When to Begin? Socioeconomic and Racial/Ethnic Differences in Financial Planning, Preparing, and Saving for College


by Nicholas Hillman, Melanie J. Gast & Casey George-Jackson - 2015

Background: With college tuition and student loan debt rising, high school students and their families are increasingly concerned about “how to” pay for college. To address this, federal/state policy makers encourage individuals to financially prepare for college early in their child’s life. Drawing from social reproduction theory, we anticipate wide inequalities in who engages in college financial preparations and savings and when they begin these activities.

Purpose: This study updates and extends the literature on how families financially prepare for college.

Data: High School Longitudinal Study of 2009 (HSLS:09), a nationally representative sample of 9th grade students who began high school in 2009.

Research design: We use logistic and multinomial regression to estimate four different outcomes: (1) whether the family plans to help the student pay for college; (2) whether the family has financially prepared for college; (3) whether the family has opened a college savings account; and (4) when families financially prepare for college (kindergarten, elementary, or secondary school).

Results: Our results have implications for social reproduction theory as we find that socioeconomically privileged families have greater likelihoods of financially preparing their children for college before or soon after their children enter formal schooling.

Conclusions: Current policy efforts to encourage college financial preparation may disproportionately benefit already-privileged families and likely exacerbate educational inequalities.



How American families afford and pay for college are pressing questions today. As the responsibility for funding higher education has shifted from federal and state governments to individual students and families, college education is now one of the largest financial investments that many students and families make. The federal student loan volume has tripled over the past decade, states’ per-student investment in higher education is at a 25-year low, and one-in-five households now carry student loan debt (Federal Reserve Bank of New York, 2013; Reed & Cochrane, 2012; SHEEO, 2013). This shift toward family responsibility for college costs is also occurring during a period of declining family income and rising income inequality (DeNavas-Walt, Proctor, & Smith, 2013; Fry, 2012). In light of these trends, students and their families are becoming increasingly concerned about how to financially prepare for college (Immerwahr & Johnson, 2009). They are often unaware of how much college will cost, how to navigate the financial aid system, and whether financial aid will be available to them in the future or will cover all expenses (Scott-Clayton, 2012).


Due to these concerns, state and federal policy makers and financial aid administrators are encouraging families to financially prepare for college long before their child enters college (Baird, 2006; Doyle, McLendon, & Hearn, 2010). Recent federal tax policies have also made college savings plans an attractive option for addressing rising college costs. Families can open college savings accounts as early as when a child is born, where interest and tax rewards compound over time. When the child is ready to enter college, they can use these funds to pay for tuition and other education-related expenses.


But for many families, college savings plans are complex and varied, requiring considerable discretionary resources, guidance, and knowledge to be able to start saving, especially when saving long before children apply to colleges (Sherraden, McBride, & Beverly, 2010). Considering that one-in-four low-income families do not have bank accounts and national savings rates have been low for decades (Burhouse & Osaki, 2012), it is reasonable to assume that not all families can equally begin financial preparations for college even if they expect their child to attend. Those that initiate college savings plans, especially when their children are very young, are engaging in a forward-thinking, preparatory act that passes along financial benefits from one generation to the next. We hypothesize that families with more advantage in terms of socioeconomic status, race, and ethnicity are more likely to save prior to or soon after their child enters formal schooling, particularly college-educated families given their preoccupation with cultivating their children’s college success (Demerath, 2009; McDonough, 1997; Perna, 2006). Such an early investment is a seemingly blind act to reproduce social advantage and may exacerbate inequalities in total college savings over time.


While state and federal policy makers continue to promote college savings accounts as a solution to college affordability problems, there is little research exploring stratification in terms of how and when families financially prepare for college. The timing of when families begin college savings and financial preparations may provide long-term benefits, so it is important to know not only who saves, but also when they start saving. Understanding these patterns is important to educational equity concerns because researchers have found that savings can influence students’ college enrollment decisions (Elliott & Sherraden, 2013; Grinstein-Weiss et al., 2013). Past research also suggests that low-income families are the most harmed by rising college costs and that family structure, size, and background impact the total amount parents set aside for higher education (Charles, Roscingo, & Torres, 2007; Downey, 1995; Hamilton, 2013; Paulsen & St. John, 2002; Steelman & Powell, 1989; Turley & Desmond, 2011). However, research has missed the important aspect of timing of college financial preparations. Understanding these patterns may help public policy makers design and implement financial preparation policies that are more equitable and effective in terms of helping all students and families pay for college. Accordingly, we ask the following research questions:


1.

What are the differences by socioeconomic status (SES) and race/ethnicity in parents’ financial preparations for their child’s college education?

2.

What are the differences by SES and race/ethnicity in when parents begin to financially prepare to pay for college?

3.

What is the magnitude of the relationship between parental SES and race/ethnicity on opening a college savings account?


We use the most recent nationally representative sample of high school students (ninth graders) and their parents, the High School Longitudinal Study of 2009 (HSLS:09), to address these questions. Our aim is not to make a causal link between financial preparation and college participation; instead, we aim to offer a better understanding of how deeply entangled college financial preparation is with race/ethnicity and SES using the most current and available nationally representative data and by accounting for the multitude of influences acting on the relationship between SES and financial preparation for college.


