Center on Assets, Education, and Inclusion

This is paper two of four in the small-dollar children's savings account series in this issue that examines the relationship between children's small-dollar savings accounts and college enrollment and graduation. This series of papers uses different subsamples to examine three important research questions: (a) Are children with savings of their own more likely to attend or graduate from college; (b) Does dose (no account, only basic savings, savings designated for school of less than $1, $1 to $499, or $500 or more) matter; and (c) Is designating savings for school more predictive than having basic savings alone. Using propensity score weighted data from the Panel Study of Income Dynamics and its supplements we created multi-treatment doses of savings accounts and amounts to answer these questions separately for children from low- and moderate-income (below $50,000; n = 512) and high income ($50,000 or above; n = 345) households. We find that low- and moderate-income children may be more likely to enroll in and graduate from college when they have small-dollar savings accounts with money designated for school. A low- and moderate-income child who has school savings of $1 to $499 prior to reaching college age is over three times more likely to enroll in college and four times more likely to graduate from college than a child with no savings account. These findings lead to policy implications that are also discussed.

This is paper one of four in the small-dollar children's savings account series, which, studies the relationship between children's small-dollar savings accounts and college enrollment and graduation. This series of papers uses different subsamples to examine three important research questions: (a) are children with savings of their own more likely to attend or graduate from college? (b) does dose (i.e., having no account, only basic savings, savings designated for school [of less than $1, $1 to $499, or $500 or more]) matter? and (c) is having savings designated for school more predictive than having basic savings alone? Paper one of this series uses aggregate data from the newest wave of the Panel Study of Income Dynamics (PSID) and its supplements. Propensity score weighted findings suggest that children who have a small amount of money (e.g., less than $1 or $1 to $499) designated for school are 3 times and 2.5 times more likely, respectively, to enroll in and graduate from college, respectively, than children with no account. Findings also show that having savings designated for school might have a stronger effect on relationship with children's college outcomes than having basic savings that can be used for any purpose. The paper concludes by explaining how policies that create national children's savings programs might help cue a psychological process in which children form an identities as college-savers.

This is paper three of four in the Small-Dollar Children Accounts series that studies the relationship between children's small dollar savings accounts and college enrollment and graduation. The series uses different subsamples to examine three important research questions: (a) Are children with savings of their own more likely to attend or graduate from college? (b) Does dosage (no account, only basic savings, savings designated for school of less than $1, $1 to $499, or $500 or more) matter? And (c) is designating for school more predictive of college enrollment or graduation than having basic undesignated savings alone? Using propensity score weighted data from the Panel Study of Income Dynamics and its supplements we created multi-treatment dosages of savings accounts and amounts to answer these questions separately for black (n = 404) and white (n = 453) children. White children's savings are not significantly related to their college outcomes. Differently, compared to black children without savings accounts, black children are three times more likely to enroll in college when they have school savings of less than $1 and six times more likely when they have school savings of $1 to $499. Further, black children with school savings of $1 to $499 are four times more likely to graduate from college and black children with school savings of $500 or more are three-and-a-half times more likely to graduate from college, compared to those with no savings account. We suggest Child Development Accounts (CDAs) may be a promising tool for helping black children get to and through college.

The financial aid system for low-income students mostly revolves around extending availability of student debt, while higher-income students benefit from asset-based investments, largely administered through the tax code. The result of this divide is seen in poorer educational outcomes for disadvantaged students and an erosion of the equalizing effects of higher education. Policy changes—in higher education and financing, taxation and public assistance, financial aid, and asset accumulation—can reset these respective paths, bringing greater equity and improved educational outcomes, particularly for currently-disadvantaged students.

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The purpose of higher education is, in large part, to position students for later economic success. While those with college degrees command higher lifetime salaries than less-educated Americans, there is reason to worry that beginning adulthood burdened with significant loan balances may compromise household economic security by tilting balance sheets decidedly toward liabilities.

About 18 percent of households in our sample have outstanding student debt. The average family in 2007 had about $26,018 in student debt, and this outstanding student debt can have a negative effect on household net worth. Specifically, median 2009 net worth for a household with no outstanding student debt is nearly three times higher than for a household with outstanding student debt.

The recession seemed to hit households with student debt harder than those without such liabilities. The change in net worth between 2007 and 2009 represents a higher percentage of total 2009 net worth for households with outstanding student debt than it does for households with no outstanding student debt.

