or frankly whatever they choose to do after high school is to save. And when people know that their relatives, their friends, their neighbors are setting aside money, they’re more likely to do that too. Part of what we do here at MEFA is help spread that message; and lucky for us as providers of the Massachusetts 529 plan, we partner with Fidelity Investments.

Every other year, Fidelity conducts a study called the College Savings Indicator, or CSI Report, that helps answer questions like how are our friends and neighbors in Massachusetts saving for [00:02:00] college, how highly do they value education past high school, and so much more. And lucky for me, I get to talk all about this with my friend and frequent guest, Fidelity Investment’s 529 Managing Director Cory Latham.

Cory, welcome to the MEFA podcast.

Cory Latham: Thank you for having me here, Jonathan.

Jonathan Hughes: Fidelity has been for many years tracking the college savings habits of people in Massachusetts through the College Savings Indicators. What does this year’s study tell us? What’s the big takeaway?

Cory Latham: So the biggest takeaway we have for Massachusetts residents is that parents remain highly committed to saving for education for their children.

It’s actually the top savings priority again year over year. That’s even above retirement savings and above emergency savings. So what it’s showing us is that they understand the value of what education means for their children. We’ve also found this year that parents are looking to take a larger [00:03:00] burden of the cost, right?

They want to take more of it on. So we’re seeing a lot of really positive things when it comes to savings- The one thing we do have to watch out for though is I think that there’s a gap, and that gap is in what folks have saved and what they’re going to need to save. So that is the one takeaway of something that we’re going to want to keep an eye out on.

Jonathan Hughes: Why do you think college is such a focus for savings for- for parents right now?

Cory Latham: What parents tell us and what we see is that it’s one of, if not the most important investment that you can make in your child is for their future education. And what we see is eight in 10 parents tell us that they still see the value in college education.

I know there’s a lot of talk out there of if there’s value, if there’s not, but we’re seeing eight in 10 parents understand that. And why is it? It gives you more opportunities when you get older, right? It gives you a lot of that. And the other big thing is the financial flexibility that you’ll have with it, right?

So that if you have a college education, so much more opens up for you, and that’s really what we’re seeing with the parents. [00:04:00]

Jonathan Hughes: So they think that having that college education gives their child more flexibility when they get older.

Cory Latham: It does, right? And I think what- what we’re also seeing parents do now is they got to balance their priorities, right?

We live in the real world, right? A- and life can be expensive. There’s challenges with that. So how do you balance not just your savings priorities- … but just your day-to-day expenses? And what we’re seeing is that when it comes to that balance of savings, where do you want to put those dollars, that the idea of I’m doing something that’s going to help my child out significantly in the future, they’re understanding that’s where they want to put some of those saving dollars.

Jonathan Hughes: So that is encouraging news, that 77% of Massachusetts parents have decided that they want to save more of their child’s college cost rather than have the child assume it themselves. What does that tell us about how parents are approaching paying for college?

Cory Latham: Yeah. It’s letting us know that they’re being more proactive and more intentional in how they plan for it, and understanding that their goal [00:05:00] is to take on more of that financial responsibility that would be due onto the child once they graduated.

What we’re seeing is that many parents are saying that they’re either going to maintain or even increase the amount of contributions that they’re making so that they can achieve that goal for them. We al-… we also figure that when parents want to do that, when they want to take on that larger responsibility, it’s a lot of the fact that they hear a lot about, it’s tough once you graduate.

You have a burden on yourself that’s hard to get under. What parents have taken is that messaging out there saying, “What can I do upfront so that isn’t there on the child so that when they graduate that they can make whatever decision’s going to be best for them or wherever they want to pursue their future careers?”

Jonathan Hughes: And that’s something that we’re seeing more of as, as opposed to recent years.

Cory Latham: Yeah, absolutely. I think that was one of the biggest takeaways that we had, was the fact that parents were looking to say, “More of that responsibility, we want to take it on, and let’s figure out how we can get there as early as we can.”

Jonathan Hughes: So let’s [00:06:00] talk about that gap that we were … that you mentioned earlier, right? How well are Massachusetts families doing meeting their savings goals?

Cory Latham: I want to stay positive and I think that there’s a lot of big positives for the … And what that first positive start is we do see that families are making progress; and the goal for parents is to save 70%, that’s what they’re telling us right now.

