The Impact of Parents' Savings on Their Children's Future Education

Background: Education is viewed as an effective way to prevent poverty and empower children of the poor to be self-reliant, while providing them with the possibility of increasing income, accumulating assets, and facilitating financial security over their lifetime (Becker, 1993; Huang, 2012; Jacob & Ludwig, 2008).  However, the gap in education achievement between children from poor families and their counterparts from higher income families has sharply widened over the last few decades (Rank, 2004).  Emerging evidence suggests that asset building interventions have the potential to advance the educational development and outcomes of children. This emerging evidence is based on the theorization that holding assets influences people’s fundamental attitudes and behaviors and in turn helps to foster dedication in school and personal orientation toward the future (Sherraden, 1991). However, critics point out that the effectiveness of savings in advancing educational outcomes is unclear. This criticism is partly because of scanty empirical evidence that the poor are able to accumulate significant amounts of assets to allow them to achieve postsecondary education and high degree attainment (Grinstein-Weiss et al., 2012; Richards & Thyer, 2011). Thus, this study seeks to examine the impact of parents’ savings on the future education of children from poor households.

Methods: This study used data from the National Longitudinal Survey of Youth, 1997. The sample consists of 3,118 youths who were at least 15 years as of December 31, 1996. Based on an assumption that data from non-experimental design may risk selection bias on estimating the effectiveness of the program, this study used propensity score matching (PSM) to provide a robust method of comparison between a treatment and a control group. Regression adjusted propensity matched estimates was used to evaluate the impact of parents’ saving as treatment. In addition, regression adjusted propensity matched estimates with multiple imputation was used for sensitivity check on the treatment effect.

Results: Results from the regression adjusted propensity matched estimates show that parents’ savings for their children’s education are statistically significant for a two year post-secondary associate graduation (TE=.21, p<.001) and a four year college graduation (TE=.22, p<.001). The results indicate that, compared to what would happen if parents had no savings for their children’s future education, children whose parents saved are 21% and 22% more likely to have associate and college degrees, respectively.

Implications: This study found that parents’ savings for their children’s education are effective in encouraging children to achieve associate or college degrees. Interestingly, while parents’ net worth is an important indicator of college attainment, household income is not associated with such attainment. Thus, these findings suggest that asset-based policies and programs that encourage the poor to hold savings and build assets may be a desirable policy strategy to help improve higher educational attainment of children from low-income households.