Food Insecurity, Material Hardship and 529 College Savings Plan Participation: Evidence From the SEED OK Experiment

Purpose:  529 college savings plans were created to encourage families to save for children’s college education. However, very few low-income families participate in 529 plans, and low-income families that enroll save less money, on average, than higher-income counterparts. This study contributes to the growing literature on 529 plan participation by examining how economic constraints such as food insecurity is associated with low participation and performance of low-income families in 529 college savings plans. This investigation is done by using a direct measure of a household’s ability to meet basic needs such as food and the relationship to access higher education for children in low-income families through financial assets such as 529 college savings.

Methods: Using data from the SEED for Oklahoma Kids (SEED OK) experiment, we examined whether family material hardship was related to participation in a tax-advantaged 529 college savings plan. The SEED OK experiment provided financial incentives to encourage families to begin saving at a child’s birth for his or her college education. Mothers of infants born in Oklahoma during two 3-month periods in 2007 comprised the sample (N = 2,648; 8.59% African American, 11.52% American Indian, 1.36% Asian, 12.83% Hispanic, and 65.34% Caucasian). SEED OK children were younger than one year old when mothers completed the baseline survey. The outcome variable, 529 plan participation, indicated whether SEED OK mothers held a participant-owned 529 account on or before September 30, 2010. Material hardship was measured as a latent variable using five indicators of household ability to afford food, housing, clothing, household items, and medical care. Data analyses included descriptive statistics, confirmatory factor analysis, and logistic regression analyses.

Results: Results showed that participation in the SEED OK experiment was positively associated with 529 plan participation (b = 3.06, p < .01). The odds of holding a participant-owned 529 account were about 21 times higher for the treatment group than for the control group. Material hardship was negatively associated with 529-account holding among all mothers, but the magnitude of the negative association between material hardship and 529-account holding was smaller among treatment mothers than among control mothers. On average, a 1 standard deviation increase in material hardship reduced the probability of 529-account holding by about 13% in the treatment group and by about 45% in the control group. Findings indicated that account-holding rates were higher among mothers in the treatment group, even among those experiencing above-average levels of material hardship, than among counterparts in the control group.

Implications: These results demonstrate how asset-building interventions such as the SEED OK could encourage low-income families to participate in programs such as 529 college savings. The results show that the treatment mothers despite having the same characteristics as those in the control in terms of material hardship had higher likelihood to save and participate in the 529 accounts. If material hardship such as food insecurity prohibits families from opening accounts for their children, development accounts may need to modify incentives or provide additional services and supports to expand access to consumption-poor households.