Now, they’re only on track to meet 58% of that goal which, 58%’s not bad. No,

Jonathan Hughes: I think it’s pretty good.

Cory Latham: So we do see that there’s a lot of parents out of there that are getting close to it. But what it’s showing is that we’re more prepared in that they’re understanding more about how to reallocate those savings dollars.

What this really shows though is the value in starting early. So the earlier you start the more time you have in the account, the longer term that you have it to grow. So that’s one of the things that we hear is that if you want to cover that 70%, the best way to get ahead of it is start as early as you can.

Jonathan Hughes: Now, one of the things that make it really difficult for families to save and to have savings goals [00:07:00] in mind is, and I know this from experience talking- … with families and being a parent myself–

Cory Latham: Yeah …

Jonathan Hughes: it’s hard to know what college will cost by the time your child gets to college. So how do families deal with that?

Cory Latham: Yeah, I think the most important thing is educating yourself on it. With any purchase you want to make or any investment you want to make, I think the most important thing you need to do is figure out how much that’s going to be, right? And we see a lot of parents still taking their best guess or looking at it, and I would not recommend that.

I think what you want to try to do, there’s a lot of resources available out there, try to understand it. And then once you understand that set yourself reasonable attainable goals. It doesn’t all have to be at once. I think that’s one of the things. You don’t have to put it all into the account, do it all at the same time, right?

Put it all into a 529 at the beginning. Be reasonable, be attainable. Consider all the other things that you have going on that you need to pay for and that you want to save for, and then be intentional about how you want to [00:08:00] save for a 529. So it’s really all about educating yourself and taking advantage of the resources out there because the more educated you are the better chance you’re going to have about making a plan that’s going to work for you and your personal situation.

Jonathan Hughes: Before we go any further let me just take a quick break from our conversation to let you know that MEFA has a whole host of tools than can help you define and refine your savings goals. Go to mefa.org for college savings calculators as well as MEFA’s new comprehensive education planning center where you can chart your savings progress, estimate your financial aid, apply for scholarships, and a whole lot more So the study also showed that 44% of Massachusetts families have a 529 plan for their students.

What do you think is driving that growth?

Cory Latham: Yeah, at the risk of sounding cheesy, a more education around education accounts. I think that there’s more in the public sphere. People know what this account is and they’ve been a lot of work [00:09:00] done to help educate parents on that. Now with 44%, still work to do, but definitely encouraging that we’re seeing the growth.

What parents have told us is they want tools; they want things that will be available to them so that they can help, achieve that goal for their children. A 529 account is specifically designed to pay for higher education expenses. So that is the tool. That’s what’s out there to help… That account you get the tax deferred growth, you get the federal tax free withdrawals for qualified higher education expenses, right?

This is what that account is built for, so that’s a tool that they want to take advantage of. I also think people are starting to understand that 529s are a lot broader-

…

Cory Latham: Than what we initially had thought they were for or what they were designed for. A lot of folks think, “Hey, it’s just for college,” and it doesn’t have to be.

It can be for other college expenses, other higher education expenses. I will say that college continues to be the largest driver of the account. It continues to see where we see most people using and what we see them using the accounts for, [00:10:00] but just understanding that there are more uses for it, I think that’s another reason why we’ve seen it become a lot more popular.

And really when you’re thinking about, “I want to be able to save for that future educational expense,” there’s an account designed to save for that higher e-education expense. It’s really just a perfect match.

Jonathan Hughes: One of the things that we like to see that we see from this study is that folks who do have savings in a 529 plan also tend to have a better financial plan for meeting these expenses as well as a higher balance.

Can you talk about the connection between those two things?

Cory Latham: Yeah. So we see that dedicated savings drives better planning-

…

Cory Latham: And better savings helps you build a better plan, right? They just, they go hand-in-hand, right? That makes sense. What a 529 can really help you do is it takes that abstract goal of saving for college I want to save for college; it helps you put it into a plan, right?

Because what you want to get from a plan is you want it to be more concrete, right? We see [00:11:00] folks that have 529 accounts have higher savings, right? They have more ready to help pay for those education expenses. We show that they’re contributing more regularly For college savings, if you have a 529 then as opposed to not having a 529.

And what’s important to understand is it’s not about… I, and I mentioned it earlier too, it’s not about just paying for it all at once or doing a massive contribution. It’s saving what you can when you can as much as you can, right? These accounts, they have no minimum that you need to contribute. If you want to do it periodically on a monthly basis, it’s $15, right?

