Research That Matters (January 17 - 20, 2008)

Background and Purpose: Education is a key to life-long economic success and an important bearing of social status. Parents' wealth, such as savings and home equity, has great influence on children's educational outcome because high cost of college education prohibits one from paying it solely with current income. Wealth inequality, therefore, has contributed to unequal educational outcomes among children with different level of economic resources. Socio-economic structural changes for the last decades are expected to have changed the way parents' wealth affects children's education. First, wealth inequality has grown since the 1980s: the larger proportion of nation's wealth became concentrated to a smaller proportion of wealthy families. Second, the cost of college education has increased much more rapidly than inflation rate. Third, government policies on college financial aids have shifted: the proportion of government funds to low-income low-resource youth declined while the share for middle- and even high- income youth has increased. Fourth, the role of college education in the labor market has been more important in recent years than in the past. Despite these dramatic shifts, few studies have examined whether the effect of parents' wealth on children's education had changed over time. This study aims at investigating whether the association between parents' wealth and children educational achievement has increased, decreased, or remained the same over time. Methods: This study conducts secondary data analyses using individual-level data from the Panel Study of Income Dynamics (PSID). This study compares two cohorts (those who were 15-17 years old in 1984 (N=466) vs. those who were at the same age in 1994 (N=415). The dependent variables are educational outcomes (college graduation, college attendance, high school graduation) at age 23. The main independent variable is parents' wealth (net worth) information observed in 1984 for the early cohort and in 1994 for the later cohort. This study uses logit regression for analyses. Results: Analysis results indicate that the effects of parents' wealth on children's education increased over time: the gaps in educational achievement between children from asset-rich and asset poor families widened between the two cohorts. College graduation rate increased only by 2% among the bottom quartile of net worth distribution (5% to 7%), it increased by 13% among the third quartile (6% to 19%), by 20% among the second quartile (13% to 33%), and 9% among the top quartile (37% to 46%). College attendance rate (including both those who succeeded in a degree and those who could not) showed more dramatic changes: it decreased by 6% among the bottom quartile (28% to 22%) while it increased by 24% among the third quartile (24% to 28%), by 15% among the second quartile (49% to 64%), and by 8% among the top quartile (70% to 78%).

Conclusions and Implications: Our findings suggest that we should develop social policies to promote low-wealth children's education. Examples include the expansion of governmental financial aids for low-wealth children's college education, such as scholarship, and low-interest education loans and the development of college saving accounts designed for economically disadvantaged youth.