The Role of Parental Altruism in Parents Consumption, College Financial Support, and Outcomes in Higher Education

Abstract

This paper examines how parent-child interactions and altruism affect college financial support and outcomes. I analyze how parents adjust their consumption levels when their children’s wealth changes and how children’s consumption shocks affect parent consumption. I use a dynastic overlapped generations model to explore how future transfers from parents to children influence college graduation rates. I find that parent transfers reduce the cost of attending college but also lower children’s college returns as attending college decreases future parents’ transfers. Parent altruism increases college graduation rates for low-ability children with wealthy parents, which can explain most of the college graduation gap between low-ability children with wealthy and poor parents. Understanding parent-child interactions and altruism is crucial for comprehending college investment decisions and outcomes.

Agustin Diaz Casanueva

Economist at Central Bank of Chile

I am a Ph.D. candidate in Economics at the University of Pennsylvania and currently work as an Economist in the Economic Modeling Department at the Central Bank of Chile. My research focuses on Macroeconomics, Labor Economics, and Family Economics.