Saving for Children’s College Education

Yilmazer, T. (2008). Saving for children’s college education: an empirical analysis of the trade-off between the quality and quantity of children. Journal of Family and Economic Issues, 29(2), 307-324.

Brief Description: This paper examines the effect of children’s college expenses on household savings. Using the actual amount of parents’ financial support, the model estimates the expected expenditures on children’s college education and investigates the effect of expected expenditures on parents’ savings. The results show that households save in advance for children’s college expenditures. However, findings also provide evidence of dissaving (spending down their savings) for college expenses during the time period that children attend college.

Implications: Parents who are planning to pay or help pay for college education for their children should be aware that they may spend their savings while the children are attending college. They should have additional savings set aside for retirement in order to have adequate savings at the time they stop working for pay. Financial advisers can play a role in encouraging parents to make adequate provision for their own future needs, as well as those of their children.