New America Foundation
By: Hannah Emple
January 26, 2012
William Elliot: Ideas for refining children's savings account proposals
Today, the Asset Building Program and the Center for Social Development at the Washington University in St. Louis released the final report in the "Creating a Financial Stake in College" series. The fourth report "Ideas for Refining Children's Savings Account Proposals" makes a case for establishing formal mechanisms for low- and middle-income children to save. Author William Elliott argues that a systematic, national approach to children's savings accounts is a critical part of improving access to postsecondary education, particularly for low- and middle-income students. The ASPIRE Act, a national model for children's savings accounts, offers a blueprint for addressing this access gap. By relying on recent research findings and creative ideas, Elliott re-envisions the logistics of a national model for children's savings to better address the needs of lower-income families. Below are a few of the proposals he outlines:
•3-in-1 Accounts: Elliott is careful throughout the series to recognize the competing financial needs lower-income families face. In the midst of meeting day to day needs, lower-income families struggle to set aside money for long-term goals like education. By creating a mechanism for families to designate money for the short, intermediate, and long-term (with an appropriate incentive or matching structure), families can build up savings tailored to their diverse needs.
•Savings-Linked Conditional Cash Transfers: Research supports targeting incentives to strategies for academic success, rather than specific outcomes (for example, rewarding the act of studying rather than grades). Borrowing from international efforts to link cash transfers to savings, Elliott suggests that children's savings account programs must use incentives to both encourage savings and positive school-related activities. This has a duel impact by simultaneously building the financial and academic means to succeed educationally.
•Experiential Learning: Children's savings accounts can enhance financial education curricula by giving a student an opportunity to learn experientially. A national children's savings account program would give all children access to a financial product with which to develop financial literacy concepts and skills. Lower-income children in unbanked households currently lack the formal means through which to develop these skills and are therefore at a disadvantage.
•Combined Financial Education/College-Bound Identity Education: Financial education is a natural accompaniment to children's savings accounts because the accounts give children an appropriate educational tool with which to build skills and better conceptualize their educational future. By linking the savings account to future college attendance, Elliott envisions a program that builds children's college-bound identities, by cementing the idea early on that all children who have the ability and effort can attend college, regardless of family income.
•Automatic Enrollment: Automating enrollment in any children's savings account program helps to ensure widespread success of the program. Research on children's savings accounts in Oklahoma (SEED OK) demonstrates the feasibility of large-scale universal savings accounts for newborns. Furthermore, early research illustrates the value of automatic enrollment: only one member of the treatment group opted out of the account. This is a testament to the promise of these accounts. While lower-income parents may lack access to appropriate structures for savings, they are open and willing to contribute when the barriers to an account are eliminated.
This series has demonstrated the links between college attendance and the earlier savings habits of lower and middle income families. Qualified children from lower income backgrounds are currently attending college at lower rates than similarly-qualified but higher income peers, a fact that diminishes confidence in education as an equalizing force in society. Without concerted efforts on the part of policymakers, this educational gap will not close, with significant ramifications for our democracy. Children of all income levels should have the opportunity to save for college, learn principles of financial literacy from an early age, and gain confidence in their academic capacity to succeed. Children's savings accounts are a promising tool to accomplish these goals.