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Program Knowledge and Racial Disparities in Savings Outcomes in a Child Development Account Experiment

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Abstract

This study investigated whether participants’ program knowledge was associated with savings outcomes in Child Development Accounts and whether differences in program knowledge explained racial and ethnic disparities in savings outcomes. We used data collected from White, Black, American Indian, and Hispanic treatment participants in the SEED for Oklahoma Kids (SEED OK) experiment (N = 1126). Analysis results indicated that knowledge of SEED OK program features was low, especially among members of minority groups. Logit and Tobit regressions showed that program knowledge was positively related to the likelihood of holding a SEED OK account and to individual savings amounts. Gaps in program knowledge were associated with racial disparities in savings outcomes. If Whites and minorities had the same levels of program knowledge, gaps in savings outcomes would have significantly narrowed. The findings call for the development of policy designs and communication tools to enhance knowledge of program features among households with Child Development Accounts, especially racial- and ethnic-minority households.

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Notes

  1. Nam et al. (2013) estimated SEED OK’s participation rate as of June 2009, but the current study assessed its participation rate in December 2011.

  2. Financial knowledge is not a perfect indicator of one’s level of understanding of savings programs. In understanding program features and incentives, financially knowledgeable individuals probably have an easier time than those with limited financial knowledge, but empirical evidence has shown that correlations between general financial knowledge and the level of savings program knowledge are far from perfect. For example, analyses of SEED OK data used in this study demonstrated that the coefficient of the correlation between financial knowledge and SEED OK program knowledge was only .19. Eighteen percent of those with the lowest level of financial knowledge were aware of all three features of SEED OK, but 28% of those with the highest level of financial knowledge were not aware of any SEED OK feature.

  3. Qualified expenses include tuition, fees, room and board costs, and materials and equipment needed to pursue postsecondary education in eligible educational institutions, which include colleges, universities, and vocational schools.

  4. Dollar values used in this article are in US currency.

  5. Participants who indicated that Spanish was their primary language have received information in that language.

  6. The main model of this study included the variables for household size and the number of children in addition to that for the study participant’s marital status. Although household size was highly correlated with marital status and the number of children, we controlled for marital status because it reflected the number of adults in the household. The average number of adults differed by race and ethnicity even when marital status was considered. For example, there were, on average, 2.09 adults in the households of married White participants, 2.06 in the households of unmarried White participants, 1.96 in the households of married Black participants, and 1.56 in the households of unmarried Black participants. We also ran supplemental analyses without the household-size variable. Results from these analyses were not substantively different than those from the main model.

  7. For example, experiences during Stage 1 may have made survey recruiters more successful in contacting selected caregivers and convincing them to participate at Stage 2; study participants recruited at Stage 1 had more time (4 months) to open and save in OK 529 accounts because they were notified of their treatment status a few months earlier than those recruited at Stage 2.

  8. Caution is warranted in interpretation of the findings on Blacks and Hispanics because results from Model 2 were somewhat weak. In comparison with that in Model 1, the size of the Model 2 coefficient for account holding by Hispanics was smaller, and the difference was significant at the .10 level but not at the .05 level. In the regression of savings amount, the Black and Hispanic coefficient sizes from Model 1 did not differ significantly from those in Model 2. Only Model 3 generated results sufficiently robust to support the hypothesis that racial gaps in program knowledge explain disparities in savings outcomes. The size of coefficients for both of the measured savings outcomes of Blacks and Hispanics differed significantly (at the .05 level) from the corresponding coefficients in Model 1.

  9. It should be recognized that saving for children’s future is not always desirable for some families, especially low-income families. Saving in the context of budget constraints may have harmful impacts on families and children if economic resources are diverted from basic needs (e.g., purchasing food and paying bills).

  10. One potential explanation for this lack of awareness was the timing of the SEED OK intervention. It started shortly after a new baby arrived in the household of each member of the target population; new parents often lack time and economic resources. Recent studies indicated that people with scarce resources tend to focus on short-term survival and that scarcity limits their cognitive ability to obtain new information or make prudent decisions for long-term success (Shah et al. 2012; Mani et al. 2013). Another possible explanation for participants’ ignorance of program features was the lack of financial knowledge among the target population. Only 14% of new mothers gave correct answers to all three basic financial-knowledge questions (Huang et al. 2013). Without such basic knowledge, mothers may have had a hard time grasping how SEED OK worked. Furthermore, the experimental nature of SEED OK prevented the widespread use of some communication tools (e.g., media campaigns and promotion by community leaders) that might have compromised the experiment’s validity by exposing control participants to treatment components. These hypotheses have not been empirically tested, and further investigation should undertake such tests.

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Acknowledgements

Support for SEED for Oklahoma Kids comes from the Ford Foundation and the Charles Stewart Mott Foundation. We especially value our partnership with the state of Oklahoma: Ken Miller, State Treasurer; Scott Meacham, former State Treasurer; Tim Allen, Deputy Treasurer for Communications and Program Administration; and James Wilbanks, former Director of Revenue and Fiscal Policy. We appreciate the contributions of staff at RTI International. The Oklahoma 529 College Savings Plan Program Manager, TIAA-CREF, has also been a valuable partner. At the Center for Social Development, we are grateful to Mark Schreiner and Nora Wikoff for their assistance in managing the survey data and to Vernon Loke, Lisa Reyes Mason, and Donna-Mae Knights for assistance with data management and cleaning. The authors also thank Christopher Leiker for his wonderful editing assistance and staff on the SEED OK team over several years.

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Authors and Affiliations

  1. School of Social Work, University at Buffalo, The State University of New York, 685 Baldy Hall, Buffalo, NY, 14260-1050, USA

    Yunju Nam & Elizabeth Hole

  2. Center for Social Development, Washington University in Saint Louis, One Brookings Drive, Campus Box 1196, St. Louis, MO, 63130-4899, USA

    Michael Sherraden & Margaret M. Clancy

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  1. Yunju Nam
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Correspondence to Yunju Nam.

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Conflict of interest

Support for SEED for Oklahoma Kids (SEED OK) comes from the Ford Foundation and the Charles Stewart Mott Foundation. The sponsors did not participate in the design or conduct of the study; in the collection, analysis, or interpretation of the data; or in the preparation, review, or approval of the manuscript. The authors declare that they have no conflict of interest.

Ethical Approval

The SEED OK experiment obtained institutional review board approval from Washington University in Saint Louis (IRB ID No. 201102246). All procedures involving human participants were performed in accordance with the ethical standards of the institutional and/or national research committee and with the 1964 Helsinki declaration and its later amendments or comparable ethical standards.

Informed Consent

Informed consent was obtained from all individual participants included in the study. No identifying information about participants is included in the article. The manuscript will not infringe upon any statutory copyright. This paper has not been published previously and is not under consideration elsewhere.

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Nam, Y., Hole, E., Sherraden, M. et al. Program Knowledge and Racial Disparities in Savings Outcomes in a Child Development Account Experiment. J Fam Econ Iss 39, 145–162 (2018). https://doi.org/10.1007/s10834-017-9544-5

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