CONCEPTUAL FRAMEWORK


The expectation that children will pursue formal education beyond high school has dramatically increased in the past few decades, yet socioeconomic and racial/ethnic disparities persist in college attendance and completion rates (Charles et al., 2007; Perna, 2006; Reynolds, Stewart, Macdonald, & Sischo, 2006). Indeed, it has long been understood that parental social background is a main factor in predicting a child’s social destination, especially educational attainment (Sewell, Haller, & Portes, 1969). One mechanism of the social stratification process involves parental investments in children’s education, whether economic, social, or cultural (Charles et al., 2007; Downey, 1995; Lareau, 2003; Steelman & Powell, 1989).


Bourdieu’s (1977, 1986) social and cultural reproduction theory argues that parents invest in different forms of capital for their child to ensure the maintenance of status position. For example, high-SES parents use their economic capital to pay for extracurricular activities, private school education, tutors, or SAT-prep classes or their social and cultural capital to interact with teachers, place their children in AP/Honors classes, or help with college applications (Buchmann, Condron, & Roscigno, 2010; Charles et al., 2007; Coleman & Hoffer, 1987; Conley, 2001; Lareau, 2003; Lareau & Weininger, 2008; Roscigno & Ainsworth-Darnell, 1999; Sandefur, Meier, & Campbell, 2006). Parental investments can occur at a variety of stages in a child’s life course but the earlier an investment is made, the greater potential gains it will have in the long run. Early parental educational investments occur in a seemingly natural, unconscious manner to ensure that social reproduction is maintained across generations (Bourdieu, 1977, 1986).


Since college savings accounts can begin as early as when a child is born and both monetary and tax benefits compound over time, it is important to not only understand socioeconomic and racial/ethnic differences in saving for college, but also in the timing of when financial preparations and investments begin in a child’s life course. Gains from each year can be compounded over time, providing advantages over those that save later (if at all). When families begin college savings before or very close to when their young child enters formal schooling, they are making an almost blind decision to invest in college prior to gaining information about a child’s academic potential or motivation. This behavior may be indicative of the both conscious and unconscious tendency to maximize certainty in a child’s educational success and, especially for upper- and middle-class families, to begin the social reproduction process and their child’s social position very early on. We frame our study around social reproduction theory (with early savings being an early strategy to maximize class reproduction) and we add to the literature on parental investments as important sources of educational inequality. Accordingly, the next section discusses the literature on parental education attainment and economic assets, as well as the implications of timing of parental college investments, and the importance of parental background for starting these investments.


REVIEW OF THE LITERATURE


PARENTAL EDUCATION AND KNOWLEDGE FOR FINANCIAL PREPARATIONS


Parental education acts as an important indicator of the intangible resources necessary to engage in actions to financially prepare for college. College-educated parents are more likely to be embedded in higher status networks (Winkle-Wagner, 2010) and, having been to college themselves, perhaps have received financial support or navigated payment options themselves (Flint, 1997; Steelman & Powell, 1991). College-educated parents are also more likely to be highly involved in their children’s schooling, have information on the college-going and financial aid process, and to have frequent contact with school officials, which can in turn impact a child’s likelihood of attending four-year colleges (McDonough, 1997; Sandefur et al., 2006). Due to this high level of familiarity with the college-going and “paying” processes, college-educated parents have the experience and knowledge to help them begin college financial preparations in a fairly smooth manner.


Furthermore, information about college costs and financing options may be an important mechanism shaping how and when families can begin saving for college since information is not randomly distributed across groups. Studies highlight the importance of social background on having knowledge of college costs and how to pay for college (Bell, Rowan-Kenyon, & Perna, 2009; Grodsky & Jones, 2007; Perna, 2008). Parental decisions to enroll in specific college savings programs, such as 529 programs, are conditioned on their awareness of the program itself, which may be impacted by the number of children in the family, parents’ education levels, and investments in stocks and bonds (Huang, Beverly, Clancy, Lassar, & Sherraden, 2013). Information exposure and the desire to save may still be insufficient as the complicated nature of college savings programs may limit accessibility to those who are not financially savvy or experienced with investments (Huang et al., 2013).


THE ROLES OF PARENTAL INCOME AND ECONOMIC ASSETS ON COLLEGE INVESTMENTS


Not only are parental social and educational backgrounds important for parental college investments and preparations, but so are economic resources necessary to invest in college savings plans. Past research suggests that families disadvantaged in economic resources are less able to invest in their children’s schooling as compared to wealthier families (Charles et al., 2007; Conley, 2001; Hamilton, 2013; Steelman & Powell, 1989). While household wealth can impact educational expectations, entrance into college, and degree completion even net of income, the type, structure, and amount of assets that families have access to matters, with non-liquid assets such as property being difficult to convert to useable assets to allocate towards paying for college (Elliott & Nam, 2012; Shanks & Destin, 2009). Furthermore, large wealth gaps persist by race/ethnicity, assets, and income level and impact how Black, Latino, and low-income families can set aside money for college (Conley, 2001; Oliver & Shapiro, 2006; Zhan & Sherraden, 2011). While some low-and middle-income families are able to set aside money specifically for college, such funds may need to be re-allocated for emergency purposes (Consumer Federation of America, 2013; Friedline, 2012).