A hypothetical household with exactly median 2007 net worth ($128,828) with outstanding student loans is associated with a loss of about 54% in 2009 net worth compared with a household with similar net worth but no student debt.

The increasing student debt burden on households may not be equally shared at different wealth levels. While households at the 15th percentile of net worth with outstanding student debt lost less net worth than similar households at the 50th percentile from 2007 to 2009, the loss for households at the 15th percentile represents 285% of their 2009 net worth but only 54% for households at the 50th percentile.

College graduation is not adequate protection against this loss of net worth. Living in a household with a four-year college graduate with outstanding student debt is associated with a net worth loss of $185,995.90 (about 63% less) compared with living in a household with a four-year college graduate with no outstanding debt.

Others have found that an average student debt burden for a dual-headed household with bachelors’ degrees from four-year universities leads to a lifetime wealth loss of nearly $208,000.1 Over time, then, students with outstanding student debt make up some of the wealth loss, likely through leveraging their increased human capital into earnings potential. However, it appears that they still end up far behind their peers without student debt.

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Higher education plays a critical role in the U.S. economy, creating a ladder of economic opportunity for American children, especially for those in poverty. However, despite our collective belief in an American dream of equitable opportunities for all, higher education today increasingly reinforces patterns of relative privilege, particularly as students rely more and more on student loans to finance college access. As borrowing reduces the return on a college degree—by failing to support strong educational attainment and by compromising post-graduation financial security— the inequity of our financial aid system is laid bare. By investing in student borrowing to the exclusion of asset-based approaches with the potential to deliver superior outcomes, we jeopardize the legitimacy of the American dream.

Reimagining financial aid to include asset accumulation for those currently disadvantaged has the potential to meet one of our most critical challenges: equipping enough students to succeed in college education to power future societal economic prosperity, at a cost individual students and our collective economy can afford. This report challenges current assumptions about the innocent nature of student loans and proposes asset-based complements that could transform higher education into an institution of equitable opportunity and a foundation of a revitalized America.

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A major hypothesis of asset-building is that early access to savings accounts leads to continued and improved educational and economic outcomes over time. This study asks whether or not young adults (ages 18-22) in 2007, particularly among lower income households, are significantly more likely to own savings accounts and to accumulate more savings when they have access to savings accounts at banking institutions as adolescents (ages 13-17) in 2002. We investigate this question using longitudinal data (low-to-moderate income sample [LMI; N = 530]; low-income sample [LI; N = 354]) from the Panel Study of Income Dynamics and its supplements. Results from propensity score weighting and bivariate probit estimates support this hypothesis. Asset-building policies that extend early access to savings accounts may improve savings outcomes for young people from lower income households, which hopefully affords them with the economic resources needed to lead productive and satisfying lives.

This is the first study to examine whether parents’ college savings is positively associated with enrollment in postsecondary education of students in special education programs. In addition to examining postsecondary school enrollment among students with disabilities, we also examine whether students’ and parents’ college expectations act as a mediator between parents’ college savings and postsecondary school enrollment. We find that while not all types of college savings are associated with postsecondary enrollment, college bonds are a consistent and strong statistically significant predictor of postsecondary enrollment of students with disabilities. Further, we find evidence that students’ and parents’ college expectations act as a partial mediator between college bonds and enrollment in postsecondary school.

Welfare Based on Assets, a Way to Smooth Out Economic Instability and Develop Children's Human Capital is a four-part series of papers that focuses on the relationship between economic instability (i.e., income shocks, asset shocks, home loss, and asset poverty) and children's human capital development. Collectively, these reports build on the compelling observation that the pattern low-income families walk into is a present time oriented or consumption based pattern of behavior; in contrast, the pattern higher income families walk into is future oriented or asset based. In the third paper we find in most cases income shocks and asset shocks do not appear to be harmful to children's educational outcomes. However, children living in liquid and net worth asset poor families have lower academic achievement scores, high school graduation rates, college enrollment rates, and college graduation rates than children living in families that are asset sufficient. Overall, findings can be interpreted as suggesting that a bifurcated welfare system, with income-based programs for poor families and asset-based programs for higher income families, may provide higher income families with an educational advantage over low-income families and might ultimately help exacerbate educational inequalities in America.

