Saving for Children’s College Education: An Empirical Analysis of the Trade-off Between the Quality and Quantity of Children
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This paper examines the effect of children’s college expenses on household savings. The theoretical model introduces life-cycle savings into the quality–quantity model of fertility and derives predictions for the impact of expected expenses on parents’ savings. Using the actual amount of parents’ financial support reported in the Survey of Consumer Finances, the empirical model estimates the expected expenditures on children’s college education and investigates the effect of expected expenditures on parents’ savings. The results show that parents’ support for each of their children’s college expenses decreases with the number of children. The results are consistent with the predictions of the life-cycle theory of saving and consumption that households save in advance for expected expenses to smooth their consumption.
KeywordsChildren College expenses Life-cycle theory of saving and consumption Quality–quantity model of fertility
I would like to thank two anonymous referees and the editor, Jing Jian Xiao, for their detailed and insightful comments. I would also like to thank Jacqueline Angel, Don Fullerton, Angela C. Lyons, Daniel T. Slesnick, Max Stinchcombe and Peter Wilcoxen for their helpful suggestions. Patryk Babiarz provided exceptional research assistance.
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