Latino parents, in particular, are less likely to gather financial aid information and save in preparation of sending their children to college than are White parents, but the inclusion of SES in regression models complicates this picture (O’Connor, Hammack, & Scott, 2010). Black and Latino families face significant barriers to accumulating wealth as compared to White families based on inequities in homeownership and inheritance rates (Kuebler & Rugh, 2013; Oliver & Shapiro, 2006). Given the intersections of socioeconomic status with race and ethnicity, it is likely that Latinos and Blacks have less discretionary assets, which impacts their abilities to invest in college savings accounts, especially early on in their child’s life course.


TIMING OF COLLEGE SAVINGS AND FAMILIAL COMMITMENTS TO COLLEGE


Very little research has been conducted on when families begin saving for college. Charles et al. (2007) examine differences in parental financial investments as early as the student’s eighth-grade year. However, given the survey structure, they are not able to analyze whether or not these differences occur earlier on. Intuitively, high-SES families would be more likely to start saving very early due to the seemingly natural ways that parents engage in reproductive strategies for their young children (Chin & Phillips, 2004; Lareau, 2003). Research using social reproduction theory suggests that high-SES families transmit cultural and social capital to their children very early on so children can do well in school (Lareau, 2003; Roscigno & Ainsworth-Darnell, 1999). In regards to higher education, high-SES parents are more likely to expose their children to more stable and abundant college guidance over time (Bozick, Alexander, Entwisle, Dauber, & Kerr, 2010). High-SES students are also more likely to have always known they are going to college, while low-SES students often make this decision much later on, possibly because of differences in the early college-going signals that students receive based on social position (Grodsky & Riegle-Crumb, 2010). However, studies have not examined when families initially begin economic investments for college.


Given the importance of parental educational investments, we seek to understand differences in terms of when parents financially commit to college. We argue that beginning financial preparations and opening a college savings account are important economic investments (reversible only with consequences) that must be understood through the actions of parents. While research suggests there are inequalities with regard to “who saves,” these inequalities are likely to be exacerbated when considering “when” parents begin college investments.


DATA AND RESEARCH DESIGN


The National Center for Education Statistics’ (NCES) 2009 High School Longitudinal Survey (HSLS:09) is the data source for this analysis. This nationally representative longitudinal survey follows 21,444 high school students (who were in ninth grade in 2009) through high school and into postsecondary education and the workforce. The survey collects data on a variety of parent- and student-level information related to precollege preparation, including academic coursework, educational expectations, whether the parent has information on college costs, parental saving behaviors, and estimates of college costs. We focus primarily on the parent-level data because of our research questions on the role of families in financial preparations for college.


SAMPLE


Our analytical sample, drawn from the public-use data file, includes cases where either the parent or the student expects the ninth grader to pursue postsecondary education upon leaving high school (n = 14,513). In the event of neither the student nor their parent expecting their ninth grader to pursue postsecondary education beyond high school (n = 6,931), then these observations are excluded from our analysis because they reported missing data on the HSLS financial preparation and college costs survey items. Approximately 75% of the analytical sample (n = 10,962) plan to help their child pay for college, 52% (n = 7,619) engaged in some sort of financial preparation before ninth grade, and 24% (n = 3,521) have opened college savings accounts. To address our question about the timing of financial preparation, HSLS:09 offers three periods: before 1st grade; between first and sixth grades; between seventh and ninth grades. For ease of interpretation, we refer to these three periods as “kindergarten or earlier,” “elementary school,” and “secondary school,” respectively. Where appropriate, W1PARENT, the student’s home analytic weight from the base year data, is applied to our analysis.


For the first research question regarding whether the family plans to help the student pay for college, we use the survey variable P1HELPPAY which asks parents: Do you [or anyone in your family] plan to help your 9th grader pay for his/her education after high school? We interpret this question as an indicator of potential financial commitment, where family members plan to financially commit to helping with college expenses. The second question focuses on timing of actual financial planning behaviors by asking (variable P1PREPPAY): “What grade was the student in when you or someone in your family began to financially prepare for his/her education after high school?” The third question asks an even more specific question about familial behaviors (variable P1ACCTPAY): “Have you or anyone in your family opened any type of account to save for your 9th grader’s college education, for example, a 529 plan, a Coverdell Education Savings Account or Education IRA, or a prepaid tuition account?” Taken together, these three questions allow us to examine differences in how and when families financially plan and prepare for college.


ANALYSIS


We utilize binomial and multinomial logistic regression analysis to analyze these data. When asked whether a family plans to help their child pay for college, if they have financially prepared, and whether they have opened a savings account, we can dichotomize this into simple “yes” or “no” responses. Accordingly, each research question applies a binomial logistic regression to measure the odds of engaging in one of these three financial activities. Based on our conceptual framework and literature review, we include a series of control variables to account for family socioeconomic status and family structure, students’ racial/ethnic background and academic preparation, as well as the parents’ educational expectations, expressed in the following basic model:


ln[P(Y)/(1-P(Y)] = β01p[EdAttain]+β2p[Inc]+β3p[Own]+β4p[Single]+β5p[Depend]    (I)

   +β6p[Expect]+β7p[Priv]+β8p[Info]+β9p[Locale]
  +β10s[Female]+β11s[Race]+β12s[Honors]+ε


where the outcome (Y) represents the logged odds of helping their child pay for college (Question 1), financially preparing for college (Question 2) or opening a college savings account (Question 3). The subscripts p and s denotes whether the variable measures a parent or student characteristics. Due to the nested nature of these data, we use clustered standard errors using “vce(cluster clustvar)” in Stata, where clustvar is the household in which the student lives. If we did not account for the fact that children are nested within families, our standard errors would likely be underestimated, thus inflating the statistical significance of our estimates. We convert the logged odds results to odds ratios for ease of interpretation.


