When every dollar is spent on necessities like diapers, gasoline and utilities, saving for college may be the furthest thing from a new parent’s mind. Mothers participating in a research study, however, suggest that a college savings account with $1,000 makes them feel optimistic about their children’s postsecondary education.
SEED for Oklahoma Kids, run by the Center for Social Development at Washington University in St. Louis (CSD) and the Oklahoma State Treasurer’s office, is a multi-method scientific experiment testing the concept of universal Child Development Accounts. A survey firm, RTI International, conducted a telephone interview with 2,704 mothers of infants born in 2007 and then randomly assigned participants to two groups – children who received an automatically-opened SEED OK 529 college savings account with $1,000 (treatment group) and children who did not (control group).
Mothers of infants in the treatment group also received information about opening a separate 529 account for the child, including a time-limited incentive offer. Those with low and moderate incomes were also eligible for a savings match.
Working with a team at the University of Oklahoma-Tulsa, CSD has recently published a report from face-to-face in-depth interviews with 60 of these mothers—40 from the treatment group and 20 from the control group. Mothers were interviewed when their children were approximately 2 or 3 years old. The report provides remarkable insights into mothers’ financial backgrounds, attitudes and goals.
Many of the mothers say they were never taught how to save, and they express limited confidence in their knowledge of money matters, especially with regard to restricted accounts like IRAs and 401(k)s. Nearly one-third don’t have a bank account. Common motives for saving include bills, emergencies, children’s needs and for a “rainy day.” Some mothers also communicate a desire to save for home ownership, retirement and education.
The SEED OK 529 account and initial $1,000 deposit convey that someone outside their own family expects their children to go to college. Treatment mothers say that they are grateful that people other than their family members “care about what happens with our kids.”
Dawn, a 36-year-old, single mother of two, said, “I think it’s very important for her future.” Dawn went on to explain that her daughter will see that other people outside her family expect her to go to college and that “it must be darn important to go to school … I think that it will be just an encouraging story.”
By sending targeted communications and quarterly account statements in each child’s name, the program reminds mothers that it’s important to think about and plan for their children’s postsecondary education, even when children are very young. Mothers talk about being “excited” and “blessed” that their child has such an account. Some like the restrictive nature of the account, that they “can’t touch it right now.”
“When this came along, I got more excited, because I do want her to go to college,” said Rita, a 24-year-old, married mother of two. “I graduated high school, but I never got to go to college. I want her to go to be somebody, or make a difference in the world.”
Sherry, another 24-year-old, married mother of two, said her family can hardly afford to pay for necessary maintenance on their truck, let alone put any money away in savings. But she said that the SEED OK 529 account makes her feel “a whole lot better.”
“It makes me feel like I have some hope for at least one of my kids” (one child is in the SEED OK study). Sherry, one of 12 respondents who did not complete high school, believes that she “may have stayed in school and not got off track like I did” if that type of account had been available when she was young.
Sherry also opened the separate 529 account for her child and took advantage of a $100 account-opening incentive from SEED OK. Although she can’t put any of her own money into the account at this time, as they’ve “hit rock bottom,” Sherry said she hopes to save when her family’s financial situation improves.
A few mothers question the value of the $1,000, considering the economic downturn and the high cost of college. However, nearly all of the mothers spoke favorably of the SEED OK 529 account, with some indicating that it has given them more hope and confidence in their child’s future. Prior research suggests that this maternal optimism may, in turn, help children see themselves as college bound and help them to overcome personal and social barriers.
The SEED OK study will continue to follow the children and their families. While it is too early to tell whether this account will significantly affect success in postsecondary education, interviews make it clear that a Child Development Account can serve as a catalyst, prompting parents to plan for their children’s college education.