As the cost of a college education climbs, the number of households saving for college has dropped dramatically since the mid-2000s.
Between 2004 and 2013, the percentage of households that identified “education” as their reason for saving money dropped by about 5 percent, from 11.6 percent of households to 7.6 percent of households, according to Federal Reserve data compiled by MBA@Syracuse, the online MBA degree from Syracuse University. That’s a big drop from recent historical trends as well. From 1998 through the early 2000s, the rate of households that identified “education” as their reason for saving had hovered at around 11 percent, according to the data.
But as fewer identify “education” as the prime reason for savings, college costs keep mounting. In 2004, public four-year in-state tuition and fees in the United States averaged $6,305 per year, according to data from The College Board. By 2013, it had grown to an average cost of $8,775. That’s an increase of nearly 42 percent in nine years.
And those cost increases for college aren’t slowing down anytime soon. The same College Board data shows that shows that college costs have increased by 11.6 percent between 2012 and 2017, rising to an average cost of $9,404 for a single year of public four-year in-state college education.
Between 2004 and 2013, as the percentage of U.S. households with savings who identified “education” as the primary reason for saving declined, the overall savings rate has undergone some dramatic changes. In 2004, approximately four years before the Great Recession, U.S. households saved an average of 4.5 percent of their income, according to data from the U.S. Bureau of Economic Analysis compiled by the Federal Reserve Bank of St. Louis.
But in the run-up to the Great Recession, the personal savings rate dropped to 2.9 percent in 2007. Oddly, the Great Recession seems to have motivated more households to save a greater portion of their income. In 2008, the personal savings rate jumped back to 4.8 percent. In 2009, at the height of the Great Recession, the personal savings rate increased to 6.1 percent. In 2012, it jumped again to 7.6 percent. But in 2013, as America began to recover from the Great Recession, the personal savings rate began to trend downward again. That year, U.S. households reported an average 5 percent personal savings rate. Since then, it has continued to slide. The most-recent data from the U.S. Bureau of Economic Analysis shows that U.S. households were saving an average of 4.3 percent of their income in the first seven months of 2017, nearly equal to 2004 levels.
But there could be another reason Americans are identifying “education” as the primary reason for savings less frequently than in the past: Americans are getting older.
Most members of the baby boomer generation have passed or are about to enter their retirement years. The children of those boomers are mostly millennials, with the oldest among them entering their 30s. As such, boomers have largely already put their kids through college and no longer need to save for it, while millennials are just starting their families and have yet to begin saving for the college education of their own children. Between 2004 and 2013, the number of households with savings that identified “retirement” as their primary reason for saving increased from about 34.7 percent to 37.3 percent, according to MBA@Syracuse. Similarly, the number of households that identified “liquidity” as the reason for savings increased slightly from 29.8 percent to 31 percent between 1998 and 2013.