Building from our conceptual framework and literature review, we include the following independent variables to account for observable differences in engaging in financial planning behaviors. Parental education (EdAttain) is measured by the highest level of education held by either parent or guardian, disaggregated by less than high school, associate’s degree or some college, and bachelor’s degree or higher. We include household income (Inc) as a measure of financial resources that includes salaries and wages as well as investment earnings and alimony. To measure parental assets, we utilize a dummy variable for whether any parent owns their home (Own). To account for the structure and size of the family, we utilize a dummy variable to measure whether the parent is married or single (Single) and how many dependents are in the home (Depend). We also believe outcomes will vary according to the parent’s educational expectations of their students, where higher expectations would be associated with greater propensities to engage in financial planning (Expect) and expectations of attending a private college would be associated with more planning (Priv). In light of the literature on the role of information in college planning, we also include a dummy variable (Info) asking whether the parent has received information regarding tuition costs at public or private colleges. To account for potential regional differences, we condition on the location of the family’s primary home (Locale).


The student’s gender (Female) is dummy coded male or female, and their race/ethnicity (Race) is disaggregated by Asian, Black/African American, Hispanic, White, and Other backgrounds that have small sample sizes. Finally, to account for observable academic performance, we include a dummy variable for whether the student took honors courses during ninth grade (Honors). Finally, the error term, ε, represents unobserved heterogeneity in our outcomes. Descriptive statistics of the variables we condition the models upon are included in Table 2.


In our second research question, we are not only curious about the dichotomous outcome (whether one was financially prepared) but also about the timing of when families first began to financially prepare for college. This can occur in kindergarten or earlier, during elementary school (first through sixth grades), or in secondary education (seventh to ninth grades). These three time periods are modeled through a multinomial logistic where families who never financially prepared are the reference category and coded “0.” Families who began in or before kindergarten are coded “1,” while elementary is “2” and secondary is “3.” Accordingly, we implement a multinomial regression for Question 2 that includes the same control variables, assumptions, and clustered standard errors as described in the binomial model, but is expressed as a multinomial:


ln[P(Y=m|x)/P(Y=b|x)] = β0 + βm|b Xp + βm|b δs + ε

(II)


where m represents each of the three financial preparation timing outcomes (kindergarten or earlier, elementary school, or secondary school) and b is the baseline category (did not financially prepare for college). The nine parental variables outlined in Equation I are represented by a vector of controls, Xp, while δs represents a vector of the student variables outlined in Equation I. The multinomial technique allows us to estimate the probability of being in one of the three financial preparation groups (P(Y=m|x)) as opposed to the baseline category (P(Y=b|x)), holding the measurable parental and student variables constant. Similar to Equation I, we use clustered standard errors due to the nested nature of the data, interpret the results as odds ratios, and the error term, ε, represents unobserved heterogeneity in our outcomes.


After presenting the regression results in Table 3, we calculate the average marginal effects for our key variables: SES and race/ethnicity. This helps us visualize the relationships between these variables and planning/savings outcomes in ways that may not be as obvious in tables alone. Average marginal effects calculates the discrete change in probabilities for each variable, averaged across each individual’s marginal effect which are often preferred when using categorical variables (Baum, 2006). Essentially, average marginal effects are taking the discrete change in the probabilities that each SES and race/ethnicity group will experience a particular outcome. These displays should help readers interpret the magnitude of differences that occur in college financial preparation, thus helping to answer the core research questions regarding stratification and inequality.


LIMITATIONS


When interpreting the results of this analysis, it is important to note the following limitations. First, recall that we do not attempt to make causal claims throughout this paper; rather, our goal is to uncover patterns in how and when families financially prepare for college. There are sure to be other factors (e.g., motivation, preferences, etc.) that are associated with financial preparation yet that go unobserved in this study. We suspect unobserved heterogeneity could be biasing the parameter estimates and it is important to consider alternative explanations that may be driving our findings. Nevertheless, we account for several important observable characteristics (i.e., income, expectations, wealth as measured by home ownership, etc.) that should help improve the internal validity of our models. Second, our analysis is cross-sectional and it is possible that families’ financial plans change during the child’s later high school years, or even during college. The HSLS survey is longitudinal and will be following-up with respondents in 11th grade (and beyond), so it is important to note our analysis only includes behaviors that took place prior to ninth grade.


Third, some critics may argue that it is necessary for higher income families to save for college because they plan to attend more expensive institutions and to have higher expected family contributions than lower income students. While this is possible, evidence suggests the opposite relationship is more likely: Students from lower-income families pay a greater share of their family incomes on college and accumulate more student loan debt than upper income students and colleges and universities provide more financial aid to “non-needy” students than to those who demonstrate financial need (Lynch, Engle, & Cruz, 2011). As a result of these patterns, and given the importance of financial preparation for all families, we argue that systematic differences in familial financial planning is indicative of unequal opportunities for children to benefit from familial financial commitment to college. Analyzing subsequent waves of the HSLS data will allow for more insight to be gained in terms of the type of institutions students enroll in and the associated cost of attendance. Similarly, it could further explain the mechanisms by which college savings and other postsecondary financial-related behaviors reproduce social status and class advantages.