So these dollar amounts that we’re talking about are not massive, but over time they’re going to grow because one of the most important things that you have is time. The longer that you’re in the account the further away that you are, you have that value of time that will help that account grow.

So don’t put too much stress on yourself to say, “I,” again “I got to do it all at once”, or, “I need this massive amount.” I like to tell people whatever you save now, that’s less that you’re [00:12:00] going to have to pay later, whatever that dollar amount would be.

Jonathan Hughes: I think that’s great, Cory. Now I just want to pop in here to say if someone you know could use this perspective, go ahead and forward them this show Now back to it.

The study shows that parents who have talked to their children about savings goals are more on track to meet those savings goals. Is that right?

Cory Latham: Yeah, t- talking is good, right? The more conversations you have the better, right? So we found that parents and children that have conversations about what the overall cost of college is going to be, they have a higher success rate of meeting the goals that they have built for their plan because it drives things like awareness, it drives accountability, and it drives understanding, right?

I think what’s important to understand is that we’re talking a lot about the 529 account as being one of the vehicles to be able to help pay for future education; but it’s one of the vehicles. There’s a lot of things out there as Jonathan that can help when it comes to y- you know understanding what the [00:13:00] overall cost of college is going to be.

There’s borrowing, there’s scholarships, there’s all other types of ways that will help be apart of whatever your plan is going to be for college. The best thing that you want to do though is have a plan.

Right? Sit down evaluate all those options talk about it get it all out on the table or the kitchen table wherever you’re going to have that conversation but the more that you talk about it the more that you understand the more again people become aware the more that you build that accountability the higher chance of positive outcome you would have on the plan that you had set for yourself.

Jonathan Hughes: And what would you say to those families who maybe feel that they’re behind as far as other families are concerned?

Cory Latham: We talk about you know what’s the most important step you want to take towards saving for higher education expenses and for me, it’s the next step. So I would tell you don’t worry about where you are now like give yourself credit for having the conversation today right?

That’s what you got to focus on is that you can’t really control what you’ve done [00:14:00] but you’re here now. Right so what do you want to educate yourself on it you want to have conversations around it you want to build yourself a plan and figure out what can it look like for me. You want to do things that are attainable right you want to do things that are you know easy enough for you to be able to do.

You think of things like we mentioned consider opening up a 529 account this account is designed specifically for higher education expenses and its broad in what it can be used with and there’s been a lot of expanded usage but an account like that’s the first step you would have that’s going to set you up for helping fund whatever the amount of future higher education expenses you would want for your child and what I would say is that if you feel like you’re behind you’re not then I would say everyone might feel that same way so you’re probably in really good company I’m not sure how many of us feel like we got it down at this point so give yourself credit for sitting down and thinking about it and id say take that spin [00:15:00] on it is that you know you are taking that next step you’re taking that step really investing in your child’s future which from our study told us that’s the number one saving priority for parents

Jonathan Hughes: I can say that at speaking with the thousands- …of families that we have I don’t think I’ve spoken to anybody who didn’t feel that they were at least a little behind, right?

Cory Latham: Yeah. Yeah. Yeah. And that’s all right. I think, again… You don’t, what you don’t want to have happen is people say you know what? I’m already behind. There’s nothing I can do at this point.” It, we mentioned a lot ear- early through our talk today is start early. Start early.

Okay, but just because you haven’t started early, that shouldn’t be a reason for you not to start, right? Yeah, of course it’s better if you can start earlier in the process, but at any point that you can start saving, you’re helping yourself out. You’re helping your child out, right? Anything that you save now, less that you’re going to have to pay later.

So just because you feel behind, just because you’re a little bit later in the game, [00:16:00] these accounts are designed to help you out.

To help you out with that higher education expense, so I’d highly encourage people to take a look at that and don’t beat yourself up. Again, feel confident.

Give yourself some credit that you’re actually sitting down and having that conversation and actually looking at building that plan.

Jonathan Hughes: Cory, thanks for coming by.

Cory Latham: Jonathan, thanks so much for having me.

Jonathan Hughes: Now remember everyone, no matter how late it is, no matter what anyone else is doing or not doing, it’s never too late to start saving because anything you can save is something you don’t have to borrow.

Until next time, I’m Jonathan Hughes and this has been the MEFA podcast