Household Investment in 529 College Savings Plans and Information Processing Frictions / James J. Li, Olivia S. Mitchell, Christina Zhu.

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Li, James J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w30848.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We investigate how information processing frictions contribute to household suboptimal saving and investment behavior. We find that 60% of open accounts in college 529 savings plans are invested suboptimally due to high expenses and tax inefficiency. Such investments yield an expected loss of 9% over the accounts' projected lifetimes. Consistent with information processing frictions contributing to inefficient investment, the extent of investment in suboptimal home-state accounts decreases with household financial literacy and increases with plan document disclosure complexity. Overall, our results suggest that information processing frictions shape households' suboptimal investment in college savings plans and reduce their financial well-being.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w30848 (Browse shelf(Opens below))	Not For Loan

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January 2023.

We investigate how information processing frictions contribute to household suboptimal saving and investment behavior. We find that 60% of open accounts in college 529 savings plans are invested suboptimally due to high expenses and tax inefficiency. Such investments yield an expected loss of 9% over the accounts' projected lifetimes. Consistent with information processing frictions contributing to inefficient investment, the extent of investment in suboptimal home-state accounts decreases with household financial literacy and increases with plan document disclosure complexity. Overall, our results suggest that information processing frictions shape households' suboptimal investment in college savings plans and reduce their financial well-being.