The Recession’s Lasting Effects on a Generation of Scholars

Editor’s Note: This post is part three in a series of four exploring research on the relationship between assets and children’s educational outcomes. Read parts one and two here. Senior Research Fellow Willie Elliott is an Assistant Professor at the University of Kansas and Director of the Assets and Education Initiative (AEDI) at the School of Social Welfare.

The recent Great Recession has been particularly brutal for low-income families. Erosion of income and shocks to net worth have undermined many families’ ability to financially prepare for their children’s education. Unless policies help low-income families to secure assets and protect them during future economic crises, large numbers of children will continue to pay a high price—in compromised academic achievement, reduced likelihood of college attendance and graduation, and subsequent depression of earning potential—for the economic instability wrought by the Great Recession.

Income can be an important protective factor against a child living in a family that experiences economic instability. Higher-earning households have some cushion that they can use to smooth out unexpected financial strains, while low-income households are much more exposed. Between 2005 and 2009, the probability of a low-income child living through an income shock was between 3.5 and 7 times greater than for high-income children.Low-income households are more likely to have to deplete assets when there is a job loss or other income shock. So, when, between 2007 and 2011, the bottom fifth of earning households lost more than 10 percent of their income, their wealth also declined about 40 percent.

The economic instability families experienced during the Great Recession may impact children’s educational outcomes years into the future. While low-income families value saving for their children’s education—indeed, low-income families who save for college save as much or more, as a percentage of their income, as higher earners—financial strain can force families to prioritize immediate consumption, derailing economic preparedness for higher education. This deprivation is felt long before students reach college-age, given the effects of poverty on academic achievement. Children living in ‘asset poor’ families havelower academic achievement scores, high school graduation rates, college enrollment rates, and college graduation rates than children living in families that are asset sufficient. Spells of asset poverty prior to age eleven have a particularly negative effect on a child’s academic achievement scores.

Higher education and financial security are linked in the American economy. In 2011, the unemployment rate for those with a Bachelor’s degree was less than half that of those with only a high school diploma, while median weekly earnings were more than 1.5 times greater. Those most cushioned during the Great Recession were those protected, to at least some extent, by their own higher education. Those with a high school education or less account for 75 percent of all jobs lost during the recession. Those who attended or graduated from college lost about 23 percent and 2 percent of all jobs lost during the recession, respectively. The economic instability of the Great Recession, then, and its effect on the likelihood that children attend and graduate from college, also reduces the likelihood that those children will have the education necessary to build a strong financial future for their own families.

While economists argue about the extent to which policymakers could have prevented the financial crisis that led to the Great Recession, policymakers have many of the tools they need to ensure that the pains of the past several years do not sentence low-income children to a lifetime of tragic consequences. Helping families save for students’ higher education, by opening accounts for young people and seeding the accounts of low-income households to promote savings behavior, will secure assets that can have dramatic effects on students’ educational outcomes. Asset holdings are positively related to academic achievement and behaviors that increase the likelihood of subsequent success in higher education. To best address college achievement, we need to lay an asset foundation for families long before plans about higher education have solidified. We need policies that help children and families build assets, not only to pay for higher education costs but also to improve academic achievement and students’ preparation for college success.  Even small dollar accounts increase the likelihood of college attendance and graduation, especially for low-income students whose college expectations may have been dashed by the combination of rising costs and declining family fortunes.

We cannot undo the recession and the pain that has already been suffered. But we can invest in policies to make sure that low-income students don’t pay with their own educational futures.

Next in the series, we detail one state’s efforts to implement a program that works, without breaking the bank.