Age. A younger person in the production stage may be able to afford the expense to fund an education savings account for his or her child(ren), as opposed to someone in the retirement stage.
Net worth. Based on the status attainment theory, net worth of a parent is positively correlated to the child’s educational achievement. The variable net worth is log transformed in order to reduce skewedness and for interpretation purposes. Furthermore, the net worth variable is from the year 2008 in order to assess how past net worth affected having a college savings account in the future.
Income. The status attainment theory also indicates a positive relationship between parent’s income and child’s educational attainment. The variable income is log transformed in order to reduce skewedness.
High financial literacy. People who are financially literate make smarter decisions with their money. They are more aware of financial products and understand the importance of financial planning. The high financial literacy variable is composed of three true or false questions. Respondents who answered the three questions correctly were labeled as having high financial literacy, otherwise they were not. Therefore, this variable is dichotomous. However, in the t-test, it is made continuous and is called financial literacy index, with values ranging from 0 to 3.
Descriptive Results
Table 4 shows the summary statistics. The mean, median, and standard deviation amount of parent’s student debt are $23,, $11,000, and $34,, respectively. The mean, median, and standard deviation of net income are $75,695, $55,000, and $82,, respectively. The net worth’s mean, median, and standard deviation are $259,, $68,900, and $580,, respectively.
Table 5 shows the results from a t-test from those respondents who have student debt and from those that do not have student debt. Continue reading “According to the life-cycle hypothesis, we have different propensities to consume in relation to saving depending on age”