An Exploratory Study of the Factors Associated with Parental Saving for Postsecondary Education

Abstract

Spurious Elements in Measured Real Income Saving. American Economic Review, 70 (1980), 990-1004. 33. Manski, C. F., and D. A. Wise. College Choice in America. Cambridge, Mass.: Howard University Press, 1983. 34. Merisotis, J. P. An Inventory of Innovative Financing Plans to Help Pay for Higher Education. In New Ways of Paying for College, edited by Arthur M. Hauptman and Robert M. Koff. New York: American Council on Education/Macmillan Publishing Company, 1991. Introduction The growing federal deficit and increased competition for public dollars have resulted in increased interest in alternative methods for financing society's and personal costs of postsecondary education. Questions have been raised about the effects of federal financial aid upon student access |19~. Alternative methods of providing loans have also been proposed |10, pp. 21, 24~. The State of Massachusetts has enacted legislation to encourage parental saving |14~. Guaranteed tuition plans, such as the plan adopted in Michigan, are also examples of attempts to stimulate parental saving |34~. Recent interest in stimulating parental saving for postsecondary education suggests that policy makers view saving as a substitute for federal and state loans and other forms of financial aid for middle-income families. Baum |3~ discusses the rationale for returning more responsibility to parents for financing the postsecondary education of their children. In 1986 the Survey Research Center at the University of Michigan conducted a survey of consumer finances. Survey results indicated that only 34 percent of families with children under eighteen years of age who planned to send their children to college had savings specifically designated for college expenses |43~. Although interest in stimulating Parental saving for postsecondary education is increasing, there is a dearth of research on the extent of parental saving for postsecondary education and the factors associated with parental saving. This exploratory study examines factors associated with parental saving for postsecondary education. Purpose In an effort to shed light on parental saving, this article examines parental saving behaviors. Using student and parent data from a longitudinal study employing multiple surveys over a three-year period, logistic regression was used to identify the factors most strongly associated with parental saving for postsecondary education. In addition, insights gained from the interviews of a small subsample of students and parents who were interviewed five times during the three-year period are used to further examine parental saving. This exploratory study examines the following questions: 1. To what extent are parents saving for postsecondary education? 2. What factors are associated with parental saving? 3. Do certain kinds of information appear to influence parental saving? Insights into these questions can assist public policy makers in determining the most effective interventions to stimulate parental saving. A Perspective on Parental Saving for Postsecondary Education There is little previous empirical work on the factors associated with parental saving for postsecondary education. However, economists have been concerned about parental household savings since the emergence of capitalist economies and especially since the industrial revolution |1, 2, 8, 20, 38~. Drawing upon previous econometric studies and research on college choice, we posit that parental saving for postsecondary education is a function of the financial ability to save, parental motivation to save, parental postsecondary aspirations for their children, and the ability of their children to benefit from postsecondary education. Based upon research on household savings and student college choice we have identified factors that might be expected to influence parental saving. These factors include an array of variables which we have grouped under the categories of background characteristics, student and parental aspirations and activities, and information and incentives. …