by James A. Bacon

My mother was acquainted some forty years ago with a woman who lived on welfare and then won a life-changing amount of money in the lottery. As the story has been passed down to me, the woman used the money enjoy the high life, buying expensive clothes and expensive liquor, giving money to family and friends, and doing who-knows-what else. Within several years the woman had spent her entire windfall and ended up back on the dole. Undoubtedly the story has strayed somewhat from the facts in the telling and retelling over the years, but the bottom line is the same: Welfare mother wins big lottery, squanders winnings, and ends up back on welfare.

Ever since hearing that story, I have been fascinated to see how lottery winners respond to their good fortune. Do they use their winnings in ways to improve their lives and the lives of their children over the long haul, or do they blow it all in an orgy of self indulgence? The defining variable, I always believed, was a psychological trait famously identified by the urbanist Edward Banfield: the willingness to defer gratification.

Now comes a paper by four economists, “Parental Resources and College Attendance: Evidence from Lottery Wins,” published by the National Bureau of Economic Research, that examines in a systematic way the relationship between winning the lottery and sending kids to college.

Drawing upon federal tax records linked to federal financial aid records, the economists examined more than one million children whose parents won a state lottery to trace the effect of additional household resources on college outcomes. Their findings:

Wins less than $100,000 have little influence on college-going … while very large wins that exceed the cost of college imply a high upper bound (e.g., wins over $1,000,000 increase attendance by 10 percentage points). The effects are smaller among low-[socioeconomic status] households.

The economists made some other findings that did not bear upon their main line of inquiry but were interesting nonetheless: Lottery winners “decrease labor supply” (in other words, work less), increase consumption (like my mother’s welfare acquaintance), and/or put money into savings. People with mortgages often use winnings to pay off the mortgage; big winners use the windfall to move into wealthier neighborhoods.

Lower-income households use very little of the lottery winnings to send their kids to college. One can only speculate as to why. Perhaps students from poor households are less academically qualified to go to college; indeed, significant numbers may have dropped out of high school. Alternatively, perhaps poor households place a higher value on immediate gratification than the delayed rewards that come from earning a college degree.

Or perhaps, thanks to Pell Grants and college loans, financial resources just aren’t a barrier to college attendance by the poor. As the economists declare, “borrowing constraints are not explicitly hindering college attendance.”

New policies seeking to raise educational attainment should not be primarily justified on the basis of the existence of such constraints. Further, redistribution of income rewards to low-[socio-economic status] households would likely be ineffective at generating enrollment changes. … Policy makers seeking to increase educational investment, particularly among such households, might instead see benefits from interventions that reduce the cost of college or strive to increase the consumption value that households place on college.

Bacon’s bottom line:

 My take-away is that various plans touted by certain presidential candidates to make college tuition “free” (to low- and middle-income students, not to taxpayers) are unlikely to increase the number of students from low-income families attending college.