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Phoenix Forward magazine

Having their own savings accounts increases the odds your kids will go to college, study says

The assets effect

Want to instill college aspirations in your kids? Opening savings accounts in their names — even if they don’t have much money in them — will help.

That’s a key finding of a research paper on the so-called “assets effect,” according to a 2012 article in Washington Monthly magazine. Children with personal savings accounts, the article notes, are seven times more likely to attend college than their peers who don’t have one, even if the accounts are small. The article was based on research published in the Journal of Family and Economic Issues.

What the research found isn’t surprising, says Art Elliott, a corporate controller and area chair for accounting programs at the University of Phoenix St. Louis Campus. “A more disciplined approach to life is developed when [children] have savings accounts,” he believes.

Even if the children’s savings don’t ultimately reflect the true costs of a college education, Elliott says, the psychology of personally controlling their savings inspires a deeper appreciation for what they need to do financially and behaviorally to get to college.

The simple act of saving motivates children to strive harder to meet the general expectation that they must attend college.

Elliott’s assertions are bolstered by the findings of economics researcher William Elliott II, PhD, primary author of the journal paper. The researcher — no relation to Art Elliott — notes that the simple act of saving motivates children to strive harder to meet the general expectation that they must attend college.

For example, he points out that kids may strategically focus on getting good grades or obtaining alternative college funding, such as scholarships.

The data prompted the U.S. Department of Education to launch the College Savings Account Research Demonstration Project last May. The project provides 10,000 low-income high school freshmen with $200 in seed money to start individual savings accounts, set up and monitored by states currently participating in the Gear Up federal college readiness program.

Students will contribute and receive matching money of up to $10 monthly for four years, or until they graduate high school. They’ll be allowed to use the savings to pay for college costs, such as textbooks. The project will compare participants’ college outcomes with those of 10,000 peers who don’t receive savings accounts.

"We believe that savings accounts play a key role in helping all students — especially those from low-income families — access and succeed in college," U.S. Secretary of Education Arne Duncan said in a news release announcing the project.

"Empowering disadvantaged students with financial resources and skills will enable them to make smart investments in higher education — and we'll gain valuable knowledge about how to best serve these students in the future."

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