KEY FINDINGS


Using the most recent nationally-representative data of high school students, this study explored differences in families’ propensity to (a) plan on helping their child pay for college; (b) begin financially preparations for college; and (c) set aside money via college savings accounts.


Table 1. Summary Statistics of Outcome Variables Used in Regression Analysis


 

Yes

No

 

 

n

%

n

%

Total

1. Family plans to help child pay for college

10,962

76%

3,551

24%

14,513

2. Family has financially prepared for college

7,619

52%

6,894

48%

14,513

a) Kindergarten or earlier

2,723

19%

6,894

81%

9,617

b) Elementary school

2,871

20%

6,894

80%

9,765

c) Secondary school

2,025

14%

6,894

86%

8,919

3. Family has opened a college savings account

3,521

24%

10,992

76%

14,513

Source: Based on the authors’ calculations and information from the High School Longitudinal Study (2009) public-use data.


Table 2. Descriptive Statistics of Variables Used in Analysis (Share of Total Sample)


 

 

 

Question 1

Question 2

Question 3

 

 

Analytical sample

Help paying for college

Financially prepared for college

Opened savings account

Parent's educational attainment

High school or less

38.0%

32.6%

26.6%

18.5%

AA or some college

15.2%

15.2%

14.5%

11.8%

BA or more^

46.7%

52.2%

59.0%

69.7%

Family income

Less than $15,000

7.7%

5.2%

3.7%

2.8%

$15,000 to $35,000

16.6%

13.7%

10.5%

7.0%

$35,000 to $55,000

16.1%

14.8%

12.9%

10.3%

$55,000 to $75,000^

15.4%

15.7%

14.5%

12.3%

$75,000 to $115,000

21.1%

23.2%

24.6%

25.0%

More than $115,000

23.1%

27.4%

33.8%

42.6%

Parent owns home

73.6%

79.7%

83.7%

87.9%

Single-parent family

36.0%

33.2%

30.5%

27.2%

Number of household members

4.4

4.3

4.3

4.2

Parent's educational expectation of student

Some college

11.8%

8.8%

6.8%

4.7%

Bachelor's degree

31.5%

34.6%

34.8%

34.6%

Graduate school^

56.7%

56.6%

58.4%

60.6%

Parent's anticipated college sector

Public^

27.9%

32.4%

35.4%

38.0%

Private

10.5%

12.3%

14.2%

16.3%

Does not yet know

61.5%

55.3%

50.5%

45.7%

Parent has info on college costs

18.8%

22.5%

26.6%

29.9%

Locale of home

City^

29.0%

29.8%

30.7%

34.7%

Suburb

36.5%

36.4%

37.6%

38.4%

Town

11.4%

11.1%

10.4%

8.5%

Rural

23.1%

22.7%

21.3%

18.3%

Student is female

50.9%

51.3%

50.7%

50.7%

Student's race/ethnicity

Hispanic

14.8%

12.7%

10.6%

8.7%

Other

9.8%

9.6%

9.3%

9.1%

Asian

7.9%

7.4%

7.6%

7.8%

Black

9.7%

9.6%

9.0%

8.2%

White^

57.8%

60.7%

63.4%

66.1%

Student took honors course(s)

41.0%

45.3%

48.6%

54.2%

Observations

 

14,513

10,962

7,619

3,521

Source: Based on the authors’ calculations and information from the High School Longitudinal Study (2009) public-use data. Variables include: X1MOMEDU, X1DADEDU, X1FAMINCOME, P1OWNHOME, X1PARPATTERN, X1HHNUMBER, P1EDUEXPECT, S1EDUEXPECT, P1PUBPRV, P1TUITION, X1SEX, X1RACE, P1HONORS.

Note: ^ denotes reference group in regression analysis


As displayed in Table 1, there is variability with regard to who engages in these behaviors, suggesting a wide range of heterogeneity in terms of families’ financial preparations for college. Descriptive statistics are provided in Table 2, where we disaggregate the full sample by these key outcomes; the regression estimates in Table 3 display the odds of engaging in each preparatory behavior. Because we are primarily interested in differences by income and race/ethnicity, we focus additional attention on these two key variables, though we interpret other notable patterns relevant to the literature on socioeconomic stratification.


Our analysis began with a subsample of families who expected their ninth grader to pursue postsecondary education after high school. While most of these families (75%) expect to help their child pay for college, the first column of Table 3 shows that lower income families are significantly less likely than upper income families to help their child pay for college. The odds that a member of the lowest income family (i.e., less than $15,000) will plan to help their child pay for college are 0.44 times as great as the reference category (i.e., $55,000 to $75,000). This is not surprising, considering the financial constraints low-income families face that middle and upper income families do not. This column shows that as income rises, families are more likely to plan on helping their child pay for college, even after conditioning on several observable characteristics of the student and their parents. Interestingly, this column also shows that Hispanic and Asian students are significantly less likely than White students to have their family help pay for college. The odds that a Hispanic or Asian family expects to help their child pay for college are, respectively, 0.835 and 0.536 as great as White families.


In the second through fifth columns of Table 3, we find similar patterns with regard to when families financially prepared for college. Here, we are interested in planning behaviors rather than plans, since behaviors are more indicative of financial commitments to paying for college. In Column II, we see the wealthiest two income groups ($75,000 and higher) have odds of ever financially preparing for college that are 1.296 and 2.308 times greater than middle-income families, while lower income families are significantly less likely to financially prepare than middle-income families. The odds of financially preparing for college begin to decline after kindergarten, though they are more likely than any other income group to financially prepare at any point in their child’s educational career.


