Helping Families Save for College

By Stephanie Tepper and Joseph Sherlock

This year, the Common Cents Lab at CAH is partnering with two Children’s Savings Account (CSA) programs in the U.S. With our first experiment finished and several more under way, read up on what we’ve found and how we think behavioral science can be used to help low-income families save for college.

Children’s Savings Accounts are a recent innovation in the world of asset building and already demonstrate unique promise for bridging inequalities in education. From preliminary studies with a CSA program in Oklahoma, parents randomly assigned to receive $1,000 in a CSA at birth showed increases in college expectations for their children.¹ These improvements in college expectations have been linked in separate studies to improved academic performance and increases in college enrollment.²³ However, since most CSA programs are relatively young, the scientific jury is still out on how to best structure and administer these programs to help low-income families save for college.

Our approach assumes that low-income populations are capable of saving, but have unique challenges beyond a sheer lack of funds.

To contribute to this growing body of research, we partnered with two CSA programs – the St. Louis Treasury’s College Kids program and the Wabash-based Promise Indiana program – to promote college savings in low- to moderate-income populations. From an initial phase of exploratory research, we identified several important barriers to saving. Our approach assumes that low-income populations are capable of saving, but have unique challenges beyond a sheer lack of funds. For example, qualitative interviews with Kindergarten parents, conducted as part of our initial exploration, revealed that they did not think it was typical to start saving for college while their kids were in elementary school – they felt that college was too far away or were not yet certain their kids would go to college. Preliminary data also revealed that parents contributed to CSAs at the end of the school year in order to reach the deposit amount that would earn them a matched contribution. This evidence suggests that factors such as timing and social norms can be powerful in determining whether or not families will save for the future, regardless of the known benefits of saving.

In our first experiment with the College Kids program, we wanted to address the barrier of perceived distance to college with the hypothesis that, as college feels closer, parents will be more likely to start saving. To make college seem closer, we sent families variations of an end-of-year account statement. Half of the statements included a visualization showing them how close their child is to college.

We also tested if the way the message was sent home would impact how parents responded. To do this, we sent some of the statements home by mail and some through the child’s backpack, giving the kids a sticker to wear saying they wanted to go to college in the future.

The results of this first experiment were modest, yet promising; we found that families who saw this visual prime and received the statement via their child’s backpack were more likely to make deposits into their account. While these small tweaks seemed to nudge savings for some, only 65 families made deposits into their accounts out of the nearly 4,500 that were included in the test.

What should we make of these small effects? To start, there are many more barriers to address when it comes to college savings in low-income populations, including issues around limited trust in – and access to – financial institutions. In future studies, we plan to test stronger primes to make families feel more compelled to start saving for college as early as possible, for example, by suggesting a new social norm or creating the perception that time is moving more quickly, all while working to improve structural issues around access. We’ll also aim to make account use as automatic as possible by using behavioral strategies to help parents set up small, recurring deposits which will compound over time. While small program changes show initial promise in bridging the savings gap, our future research efforts will dig deeper into the roots of the problem to develop more impactful and scalable interventions.

¹Kim, Y., Sherraden, M., Huang, J., & Clancy, M. (2015). Child development accounts and parental educational expectations for young children: Early evidence from a statewide social experiment. Social Service Review, 89(1), 99–137.

²Singh, K., Beckley, P., Trivette, P., Keith, T. Z., Keith, P., & Anderson, E. (1995). The effects of four components of parental involvement on eighth-grade student achievement: Structural analysis of NELS-88 data. School Psychology Review 24(2), 299–317.

³Cook, T. D., Church, M. B., Ajanaku, S., Shadish, W. R., Kim, J. R., & Cohen. R. (1996). The development of occupational aspirations and expectations among inner city boys. Child Development, 67(6), 3368-3385.