Investor Consideration of Expense: an Analysis of the State-sponsored Section § 529 College Savings Plan Market

Open Access
Egan, Michael
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • David Haushalter, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
  • college
  • savings
  • 529
  • 529 college savings
  • savings plan
  • expense
  • fees
  • funds
  • finance
This thesis examines how individual investors respond when investment costs change. Using a proprietary dataset provided by the Vanguard Group based in Malvern, PA, I compare 529 plans to see if plans experience increased net cash flow when there is a decrease in the annual asset-based expense ratio of a plan compared to a plan with no expense change. Assuming that investors are rational and investment costs are meaningful relative to other factors, investment cost will factor into their decision making process. Decreasing a plan’s expense compared to another plan that keeps its expense ratio unchanged, should result in the first attracting more new account owners and ultimately larger cash flow growth. My research fails to find evidence that investors respond to a change in plans’ expense ratios. This suggests that other market attributes such as state tax-incentives, plan policy incentives, and information presentation are more important determinants of investor behavior than plan expenses.