Financial Planning for College: What Parents Do to Prepare

This study explores reported parental financial college preparations and the amount parents have saved for college, with a goal of determining strategies used by different parents based on parental college aspirations and expectations for their child, as well as the highest reported parental and grandparental educational levels. Regression analysis indicates that parents' expectations, but not their aspirations, correspond to engagement in financial planning. Family education is strongly associated with taking some financial planning actions and the amount saved. The results may be helpful to those who are working to increase the effectiveness of disseminating college financial information to parents. DRAFT-College Financial Planning 3 Financial Planning for College: What Parents Do To Prepare Introduction The idea that college is expensive has pervaded the popular imagination (Chatzky, 2006; Immerwahr, 2000), fed by alarming (sometimes eye-catching) reports that average tuition and fees have risen faster than inflation for many years and that many families have trouble paying for college without taking out large loans (Bergamin & Viggiano, 2008; Marklein, 2009; Public Higher Education Network of Massachusetts, 2007; Spiers, 1995; "You Don't Have To Owe An Arm," 2008). These concerns, which have been fed by the policy shift in aid from grants to loans (Hearn & Holdsworth, 2004) and the increasing financial burden on families overall (College Board, 2007a, 2007b, 2008b), have recently been exacerbated by the worldwide financial crisis. Although the net price for the majority of students is lower than the published rates (College Board, 2007a), the complex financial aid system that makes this possible is either confusing or unknown for many parents of pre-college students, parents who will be expected to make significant contributions when aid packages are calculated (Whiteside & Mentz, 2004). Despite the voluminous amount of information that is available to parents at local libraries, bookstores, and on the web about options for funding their children’s college education, understanding, perception, and actual use of this information varies widely, particularly by race/ethnicity and socioeconomic status (Luna de la Rosa, 2006; Perna, 2006; Trent, Lee, & Owens-Nicholson, 2006). As a result, significant numbers of eligible college students do not fill out the federal Free Application for Federal Student Aid (FAFSA) form that is required to access that financial help (College Board, 2008a). There is debate among researchers as to whether this is primarily due to problems of information or costs (Perna, 2006). Venegas (2006) claims that although low-income students and their families have access to computers in various ways, they DRAFT-College Financial Planning 4 lack the knowledge and support to navigate the online resources. Whatever the reason, the current system leads to reduced opportunities for students from low socioeconomic circumstances (Paulsen & St. John, 2002). Despite the costs, there is general recognition that a postsecondary education is beneficial among both the general public (Immerwahr, 2000) and the government (U.S. Secretary of Education's Commission on Higher Education, 2006), and parents across racial groups hold significant expectations that their children will attend college (Immerwahr, 2000). A rich body of literature exists concerning parental expectations for children’s postsecondary education, showing a positive association with students’ expectations and other educational outcomes (Marjoribanks, 1998; Stage & Hossler, 1989). Other research has explored parental anticipation of providing financial assistance for college (Herrold & O'Donnell, 2008; Immerwahr, 2000; Lippman et al., 2008), and attention has been given within the enrollment and financial aid professional communities to communicating financial options to parents (Minnesota Higher Education Services Office, 2004; Whiteside & Mentz, 2004). However, there has been relatively little research within the education community on actual actions parents take in preparation for financing children’s postsecondary education that could facilitate turning those expectations into postsecondary attendance and persistence (Horn, Chen, & Chapman, 2003). A recent exception to this is a study by Sallie Mae (2009) that examined how parents save for college via various mechanisms, ultimately recommending that more incentives to save should exist to avoid over-borrowing and the burdens associated with it. Beyond this recent study, the general lack of research in this area may be partly due to the sensitive nature of personal finances, and the unwillingness many people have about divulging such information. However, it DRAFT-College Financial Planning 5 is probably also partly due to a paucity of education-related data including parental financial planning information during the pre-college years. In 2002, the Education Longitudinal Study’s survey of parents of high school students addressed this data gap in the education community (National Center for Education Statistics, 2002). Using these data, this study aims to identify who had begun to prepare financially for their 10 grader’s postsecondary education and what steps they were taking. We specifically evaluate whether parental aspirations and expectations for their children, as well as family education levels, relate to actual postsecondary financial planning. While we predicted that higher parental aspirations, expectations, and family education would correspond to increased likelihoods of financial preparation and higher amounts of saving, the relationships found were more complex. The results may be helpful to those, such as college planning advisors, financial planners, institutional admissions officers, and school counselors, who are working to increase the effectiveness of disseminating college financial information to parents. Background Enrollment in college is dependent on a number of factors. One of the most frequently demonstrated predictors of college enrollment is income, wealth, or some other form of financial capital. In addition, the college transition literature has shown a number of other family-related factors to be predictive of postsecondary matriculation, such as parental expectations, parental involvement, parental education, and resources in the home. Expanding on Bourdieu’s (1971; 1986) original concepts, several education scholars have framed some of these variables, along with others, as components of cultural and/or social capital (e.g., Perna, 2000; Perna & Titus, 2005; Wells, 2008). 1 There are warnings against superficial quantitative operationalizations of social and cultural capital (see Smart, 2005). DRAFT-College Financial Planning 6 Social capital (Bourdieu, 1986; Coleman, 1988; Portes, 1998) includes the social and personal networks that people utilize for interpersonal assistance, which for students are often developed in the home as well as the school and other locations (Coleman, 1990). Cultural capital (Bourdieu, 1986; Bourdieu & Passeron, 1977) includes forms of symbolic wealth that help define a person’s class, which are often inherited from one’s family and therefore may help to sustain upperand middle-class status groups (McDonough, 1997, 1998; Swartz, 1997). Closely related is one’s habitus, which is defined as “a system of lasting, transposable dispositions” which generate action, or a “matrix of perceptions, appreciations, and actions” (Bourdieu, 1971, p. 83), and as a “manifestation of cultural capital” (Berger, 2000, p. 118). Habitus is an unconscious, internalized force which predisposes those of given social classes, and with similar amounts of cultural capital, to take advantage of certain opportunities available to them – in our case, actions to prepare financially for a student’s college education. According to Bourdieu (1986), these forms of capital can be converted, and importantly, may be converted from one form to another. Martin & Spenner (2009) used the theoretical concept of capital conversion to study legacy students in college. These authors write: “Processes that support academic achievement, such as cognitive development, habits and values, and financial investments in schooling are central in intergenerational transmission (Bourdieu and Passeron, 1977)” (p. 625). We examine intergenerational transmission via capital conversion prior to college. We explore whether family social and cultural capital (partially represented here by parental aspirations/expectations, parental education, and grandparental education) net of family income and a host of other predictors from the literature, are converted into financial capital in the form of monetary actions to prepare for a student’s college education. In this way, we are not framing family aspirations/expectations and education solely as direct influences on DRAFT-College Financial Planning 7 college enrollment, but also as indirect influences by converting those family assets into financial resources specifically designated for the student’s continued education. Factors Shown To Impact College Financial Planning Relatively few studies have linked parental financial planning behavior to parental college expectations for their children. Various educational and demographic characteristics have been identified that impact college savings attitudes and/or planning, but these have either not been connected to parental expectations or not to the type(s) of planning behaviors which actually occurred (DeVaney & Chien 2002; Dynarski, 2004; Horn et al., 2003; Yilmazer, 2008). Studies linking parental expectations with anticipation of providing financial assistance also typically have not distinguished parents’ idealistic aspirations from realistic expectations for their children (Herrold & O'Donnell, 2008; Lippman et al., 2008). Therefore, the impact of parental aspirations and expectations on s