Similar to the first research question, we find that Hispanic and Asian families are less likely than Whites to financially prepare for college prior to ninth grade (Column IV). Although Hispanic and Asian families are less likely than their White peers to save during or before kindergarten or in elementary school, their changes of preparing are not systematically different than their White peers by the time they enter secondary education (noted by the nonsignificant findings in column V). Interestingly, Black/African American families are only less likely than Whites to financially prepare in kindergarten, but their likelihood of engaging in financial preparations increases during secondary school. By disaggregating the financial preparation data by grade level, we were able to use multinomial logistic regression (Columns III to V) to identify unique patterns in the timing of financial preparation behaviors that may have gone overlooked in the basic binomial regression (Column II).


The final column of Table 3 provides estimates of a very specific financial preparation activity: opening college savings accounts. Here, patterns are quite similar to the previous discussion, as lower income families have lower odds of opening a savings account, while families from the highest-income category have 1.921 times great odds of opening college savings accounts than their middle-income peers. Similarly, of the odds of parents opening an account for Hispanic and Asian students is 0.695 and 0.632 times as great, respectively, as White students. Across all models, we observe that privileged families are not only engaging in financial preparation behaviors at higher rates, but they do so at a very early time in their child’s life. In the following section, we discuss how these results contribute to our understanding of educational equity, financial aid policy, and literature on college financial preparation.



Table 3. Regression Estimates of Financial Planning, Preparing, and Saving Expressed in Odds Ratios (Clustered Standard Errors in Parentheses)


  

Question 1

Question 2

Question 3

  

Family plans to help child pay for college

Family has financially prepared for college

Family has opened college savings account

 

 

Any time

Kindergarten

Elementary

Secondary

 

 

I

II

III

IV

V

VI

Parent's educational attainment (vs. BA+)

High school or less

0.759

**

0.745

***

0.547

***

0.729

***

1.017

 

0.527

***

 

(0.064)

 

(0.052)

 

(0.054)

 

(0.065)

 

(0.101)

 

(0.043)

 

AA or some college

0.940

 

0.881

 

0.765

*

0.948

 

0.974

 

0.616

***

 

(0.104)

 

(0.074)

 

(0.085)

 

(0.098)

 

(0.119)

 

(0.058)

 

Family income (vs. $55k-$75k)

Less than $15,000

0.440

***

0.461

***

0.642

*

0.383

***

0.421

***

0.557

**

 

(0.065)

 

(0.064)

 

(0.143)

 

(0.074)

 

(0.084)

 

(0.105)

 

$15,000 to $35,000

0.649

***

0.692

***

0.684

*

0.632

**

0.727

*

0.642

**

 

(0.076)

 

(0.072)

 

(0.108)

 

(0.089)

 

(0.107)

 

(0.091)

 

$35,000 to $55,000

0.665

***

0.804

*

0.997

 

0.777

*

0.701

**

0.837

 
 

(0.071)

 

(0.076)

 

(0.142)

 

(0.092)

 

(0.096)

 

(0.097)

 

$75,000 to $115,000

1.162

 

1.296

**

1.519

***

1.169

 

1.275

*

1.200

 
 

(0.126)

 

(0.112)

 

(0.183)

 

(0.125)

 

(0.158)

 

(0.121)

 

More than $115,000

1.684

***

2.308

***

3.307

***

2.027

***

1.664

***

1.921

***

 

(0.198)

 

(0.216)

 

(0.420)

 

(0.231)

 

(0.218)

 

(0.195)

 

Single-parent family

1.125

 

1.117

 

1.149

 

1.021

 

1.212

*

1.143

 

(0.087)

 

(0.074)

 

(0.103)

 

(0.087)

 

(0.112)

 

(0.086)

 

Number of household members

0.961

 

0.897

***

0.847

***

0.888

***

0.945

 

0.864

***

(0.023)

 

(0.020)

 

(0.028)

 

(0.026)

 

(0.027)

 

(0.023)

 

Parent owns home

1.689

***

1.594

***

1.857

***

1.835

***

1.244

*

1.689

***

(0.141)

 

(0.119)

 

(0.199)

 

(0.185)

 

(0.132)

 

(0.159)

 

Locale of home (vs. City)

Suburb

0.896

 

1.009

 

0.908

 

1.010

 

1.122

 

0.907

 
 

(0.082)

 

(0.075)

 

(0.086)

 

(0.092)

 

(0.120)

 

(0.068)

 

Town

1.010

 

0.939

 

0.943

 

0.846

 

1.071

 

0.813

 
 

(0.117)

 

(0.090)

 

(0.123)

 

(0.104)

 

(0.148)

 

(0.090)

 

Rural

0.984

 

0.966

 

0.823

 

0.936

 

1.179

 

0.797

*

 

(0.094)

 

(0.077)

 

(0.087)

 

(0.096)

 

(0.132)

 

(0.071)

 

Student is female

0.983

 

0.954

 

0.947

 

0.848

*

1.096

 

0.962

 

(0.068)

 

(0.054)

 

(0.071)

 

(0.060)

 

(0.087)

 

(0.059)

 

Student's race/ethnicity (vs. White)

Hispanic

0.835

*

0.762

**

0.498

***

0.774

*

1.058

 

