Financial Knowledge and Child Development Account Policy: A Test of Financial Capability

This study examines how study participants’ financial knowledge and participation in a Child Development Account (CDA) intervention affect 529 College Savings Plan account holding among caregivers of infants. The study uses data from the SEED for Oklahoma Kids experiment (SEED OK, N=2,51), a statewide randomized experiment using a probability sample of infants selected from birth records. SEED OK is a policy test of universal and progressive CDAs that encourage families to accumulate assets for their children’s future. Results of logit regression show that participants’ financial knowledge is positively related to the account holding in the treatment group, but not in the control group. This finding implies that the effect of financial knowledge on financial decisions related to college savings is affected by institutional features, such as incentives and information. In other words, individuals’ financial knowledge may have positive impacts on 529 College Savings Plan account holding only if they are situated in institutional supports for savings. These findings support the propositions of financial capability, and suggest that expanding financial capability requires both improved individual financial knowledge and supportive policy.

Subsequent publication: Huang, J., Nam, Y., & Sherraden, M. S. (2013). Financial knowledge and Child Development Account policy: A test of financial capability. Journal of Consumer Affairs, 47(1), 1–26. doi:10.1111/joca.12000

Project: SEED for Oklahoma Kids