Children's Savings Accounts (CSAs) are a type of savings accounts in the United States, usually specifically designed for higher education savings. They are often available through state or local government programs or nonprofit organizations, in partnership with banks and credit unions. CSAs can be based in state-sponsored 529 plans or other investment products such as Coverdell Education Savings Account, and usually allow deposits from children, parents, and relatives as well as third parties such as school districts and scholarship programs. Many CSAs begin with an initial deposit from government or a nonprofit in the name of the child and subsequent family contributions are often encouraged by matching funds. CSAs often incorporate incentives to encourage saving by disadvantaged youth and families. Withdrawals from CSAs are generally limited to higher education expenses, after the child turns 18. Following college graduation, unspent funds can often be used for other asset purchases (first-time homeownership, small business development, or sometimes cars) or for retirement savings. CSA programs can also include financial education to teach children and families about financial institutions' products, smart consuming and saving practices, and strategies for long-term investing.Cramer, R. & Newville, D. (2009). Children's savings accounts: The case for creating a lifelong savings platform at birth as a foundation for a "save-and-invest" economy. Washington, DC: New America Foundation.
Motivation There are significant disparities in educational attainment by family wealth.Zhan, Min. (2006). Assets, parental expectations and involvement, and children's educational performance. Children and Youth Services Review, 28(8), 961-975. As savings projects such as the American Dream Demonstration began to prove that it was possible to encourage low-income individuals and families to save, policymakers began to turn their attention to the potential of asset initiatives to address educational disparities. Family assets build children's expectations about collegeElliott, W. (2009). Children’s college aspirations and expectations: The potential role of college development accounts (CDAs). Children and Youth Services Review, 31(2), 274-283. and, in turn, influence their engagement with school and their parents’ savings behavior and academic support.Zhan, Min. (2006). Assets, parental expectations and involvement, and children's educational performance. Children and Youth Services Review, 28(8), 961-975. These effects can help to reduce the achievement gap between wealthy and disadvantaged students by increasing the likelihood that all students take required college-preparatory courses, complete entrance exams such as the ACT or SAT, apply for college and for needed financial aid, and are otherwise on a 'college track'.
Children's Savings Accounts have been demonstrated in research to affect educational outcomes. Researchers theorize that these effects occur through a process known as institutional facilitation, whereby individuals’ attitudes, expectations, and behaviors are shaped through interactions with supportive institutions.Elliott, W. (2012). We save, we go to college. (Creating a Financial Stake in College, Report III). Washington, DC: New America Foundation; St. Louis, MO: Washington University, Center for Social Development, Available at http://assets.newamerica.net/sites/newamerica.net/files/policydocs/Elliott_III_final1.4.12.pdf. In this case, when children experience reinforcement of the expectation of college graduation, their drive towards academic achievement is increased and they begin to act in ways consistent with their ‘college-bound’ identity.Oyserman, D. (2013). Not Just Any Path: Implications of Identity-Based Motivation for Disparities in School Outcomes. Economics and Education Review. In turn, this leads to more savings, which further strengthens expectations and achievement.Elliott, W., Choi, E. H., Destin, M. and Kim, K. (2011). The age old question, which comes first? A simultaneous test of children’s savings and children’s college-bound identity. Children and Youth Services Review, 33(7), 1101-1111. Conversely, when low-income students learn that their families, schools, neighborhoods, and our financial aid system are less-than-equipped to support their educational outcomes, their self-efficacy (‘I can do’ belief) may be compromised,Bandura, A. (1997). Self-efficacy: The exercise of control. New York: W.H. Freeman resulting in disengagement from school performance.