0.695

**

 

(0.077)

 

(0.068)

 

(0.070)

 

(0.093)

 

(0.122)

 

(0.082)

 

Other

1.015

 

0.961

 

0.744

*

1.026

 

1.142

 

0.985

 
 

(0.114)

 

(0.097)

 

(0.096)

 

(0.142)

 

(0.151)

 

(0.115)

 

Asian

0.536

***

0.603

***

0.534

**

0.457

***

0.933

 

0.632

**

 

(0.079)

 

(0.081)

 

(0.113)

 

(0.078)

 

(0.152)

 

(0.103)

 

Black

1.059

 

0.992

 

0.694

*

0.966

 

1.367

*

0.898

 
 

(0.133)

 

(0.101)

 

(0.114)

 

(0.122)

 

(0.184)

 

(0.110)

 

Student took honors course(s)

1.340

***

1.277

***

1.281

**

1.313

***

1.215

*

1.306

***

(0.107)

 

(0.080)

 

(0.106)

 

(0.101)

 

(0.106)

 

(0.086)

 

Parent's educational expectation of student (vs. Grad. school)

Some college

0.808

*

0.661

***

0.509

***

0.675

**

0.799

 

0.633

***

 

(0.078)

 

(0.062)

 

(0.069)

 

(0.087)

 

(0.109)

 

(0.082)

 

Bachelor’s degree

1.664

***

1.299

***

0.958

 

1.439

***

1.514

***

1.102

 
 

(0.131)

 

(0.082)

 

(0.079)

 

(0.114)

 

(0.133)

 

(0.075)

 

Parent has info on college costs

1.566

**

1.618

***

1.838

***

1.489

***

1.530

***

1.152

 

(0.220)

 

(0.153)

 

(0.213)

 

(0.171)

 

(0.195)

 

(0.103)

 

Parent's anticipated college sector (vs. Public)

Private

0.984

 

1.129

 

1.261

 

0.987

 

1.133

 

1.034

 
 

(0.147)

 

(0.123)

 

(0.162)

 

(0.128)

 

(0.169)

 

(0.099)

 

Does not yet know

0.586

***

0.687

***

0.687

***

0.672

***

0.701

**

0.736

***

 

(0.068)

 

(0.053)

 

(0.069)

 

(0.063)

 

(0.076)

 

(0.060)

 

Constant

 

3.802

***

1.445

*

0.645

 

0.605

*

0.263

***

0.542

**

 

(0.857)

 

(0.255)

 

(0.152)

 

(0.133)

 

(0.065)

 

(0.112)

 

Observations

 

14,513

 

14,513

 

9,617

 

9,765

 

8,919

 

14,513

 

Correctly classified

 

76.5%

 

68.0%

 

78.5%

 

74.6%

 

77.2%

 

76.6%

 

McFadden R2

 

0.127

 

0.142

 

0.213

 

0.145

 

0.057

 

0.131

 

Wald χ2

 

786.41

***

1028.84

***

1698.23

***

1313.91

***

516.4

***

812.26

***

Source: Based on the authors’ calculations and information from the High School Longitudinal Study (2009) public-use data.

Note: p values denoted by asterisks, where < 0.001 = ***, 0.01 = **, and 0.05 = *. W1PARENT panel weight is applied.




AVERAGE MARGINAL EFFECTS


The regression estimates provide an overview of the key findings relative to income and race/ethnicity, but to examine these patterns in more detail we display the marginal effects in the following Figures. The top panel of Figure 1 shows the average marginal effects of income on families’ propensity to (a) plan on helping their child pay for college; (b) financially prepare for college at any time before the student enters ninth grade; and (c) open a college savings account. By visualizing the magnitude of these inequalities, we see relatively little variation in terms of families’ likelihood of planning to help their child pay for college, although higher income is associated with greater likelihood of planning to help pay. The inequalities become pronounced when shifting to the estimates for “financially prepared” and “opened accounts,” possibly because financially preparing and opening accounts are nonreversible behaviors that may be indicative of financial commitment as well as having resources at the disposal of a family.


Figure 1 shows that while lower income families plan to help pay, they do not engage in the behavior of financially preparing to the same degree as families from higher SES backgrounds. Conversely, wealthier families are not only more likely to engage in financial commitment, but the bottom panel of Figure 1 shows that they do so very early in their child’s lifetime. It is not until students enter secondary school that middle- and moderate-income families begin to have similar propensities to “financially prepare” as do upper income families. Perhaps this begins to level off (albeit, only slightly) because most upper income families already started to prepare during kindergarten or elementary school and are unlikely to do so later in their child’s schooling.


Figure 1. Average Marginal Effects of Planning, Preparing, and Saving for College by Family Income Levels


[39_18018.htm_g/00002.jpg]

[39_18018.htm_g/00004.jpg]


Source: High School Longitudinal Study (2009) public-use data.