This article focuses on unifying, seemingly at times, disparate aspects of school-related Child Development Account (CDA) programs in order to maximize their effects. Account ownership and financial education are the two key components of school-related CDA programs. Despite this most of the focus by asset theorists and researchers has been on the account ownership side of CDAs. To unify these two components we use identity-based motivation (IBM) theory. Further, we suggest that early experience with money failures and lack of positive role models results in many lower income and minority children entering CDA programs with low financial efficacy. Because of low financial efficacy, we suggest that in order for financial education programs to be successful among lower income and minority children they need to be designed to address this reality. We posit that a way to address the reality of lower income and minority students is to adopt solution-focus brief therapy (SFBT) techniques. These techniques can be used to teach financial education instructors how to build positive financial efficacy beliefs among lower income and minority children.

According to Shapiro, the American Dream “is the promise that those who work equally hard will reap roughly equal rewards” (Shapiro, 2004, p. 87); that is, the American Dream holds that this country is a meritocracy where effort and ability are the primary determinants of success. Institutions provide the economic conditions that make it possible for people to believe that their hard work and ability will determine their success or failure. This task is facilitated by Americans’ strong desire to feel as though their destiny can be controlled and that institutions will ‘echo’ their own contributions, rather than work against them.1 Primed to look for evidence of this ‘effort plus ability equals outcomes’ equation, Americans cling to this ideal, even as it recedes in reality for many. There is no evidence that Americans today are less capable or less committed than in previous generations, in the aggregate. Instead, particularly in today’s highly specialized, technology driven, global world, the upward mobility that animates the American Dream is only possible if effort and ability are combined with institutional might.

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Student Loans are Widening The Wealth Gap: Time to Focus on Equity Infographics

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Student Loans are Widening The Wealth Gap: Time to Focus on Equity The Student Loan Problem in America: It is Not Enough to Say, “Students Will Eventually Recover” Unequal Outcomes: Student Loan Effects on Young Adults’ Net Worth Accumulation

Higher education plays a critical role in the U.S. economy, creating a ladder of economic opportunity for American children, especially for those in poverty. However, despite our collective belief in an American dream of equitable opportunities for all, higher education today increasingly reinforces patterns of relative privilege, particularly as students rely more and more on student loans to finance college access. As borrowing reduces the return on a college degree— by failing to support strong educational attainment and by compromising post-graduation financial security—the inequity of our financial aid system is laid bare. By supporting and investing in asset-based savings approaches for all U.S. children, we have the potential to deliver superior outcomes and strengthen the American dream.

Related items: Briefs

Student Loan Debt Threatens Household Balance Sheets Status Quo: Divergent Financial Aid Systems Yield Disparate Outcomes High-Dollar Student Debt May Compromise Educational Outcomes Before College: Building Expectations and Facilitating Achievement Executive Summary

Student Loans are Widening The Wealth Gap: Time to Focus on Equity The Student Loan Problem in America: It is Not Enough to Say, “Students Will Eventually Recover” Infographics

Student Loan Debt: Consequences Tomorrow . . . And For Years to Come Reports

Student Loans are Widening The Wealth Gap: Time to Focus on Equity The Student Loan Problem in America: It is Not Enough to Say, “Students Will Eventually Recover” Unequal Outcomes: Student Loan Effects on Young Adults’ Net Worth Accumulation

Changes in financial aid policies raise questions about students being asked to pay too much for college and whether parents’ college savings for their children helps reduce the burden on students to pay for college. Using trivariate probit analysis with predicted probabilities, in this exploratory study we find recent changes in the financial aid system place a higher responsibility on African American, Latino/Hispanic, and moderate-income students to pay for college themselves. We also find when parents open a savings account, start a state-sponsored savings plan, or open a college investment fund students are less likely to pay for college with student contributions. Therefore, we suggest in addition to grants and scholarships, policies that encourage accumulation of savings for college among minority and lower income families may help reduce the college cost burden they experience.

Descriptive data indicate that 62% of White young adults between the ages of 17 and 23 years were on course (i.e., either in college or have graduated from college) in 2007, compared with only 37% of Black young adults. Given this, finding novel and promising ways to promote college progress among Black young adults, in particular, is a growing concern for policy makers. Controlling for a number of factors, the authors find that young adults who have school savings as adolescents are more likely to be on course than young adults who did not have school savings regardless of race. The authors conclude that policies that help parents and adolescents accumulate savings may be a simple and effective strategy for helping keep young adults “on course” in their college education, while taking on less debt.

