Generation X investors are concerned about the escalating cost of college education, according to the Fifth Annual Across Generations survey released this month by the MainStay division of New York Life Investment Management LLC (NYLIM). The survey – which polled individuals ages 26 to 82 – showed that fully 38% of GenXers (age 26 to 40) now believe that educational costs will be out of their financial reach by the time their children are ready to attend college, up from 29% in 2004.
Approximately 2 million students graduating from high school in 2005 with a diploma or GED equivalent are enrolled to begin their 4-year postsecondary education in the U.S.1
“With the average cost of attending a four-year private institution rising to nearly $120,0002, with no signs of abating, GenXers are taking a serious look at the financial burden this will create for them and their families,” said Beverly Moore, Managing Director of Wealth Management at MainStay Investments. “GenXers are a highly-educated generation, and want the same for their children. As the younger GenXers start families, we expect to see growing interest in college savings plans such as 529s.”
1 Source: National Association for College Admission Counseling (NACAC), “Mean enrollment in postsecondary education of high school graduates,” Trends Survey, 2004. And, U.S. Department of Education National Center for Education Statistics. (2003). Projections of Education Statistics to 2013 (Table 23) Washington DC.
2 Source: College Board — « Trends in College Pricing, » 2004. Assumes a 5% annual increase in costs. This figure considers only tuition, mandatory fees and room and board (does not include books and supplies, transportation and other expenses).
Boomers & Matures More Interested in Sustaining Current Lifestyle
GenXers, often portrayed as slackers by the media, may be much less selfish and, in fact, more generous than older generations. ;
Boomers (age 41-59) are significantly less likely to contribute to their children’s college fund than GenXers. ; Nearly one-in-five (19%) of today’s Boomers responsible for one or more children say they plan to make no contribution at all to their children’s college fund, and an additional 15% plan to contribute less than $10,000.
Instead, Baby Boomers and Matures (age 60 to 82) are much more interested in achieving/sustaining their current lifestyle and living well in retirement than GenXers are:
; ; ; * Only 6% of Boomers say they would save for their children’s education if they received an unexpected $50,000, while more than one in seven (14%) GenXers concur.
; ; ; * Boomers are more likely to use the money to make home improvements (9%) than to save for children’s education (6%). ; Still, the average dollar amount that GenXers and Boomers plan to contribute over time is roughly the same, with both groups expecting to contribute an average of $60,000.
Who Pays for College? Clashing Expectations Around Funding Education
More than one quarter of GenXers (27%) and one in five Boomers (20%) expect their parents or other family members to contribute an average of $50,000 to their children’s college funds. They may be disappointed, however: only half of all Boomer and Mature grandparents plan to make any contribution at all.
Among Boomers and Mature respondents with grandchildren, Matures tend to be slightly more generous with education contributions, on average, than Boomers, with the average Mature grandparent expecting to contribute roughly $17,000 vs. $13,000 for the average Boomer grandparent.
“Despite the notion that grandparents would be willing to contribute generously to their grandchildren’s education, we have not seen that materialize. Conversely, we’ve seen contributions decline significantly, down from $20,300 for Matures and $32,300 for Boomers in 2004,” Moore continued.
First Wave of Boomers Hits Sixty – And Retirement Fears Abound
As the oldest Boomers begin to reach the age of 60, the 2005 survey found that Boomers seem to be more anxious about their impending retirement than in years past. Nearly one-quarter (24%) of this year’s Baby Boomer respondents say they have had to cut back on spending because they have not saved enough for retirement, as opposed to 18% in 2004. Additional findings include:
; ; ; * More than eight in ten GenXers (82%), 74% of Boomers and 60% of Matures fear the government will not provide enough financial assistance in retirement, up dramatically from 74%, 53% and 40%, respectively, in 2004.
; ; ; * Similarly, in comparison to last year, a higher percentage of today’s GenXers (55% vs. 44% a year ago) and Boomers (51% vs. 40%) now believe that their company retirement savings plans will not be able to support them in their old age.
; ; ; * If they unexpectedly received $50,000, Boomers and Matures are most likely to put the money aside for retirement (cited by 27% of Boomers and 36% of Matures, respectively).
; ; ; * In another sign that retirement fears are escalating, 23% of the Boomers surveyed expect to purchase long-term care insurance over the next 3 to five years, up from 14% one year ago.
Additional findings of the survey include:
Americans Continue to Pursue Conservative Investment Strategies
Results from the survey indicate that market volatility, while stabilizing, is still affecting investment choices. ; Investors across all age groups are seeking out more conservative investment options. Fully 26% of GenXers, 40% of Boomers and 49% of Matures now describe their investment styles as conservative, compared with 19%, 28% and 39%, respectively, in 2004. Also, when asked to select from a hypothetical list of investment models, this year’s investors – especially GenXers and Matures – were more likely than last year’s to choose offerings with the least amount of risk and lowest returns.
; ; ; * More than one in five (22%) of Matures say they no longer invest in non-retirement vehicles because of market volatility, up from 5% in 2004.
; ; ; * Roughly one in ten GenXers and Boomers also note that worries about market volatility keep them from investing non-retirement assets in financial products.
“While we’re continuing to see the overall market improve, investors are clearly still reluctant to choose products with greater risks and higher returns,” Moore said. “GenXers are still reeling from the market tumble of 2000-2001, and many have adopted a conservative strategy based on that event.”
The MainStay Across Generations Survey (2005) was conducted by an online research firm during the spring of 2005. The survey polled 1,537 individuals ages 26 to 82 on their investment attitudes, behaviors, objectives and priorities. Respondents were U.S. residents with a total net worth of at least $100,000. GenX is defined as age 26 to 40, Boomers are defined as age 41 to 59 and Matures age 60 to 82.
New York Life Investment Management LLC (NYLIM) and its affiliates, with more than $194 billion in assets under management as of July 31, 2005, provide a wide range of investment services to institutional, individual, corporate, public, and Taft-Hartley clients, including institutional asset management, retail investments, retirement services, guaranteed products, real estate investments and alternative investments. For more information, visit the New York Life Investment Management website at www.nylim.com.
FOR MORE INFORMATION:
Bliss Gouverneur & Associates
Meghan Lantier
Meghan@blisspr.com
(212) 840-1661
New York Life Investment Management LLC
Diane Kagel
(973) 394-4403
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