In addition to these income inequalities, racial/ethnic differences are also important to improving our understanding of how families prepare to pay for college. The regression results indicate that Asian and Hispanic families have lower odds of planning to help their children pay for college than White families; they are also less likely to financially prepare or open college savings accounts prior to the student entering ninth grade. The top panel of Figure 2 shows how these two minority groups are dissimilar to their peers in these planning behaviors. The regression results also show that, although not statistically significant, Black families have slightly higher odds of planning to pay, being financially prepared, and opening college savings accounts than do White students. Again, the average marginal effects demonstrate that greatest racial/ethnic differences occur between Asian, Hispanic, and White families rather than between Black and White families. Further research would be necessary to assess why this pattern emerges and whether there is heterogeneity within the categorization, yet we find these relationships interesting in terms of the implications of social stratification on the basis of race and ethnicity. When families engage in financial planning activities, those with White children are most likely to financially plan in kindergarten or earlier (bottom panel, Figure 2). This figure shows that White families are considerably more likely than Hispanic, Asian, and Black families to prepare in kindergarten or earlier. But during elementary school years, these differences begin to diminish and by secondary school, Black families are more likely to engage in financial preparations than other racial/ethnic groups.


Figure 2. Average Marginal Effects of Planning, Preparing, and Saving for College by Student’s Race/Ethnicity

[39_18018.htm_g/00006.jpg]


[39_18018.htm_g/00008.jpg]

Source: Based on the authors’ calculations and information from the High School Longitudinal Study (2009) public-use data.


DISCUSSION AND CONCLUSION


Families are encouraged to financially prepare for college by speaking with financial aid officers, gathering information about college costs, and setting aside money to help prepare for future educational expenses (Vilorio, 2013). These actions are encouraged and rewarded via state and federal policy efforts, such as 529 College Savings Plans and federal Coverdell Education Savings Accounts (Doyle et al., 2010). As the price of college increases and the wage premium to earning a college credential also rises, the ability for a family to financially prepare for college is becoming increasingly important for promoting college access and opportunity (Friedline, 2012; Oreopoulos & Petronijevic, 2013).


We find that White families and those who are most socioeconomically advantaged are most likely to engage in financial planning and preparation activities, even before their child enters formal schooling. In effect, parents’ educational expectations for their child (and their resulting financial planning behaviors) precede the formation of the child’s own postsecondary aspirations or other markers of their future engagement in higher education. What may seem like a natural decision on the part of parents turns out to be a mechanism for reproducing class advantage because these privileges are passed from one generation to the next, even before parents obtain information about their child’s academic potential or motivation (Bourdieu, 1977; 1986).


This process of social reproduction is supported by current policy efforts to encourage families to invest early in their children’s future. Our findings suggest that current policies and practices to encourage families to plan and save for college are likely benefitting the most privileged members of society—White, upper income, and upper middle-income families. A recent GAO (2012) report on the topic revealed that the median family income of state- and federally sponsored college savings accounts was approximately $142,000 and families participating in these tax-advantaged savings plans have set aside more than $165 billion in assets in 2011.


As college prices continue to rise along with the financial returns to schooling, the topic of college financial planning and preparation will only become more important. While past research typically examines the preparatory behaviors of students (i.e., taking SAT- or college-prep courses), we find that privileged families symbolically and behaviorally commit to college as early as before or when their child enters primary school, one type of familial commitment to secure their children’s educational futures. By engaging in early financial preparations and opening savings accounts, families are making both a symbolic and economic decision to commit to higher education. Yet, the security that comes with knowing that their family is invested in higher education is primarily experienced by wealthy and White students who come from highly educated families. Future research should further examine the familial nature of financial preparations for college and its relation to student educational aspirations and commitments, as students cannot typically financially prepare for college on their own.


We believe future research and conceptual understandings of financial planning (and colleges savings, in particular) could benefit from a more nuanced interpretation of how the educational and policy environments interact with structurally constrained choices and behaviors. For example, families participating in state and federal college savings accounts have not only accumulated more than $165 billion in assets and but have also receive more than $1 billion annually in tax-advantages (GAO, 2012); however, the federal Pell Grant program operates on a $35 billion budget and the purchasing power of the award is steadily declining. While these are two separate policy instruments for helping families pay for college, they reflect federal priorities and political values associated with postsecondary education. That is, we need to further consider how federal policies may help to subsidize the reproduction of class positions rather than reduce class inequality.


Financial aid policy is one instrument that could be used to change the patterns of inequality outlined in this paper. Understanding the extent of stratification that exists with regard to financially preparing for college is a critical concern for researchers and practitioners interested in understanding how families pay for college. Lower and moderate-income families who are less likely to prepare to pay for college early may have to rely on grants, student loans, and other forms of credit to finance their postsecondary educations. Recent trends suggest these payment options are becoming inadequate or less-than-ideal strategies for paying for college (Choy, 2000; Long & Riley, 2007; Price, 2004). To the extent more privileged families have additional options for paying for college, we expect the inequalities outlined in this study will exacerbate educational stratification where wealthier families will continue to have greater financial security and flexibility when the time comes to pay for college.


To the extent higher education finance follows the course of the past several decades, where tuition prices are dramatically rising and families are shouldering a larger share of the financial burden, our study illustrates the shortcomings of relying on college savings accounts as a policy mechanism for addressing issues of college affordability. Not all families have equal probabilities of starting early financial preparations, yet states and the federal government promote early savings plans as a strategy for financing college education. Much more research is necessary to fully understand the implications of moving towards this privatized financing model. Ultimately, our results show that savings plans may unequally benefit those already advantaged in the transition to college, providing insight into the timing of stratification in financial preparations for college.


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Cite This Article as: Teachers College Record Volume 117 Number 8, 2015, p. 1-28
https://www.tcrecord.org ID Number: 18018, Date Accessed: 12/2/2021 7:07:48 PM

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