Parents transfer many forms of advantage to children based on their financial resources. Of interest is whether parents transfer educational and financial advantages and whether this occurs early in life. This paper examines financial advantage by asking whether children's own savings—apart from that of their parents—can be predicted by a separate measure of parents' savings for their child. This study predicts children's basic and college savings at ages 12 to 15 with separate samples from low-to-moderate- (LMI; N = 333) and high-income (HI; N = 411) households using Panel Study of Income Dynamics and Child Development Supplement data. Propensity score weighting and logistic regression results find that parents' savings for their child is significant in both household types. Given this, policies that aim to include children in savings may help reduce transfers of financial advantage and, ultimately, educational advantage.

In this study we examine predictors of adolescents' savings account ownership and use of mental accounting with a nationally representative, longitudinal sample of 744 adolescents ages 12 to 15 using Panel Study of Income Dynamics and Child Development Supplement data. We find sizable savings gaps along class lines. Further, findings suggest adolescents are more likely to have savings and use mental accounting when their parents have higher levels of education and have savings for them. Given that parents' education level and parents' savings for their child are directly related to adolescents' own savings, we suggest that traditional banking markets may not be able to equalize the advantage provided by having savings as an adolescent.

Economic strains play an important factor in students not only dropping out of school but also for not being able to attend college. As the cost of college tuition increases, many youths may perceive that the possibility of attending college may be out of their reach for financial reasons. Using data drawn from the savings for education, entrepreneurship, and down-payment initiative participants, this study explores asset building through a child savings account (CSA) program aimed at removing economic barriers to higher education for youths with financial needs. Concept mapping analysis was used to better understand how assets obtained through CSAs affect high school students' academic and behavior goals from a nonprofit youth development program in San Francisco, CA. Results show students find the CSA program helpful in learning fiscal management and saving for postsecondary education. All students rated the clusters on savings for education and fiscal education as being very important for their academic and career success and reported mostly big changes since participation in San Francisco SEED Program.

This study examines the influence of parents' college savings for their child on Hispanic youth's four-year college attendance. Using hierarchical generalized linear modeling (HGLM), we analyze a sample of 2750 Hispanic youth from the Education Longitudinal Survey (ELS: 2002/2006). Findings suggest that parents' college savings are significantly associated with Hispanic youth's four year college attendance. However, once parents' college expectations are added to the model, the significant effect of college savings disappears. Mediating tests show that parents' college expectations and youth's college expectations mediate the relationship between parents' college savings and Hispanic youth's attendance at a four-year college.

It has been suggested that children’s savings programs will be more effective if they are combined with strategies to build children’s college-bound identities. In this study we use a multi-level treatment approach to propensity score analysis to test this proposition. Findings suggest that children who have savings and are certain they will graduate from a four-year college are more likely to attend college than their counterparts. Given this, we suggest that children’s savings policies designed to increase college attendance rates will be more effective if they include strategies for building children’s college-bound identity and college-bound identity programs will be more effective if they are linked to children’s savings programs.

Wealth is increasingly included alongside income for predicting youth’s educational outcomes. However, the natural log and categorical transformations may not always be appropriate for adjusting for skewness given wealth’s unique properties. We introduce an alternative transformation—the inverse hyperbolic sine (IHS)—for simultaneously dealing with skewness and accounting for wealth’s unique properties. We also explore non-linearity and accumulation thresholds by combining IHS transformed wealth with splines. We predict youth's math achievement with two data sources: (1) U.S. households from the Panel Study of Income Dynamics and (2) Ghanaian households from the YouthSave Ghana Experiment. IHS transformed wealth relates to youth’s math achievement similarly when compared to categorical and natural log transformations. In both U.S. and Ghanaian households, we find evidence of non-linearity between wealth and youth’s math achievement. We also find evidence for wealth accumulation thresholds that relate to youth’s math achievement. In an aggregate sample of U.S. households, accumulating zero and negative net worth is significantly related to decreases in youth’s math achievement whereas accumulating moderate values of positive net worth is significantly related to increases in youth’s math achievement. Among black and low-to-moderate income U.S. households, holding net worth sufficient to remain above the poverty line for three months is significantly related to youth’s improved math achievement. In Ghanaian households, accumulating assets between the 25th and 50th percentiles is related to a significant increase in youth’s math achievement.