A new report from Sallie Mae finds that more parents are saving for college this year (57 percent) than last year (48 percent), and they’re saving an average of about $6,000 more, for a total of $16,380.
Saving for college is becoming a higher priority for parents as well. For the past three years, it ranked as the fourth most important savings goal (after emergency funds, retirement and general savings), but this year it rose to their second-most important goal, ahead of both retirement and general savings.
Related: The Best College for the Money in Every State
However, not all of the college savings are being invested in an optimal way. While more parents are using 529 college-savings plans, which allow funds to be invested tax-free, the majority are putting their children’s college money into general savings accounts. A substantial minority are using just checking accounts. Given the low interest rates on bank accounts these days, this represents a missed opportunity for growth. Many parents are giving up thousands of dollars of returns that would be generated in a 529 college savings account.
Source: Sallie Mae
The need for increased savings does seem to be affecting the habits of younger parents the most. Perhaps because so many of them are struggling with the weight of student loans, Millennials are more committed to saving for college than older generations.
Nearly two-thirds of Millennial parents are saving for their children’s college education, compared to half of Gen Xers and 61 percent of Baby Boomers. Millennials have also saved the most for college, and are the most likely to have used a 529 college savings plan.
Source: Sallie Mae
Millennials also have the highest expectations when it comes to paying for college. Nearly two-thirds believe they’ll be able to meet the cost of college, and 38 percent believe that parents should be solely responsible for paying for their child’s higher education.
The Sallie Mae report is based on surveys conducted online in the spring of 2016 with nearly 2,000 parents.