College Savings and Stock Market Participation

Abstract

This paper empirically studies how college savings motives affect household stock market participation. More than 65% of households saving for college allocate at least a portion of their college savings to stocks, which are also the most popular class of risky assets for college savings investments. Employing the implementation of a financial aid program that eliminated college saving motives for some military households, I demonstrate that it reduced the probability of stock market participation outside of retirement accounts for these households by more than a quarter. I provide additional evidence that college savings motives explain a significant share of stock market participation by demonstrating that only one form of college savings, education savings accounts, accounts for 21% of stock market participation outside of retirement accounts for households with children.

Keywords: college savings, portfolio allocation

JEL Classification: D14, G50, I22