Friday, August 17, 2012

Seniors fall back on social security

More than 46 percent of Dartmouth students graduate with less than $10,000 in their bank accounts, according to a study by economics professor Steven Venti, Harvard Kennedy School of Government political economy professor David Wise and Massachusetts Institute of Technology economics professor James Poterba. The study, published in February and highlighted this month by The Washington Post, found that students rely heavily on post-grad program stipends after graduation.

The findings address one of the biggest concerns facing American college students: how much money they need to save before graduating. The exact dollar amount needed to graduate comfortably is highly debated, and many worry that the current generation of near-graduates has not saved enough money, Venti said.

“Rather than looking at people on the cusp of graduation and asking, ‘Are they prepared?’ we look at people a year or two after college and ask, ‘Were they prepared?’” Venti said.

The research suggests that most graduates were not adequately prepared for graduation, he said.
With such limited financial assets after undergrad, the graduates often turn to government programs such as Teach for America.

“What is novel about this paper, with echo boomers reaching graduation, is that there is much question about how much these individuals are relying on social safety nets rather than investing in their own assets,” Porteba said.

These benefits, combined with some graduate or doctoral program stipends, provide less than $20,000 to 87 percent of recent-graduate households with less than $10,000 in financial assets, according to Venti.

The study also suggests a link between low financial assets and disproportionately poor health. When those with poor health and meager bank accounts are confronted with unexpected expenses, they might not be able to pay their bills, according to Venti.

“With few assets, these graduates are unable to withstand financial shocks such as medical, home care and child rearing expenses not covered by their insurance plans or employer benefits, or other health-related expenses such as remodeling a home to accommodate a disability,” he said.

Even expenses such as travel or entertainment are difficult for such graduates to afford, according to Venti.
The findings indicate that a reduction in benefits would directly lead to reduced financial security for many young households, The Post reported.

“With health costs continuing to climb, these findings suggest that any cuts in post-grad benefits will have a substantial impact on the well-being of the young,” Venti said.

The researchers said that policies should encourage low and middle-income college students to prepare more robustly for graduation.

The paper used data from the Health and Graduation Study, a longitudinal study sponsored by the National Institute for Higher Education. The study surveyed people under the age of 18 starting in 2005 and followed up every year until 2011, Venti said. The information about assets was used from the latest surveys before the graduation of each participant.

The three professors have collaborated previously and have jointly published 30 papers over more than 20 years, according to Venti. Their research is funded by the National Institute for Higher Education and the American Study Group on Generation Y.

“This study is an example of how economics is becoming more collaborative and interdisciplinary through joint research with experts from other academic areas,” Porteba said.


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