Saturday, 15 January 2005 - 2:00 PM

This presentation is part of: Income Policy and Economic Development

Educational Status and Savings Performance in Individual Development Accounts

Purpose: While theory and empirical evidence have indicated that educational attainment has positive effects on savings, little is known how education affects savings outcomes of the low-income population. The purpose of this study is to examine the effects of education on savings performance in Individual Development Accounts (IDAs), a matched savings program for the poor. This study also examines possible mediating effects of income on the relationship between education and savings.

Methods: The data of this study is from the American Dream Demonstration (N = 2,353), the first national demonstration of IDAs. Savings outcomes of participants were measured with Average Monthly Net Deposit (AMND) and deposit frequency. The independent variable, educational attainment, was measured with four categories: less than high school degree (< 12 years), high school degree (12 years), some college (12 ¨C 15 years), and college degree and above. This variable was dummy coded, with less than a high school degree being the reference group. Control variables included a wide range of participant and program characteristics. The effect of education on saving outcomes and possible mediating effect of household income was examined through hierarchical regression analyses.

Findings: The results indicate that, compared to the participants without a high school degree, those with some college or above education had higher AMND, and those with a 4-year college degree also saved more frequently, after controlling for other factors in the model. While income was positively related to AMND, it did not mediate the relationship between education and savings outcomes. In addition, program factors, such as match rates, financial education, monthly savings target, and direct deposit were related to savings performance of participants.

Implications: This study shows that educational attainment has positive effect on savings of the poor after controlling for the effects of other factors including income. This information can help design and implement more effective savings programs for the low-income population and its varying segments. For example, IDA participants with lower-educational status may need more help and support to save. The results also suggest that assets accumulation programs may be more effective if they work together with programs that help enhance the educational status of low-income people.

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