Small Dollar Accounts for Children and Educational Outcomes

Editor’s Note: This post is part two in a series of four exploring research on the relationship between assets and children’s educational outcomes. Read part one 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.

One of the critical unanswered questions in asset development research to date has been how much money students need in their education accounts in order to realize the desired effects—on academic preparation and achievement, on future orientation and college-bound identity, and, ultimately, on college enrollment and graduation.

The amount of savings makes a huge difference when it comes to considering public policies with the potential to scale up to meet the growing need. Do we need to invest enough to finance all or most of a student’s higher education in order to increase the likelihood of their college success? Is just opening an account enough, even if it never has deposits?

New research from the Assets and Education Initiative at the School of Social Welfare at the University of Kansas suggests that the answer is somewhere in between.

Owning an account and designating some of that savings for education, even with next to no money, can have a positive effect on low and moderate-income children enrolling in college. Further, findings suggest that having even a small amount of savings designated for school ($1 to $499) can have a positive effect on low and moderate-income children persisting in college through graduation.

Obviously, these small sums are not enough to fully finance an education; in many cases, they can’t pay for even one course or a semester’s worth of books. The assets may have psychological effects, though, particularly for low-income students who face greater financial obstacles to higher education attainment. What assets may change is whether or not a student begins to see him/herself mentally as the type of person who goes to college. Just opening an account and designating some of that money for college can turn higher education into an important and possible goal, with a clear strategy for how to overcome the barrier of high costs. Saving is thus seen as a way for people like me to pay for college, which may make a difference in academic performance and attendance rates. Having savings dedicated for college during one’s high school career may also increase engagement and children’s academic achievement, resulting in children being better academically prepared for the rigors of college.

While having an account and designating some portion of that savings for college increases the likelihood that low-income children enroll in college, accumulating some savings appears to be necessary to increase college completion rates ($1 to $499), suggesting that assets increase college attainment both through changing attitudes and through providing the resources necessary to remove barriers to persistence. Part of the effect of school savings on persistence might have to do with children having some savings on hand to pay for college expenses.

Questions still remain about the best design of a savings intervention, but we have a lot of evidence that suggests the approach can be effective and an emerging sense of the parameters necessary to promote success. In the next post, we’ll take a look at the impact of the Great Recession on savings and college opportunity.