Life Events

Build trust across generations with a focus on education

6 MIN ARTICLE

Being an active advisor in the education savings journey helps your clients and can also strengthen your client relationships.

If you play a passive role in your clients’ education savings journey because you view 529 education savings plans as small accounts, a hassle to set up or an unprofitable line of business, you may want to reconsider. The benefits of helping clients with educational planning go beyond assets under management. These conversations can help you build an emotional bond for a lifetime and may offer an opportunity to become a trusted advisor for future generations.

 

There is a neural mechanism in the human brain that tags information with emotional associations that enhance memory.1 The birth of a child is among the most significant, life-changing events your clients will experience. The subsequent chapters of raising and educating children, then sending them off into the world, are important milestones. For financial professionals, this is a golden opportunity to form a positive emotional association with clients as you discuss investing in the education they’ll need to launch their children to the next stage of life.

 

Most importantly for advisors, a child represents a good reason to review many factors that can shape clients’ financial futures, including setting up a will, revising the family budget, and creating nest eggs for their children, whether in the form of trusts or 529 accounts. This is also a time when other members of the family may wish to financially contribute to children and play a greater role in investing in their future, including when it comes to education. 

Graphic reads 86% of parents said their children will need to continue their education or gain additional skills throughout their lives.

Source: College Savings Foundation (CSF) 16th Annual State of Higher Ed Survey of 1,000 Parents, 2022.

Leverage the flexibility

 

Relative to the degree of benefit they provide, 529s are simple and easier to set up than other planning techniques, such as trusts. Time to set up is well spent and pays dividends in relationship alpha, how you stand apart in the eyes of your client. College education is not the only model, as assets can be used to pay for vocational and alternative education, to fund adult learning for second careers, or to pay for graduate education for silver scholars. Given that $10,000 per year can also be used for K-12 tuition, this tax-advantaged vehicle can offset an annual expense for years, boosting investment potential toward retirement or other client goals. (Qualified education expenses includes tuition for an elementary or secondary private or religious school [kindergarten through 12th grade] up to a maximum of $10,000 incurred during the taxable year per beneficiary).

 

Wealthy individuals can help fund primary, secondary and higher education for multiple generations of grandchildren, nieces, nephews and godchildren by investing early, front-loading 529 accounts and leveraging up to five years of lifetime gift exemptions. Tax benefits allow you to contribute up to $18,000 in 2024 ($36,000 for married couples) to each individual annually without gift-tax consequences. Under a special election, you can invest up to $90,000 ($180,000 for married couples) at one time by accelerating five years’ worth of investments. Additional gifts made to that beneficiary over the next four years after the year in which the one-time gift is made may reduce the donor’s lifetime gift and estate tax exemption. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Clients should consult with a tax advisor regarding their specific situation.

 

There are also several potential use cases to employ. These accounts can be invested far beyond a 20-year horizon, to fund graduate school, seed a Roth individual retirement account or transfer the balance to another eligible beneficiary. And don't forget the tax savings can be significant!

Make a next-gen connection

 

As wealth shifts, it falls into more hands, in many cases those of female clients. For a new mother, the birth of a child presents the opportunity to make important financial decisions that will affect her family for years to come. According to a 2020 study from McKinsey, American women are projected to control most of the $30 trillion of inherited financial assets from baby boomers by 2030. This study also found that women in the United States tend to be more concerned than men about meeting their financial goals.7 Engaging female investors by showing you understand their motivations is important, so capitalize on this skill. In many cases, you’re helping them “change their family tree” by adding a 529 plan to the wealth-building process.

 

And let’s not forget the beneficiaries of these 529 plans. As that generation comes of age and uses their education to build strong careers, the conversations with you can continue. By establishing yourself as their trusted advisor early, you may have more opportunities to serve them in the future.

 

Craig Cheramie, an advisor at Cambridge Securities in New Orleans, recalls attending a Financial Planning Association meeting where many investors were only focusing on setting up standard investments. “I thought, if I help these clients with their 529s, I’m building a future relationship with not only the client, but also with their children,” he says. The next generation is often as successful if not more than your existing clients, with 529 plans being a great tool to build the relationship.

Bar chart compares sources of financial advice for Millennials and Gen Z. Among Millennials 26% cite financial advisors as a source, 22% cite YouTube and 13% cite TikTok. YouTube and TikTok combined are a source for 35% of Millennials. Among Gen Z, 24% cite financial advisors as a source of financial advice, 33% cite YouTube and 34% cite TikTok. Combined, YouTube and TikTok are a source of financial advice for 67% of Gen Z.

Source: SmartAsset, “Millennials, Gen Zers Are Gaining Wealth, But Advisors Aren't Meeting Them Where They Are,” May 2024.

Younger generations are increasingly seeking their financial advice online.8 For many, the first experience with benefits of financial advice may be through higher education. A 529 account gives you reason to connect directly to the next generation early, at a time they are reaping the benefits of their investments. Knowing that higher education is within reach helps prove your value statement to the next generation in a tangible way. And remember there’s also an emotional association. If education savings is a client’s first experience with an investment’s drawdown, it could either negatively or positively affect their confidence in future investment opportunities, such as saving for retirement.

 

While some advisors may view 529s as small and burdensome, including them in your conversation toolkit may help you form deeper emotional bonds with clients and their families. Either way, any conversation about their kids is a conversation they will enjoy having. 

Sources

 

1 Columbia University, Why Do We Remember Emotional Events Better?, January 2023.

2 Institute for Family Studies, “The true cost of raising a child,” July 2023.

3 Hanson, Melanie. “Average Cost of College & Tuition” EducationData.org, November 18, 2023

4 CDC: Key Statistics from the National Survey on Family Growth, 2017.

5 ISS 529 College Savings Quarterly Data Update, 1Q2014 & 1Q2024

6 SavingForCollege.com

7 McKinsey, “Women as the next wave of growth in US wealth management,” July 2020.

SmartAsset, “Millennials, Gen Zers Are Gaining Wealth, But Advisors Aren't Meeting Them Where They Are,” May 2024.

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