Research suggests that CSAs can interrupt these expectations signaling to disadvantaged children that college is within the realm of their future possibilities. Fostering this identity, in turn, results in improved educational outcomes, on a variety of measures prior to, during, and following college. Asset accumulation—through CSAs or other mechanisms, including parental wealth—is associated with greater academic achievement and preparation for college,Zhan, Min. (2006). Assets, parental expectations and involvement, and children's educational performance. Children and Youth Services Review, 28(8), 961-975. higher college enrollment rates,Elliott, W., Chowa, G. and Loke, V. (2011). Toward a children’s savings and college-bound identity intervention for raising college attendance rates: A multilevel propensity score analysis. Sociology Mind, 1(4). 192 –205. more successful college completion,Elliott, W., Song, H-a, and Nam, I. (2013). Small-dollar accounts, children's college outcomes and wilt. Children and Youth Services Review, 35(3), p. 535-547. and more savings in young adulthood.Friedline, T., & Elliott, W. (2011). Predicting savings for Black and White young adults: An early look at racial disparities in savings and the potential role of Children's Development Accounts (CDAs). Race and Social Problems, 3(2), 99-118. Even small amounts of assets have been shown to be related to increases in college graduation; a child who has designated school savings, such as in a CSA, from $1 to $499 is over four and half times more likely to graduate from college than a child with no savings account.Elliott, W. (2012). Small dollar accounts and children's outcomes. Small Dollar Children Accounts (Report I). Assets and Education Initiative University of Kansas, School of Social Welfare, Lawrence, KS. Students who graduate college with a savings historyFriedline, T., & Song, H. (2012). Accumulating assets, debts in young adulthood: Children as potential future investors. Lawrence, KS: University of Kansas, Assets and Education Initiative. are more likely to continue accumulating assets as they age into young adulthood.Friedline, T., & Elliott, W. (2012). Building a business case for children’s savings: Connections with banking institutions and diverse asset portfolios in young adulthood. Lawrence, KS: University of Kansas, Assets and Education Initiative. Conversely, when students graduate with high levels of student debt, research suggests that they may delay financial milestones, including car purchase and home ownership.Elliott, W. and Nam, I. (2013). Is student debt jeopardizing the long-term financial health of U.S. households? (Under Review at Federal Reserve of St. Louis).
Policy Features In the early part of the 21st Century, following successes in asset demonstrations in the prior decade, broad consensus emerged that Children's Savings Account policies should be universal, progressive, lifelong, and asset-building. Universal accounts would include every child of a given age. Many envision this as account opening at birth, although others argue that there are reasons to tie accounts to other academic or life milestones. Features that would promote universal inclusion include automatic enrollment, concerted outreach and education strategies, and special incentives for lower-income households. CSAs are also envisioned as accounts capable of keeping individuals connected to financial institutions and facilitating their savings from birth to death.Cramer, R., & Newville, D. (2009). Children's savings accounts: The case for creating a lifelong savings platform at birth as a foundation for a “save-and-invest” economy. Washington, DC: New America Foundation. As policies typically include matches and other incentives designed to increase asset accumulation by low-income children and families, CSAs are progressive. Saving is particularly difficult for low-income familiesBoshara, R. (2003). American stakeholder account (Issue Brief). Washington, DC: New America Foundation. and other asset-building policies tend to regressive in their concentration of tax-based incentives to higher earners.Okech, David, Little, Todd D., & Williams-Shanks, Trina. (2011). Early savings for children's higher education: A comparison between savers and non-savers in a child development account program. Children and Youth Services Review, 33(9), 1592-1598. Finally, CSAs are understood as vehicles for asset accumulation, not just to build habits of financial savings.Boshara, R. (2003). American stakeholder account (Issue Brief). Washington, DC: New America Foundation. When savings are used to purchase other assets—human and financial—their transformative power is much greater.
National Policy Advocates and policymakers have proposed various national CSA policies. Some of the proposals would provide additional tax incentives for education savings (401Kids accounts in 2011). Others would create national structures for children's savings, without matches or other incentives (American Dream Accounts in 2013). In 2011, the U.S. Department of Education announced an invitational priority for Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) program sites wishing to include CSAs and financial education within their program delivery. This was designed to test the feasibility of incorporating asset accumulation efforts within college-preparatory programs; however, delays and obstacles in implementation may lead policymakers to pursue other options.
National legislation to create a system of CSAs has been proposed in Congress, notably the ASPIRE Act, which would create a lifetime account for every U.S. child at birth, capitalized with $500 investments for those households at or below the median income. In 2013, the College Board recommended that Pell Grants be reimagined as an early commitment program, in order to simulate the effects of a Children's Savings Account within the framework of a means-tested grant.College Board. (2013). Rethinking pell grants (pp. 1-58). New York, NY. Children and their families could receive notice while children are still in school that they will be eligible for a Pell Grant—to foster college expectations—when they reach college age. Alternatively, savings accounts for children could supplement Pell Grants, with annual deposits of 5 to 10% of the amount of the Pell Grant award for which children would be eligible. Following this announcement, others suggested opening the accounts even earlier, to take advantage of compounding interest, and exploring similar approaches in other financial aid programs, to test the value of manipulating the timing of financial assistance.
State and Local Policy Some states and localities have their own CSA programs. San Francisco, CA started a Kindergarten-to-College initiative in 2010 which opens CSAs—with a $50 initial deposit—for every kindergartner in the public school system. The program also provides an extra $50 deposit for low-income families and matches family contributions up to $100. Cuyahoga County, Ohio announced a similar program early in 2013, which was later repealed in 2015. Other cities with CSA programs in operation or in pilot include St. Louis, Boston, and New York City.