IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/30848.html
   My bibliography  Save this paper

Suboptimal Investment and Local Preferences: Evidence from 529 College Savings Plans

Author

Listed:
  • James J. Li
  • Olivia S. Mitchell
  • Christina Zhu

Abstract

We use the 529 college savings plan setting to investigate whether and why households make suboptimal choices to invest in local assets. We estimate that 67% of open accounts between 2010 and 2020 were located suboptimally, due to the plans’ tax inefficiencies and high expenses. Over the accounts’ projected lifetimes, such investments yielded expected losses of 8% on average, or $13.4 billion in 2020 alone. Household financial literacy and plan disclosure complexity appear to explain suboptimal investment patterns. Our study presents novel evidence on individuals’ local preferences and how information-processing frictions shape their investment decisions, reducing their financial well-being.

Suggested Citation

  • James J. Li & Olivia S. Mitchell & Christina Zhu, 2023. "Suboptimal Investment and Local Preferences: Evidence from 529 College Savings Plans," NBER Working Papers 30848, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:30848
    Note: AG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w30848.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:30848. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.