Shriver Center (CFED)
By: Karen K. Harris
March 19, 2012
Moving forward on children's savings accounts
For 10 years, the Corporation for Enterprise Development (CFED) has funded pilot programs across the country to provide Children's Savings Accounts (CSAs). It looks as though this investment is beginning to pay off, in that several states have recently launched their own versions of CSA pilot programs.
Children's savings accounts are inclusive, long-term asset-building accounts established for children as early as birth and allowed to grow over their lifetime. Accounts are seeded with an initial deposit and can be built by contributions from family, friends, and the children themselves. The accounts can be augmented by savings matches and other "benchmark" incentives through public or private sources. Since saving can be difficult for lower-income households, the accounts of lower-income children can be further supplemented by the government through a larger initial deposit, higher match rates, or both. CSAs are often linked to age-appropriate financial education such that savings behaviors are further encouraged through educational instruction to develop a child's financial acumen as the account grows. CSA funds are restricted to financing higher education, starting a small business, buying a home, or funding retirement.
Mississippi's version of a CSA program uses its 529 college savings program platform. The State of Mississippi is offering 529 college savings accounts and seeding them with $50 in several early childhood development centers across the city of Jackson, Mississippi. So far 369 three-, four-, and five-year-olds are enrolled. The children will also receive financial education in the classroom, and their parents will be offered training from the FDIC's Money Smart curriculum to encourage them to invest in their child's future. This CSA pilot is critical in Mississippi, a state were less than 15% of ninth graders end up continuing and completing college.
A similar program is underway in Grand Rapids, Michigan. Under this program Michigan is partnering with LINC Community Revitalization and providing CSAs to kindergarten students in four pilot schools.
In Illinois in 2005, the Shriver Center was one of CFED's original partners in piloting CSAs. In addition to CFED, the Shriver Center partnered with Chicago Public Schools and CHASE to provided accounts to 82 elementary school children at the William J. and Charles H. Mayo Elementary School. Each accountholder received an initial deposit of $500 and had the opportunity to earn a $1:$1 match up to a total of $1,500. After this successful demonstration project, the Shriver Center and the Illinois Asset Building Group successfully advocated for the passage of H.B. 1662 (Children Savings Account Act).
This law created a CSA Task Force to draft recommendations for designing a successful CSA program in Illinois. The Task Force found that many Illinois residents are living paycheck to paycheck. One in four Illinois households are asset poor, meaning that they could not get by for three months if they lost all outside sources of income. Among other things, the Task Force found that if a child has an account in his or her name, regardless of the amount held in the account, the child is seven times more likely to attend college. The presence of assets also has a positive influence on a person's well-being, self-esteem and hope toward the future.
The Illinois CSA Task Force's recommendations for successfully implementing a statewide CSA program included, among other things:
•using Illinois's 529 college savings plan platform to operate and administer the accounts;
•automatically opening a CSA for every child born to Illinois residents at the time of birth;
•seeding every account with an initial public deposit and providing supplemental deposits based on family income;
•including a targeted, matched-saving component to encourage saving among low-income families;
•excluding CSA accounts from asset tests in all Illinois public benefits programs; and
•making a statewide investment in financial education programs for youth and integrating the
CSA program into school curricula as a way for children to understand saving.
As other states begin to experiment with CSA pilot programs, Illinois should begin implementing this Task Force's recommendations. Providing CSAs and financial education at a young age could provide Illinois children with both the necessary asset building knowledge and a nest egg to use to begin their lives. Given the current economic times, this is something that Illinois cannot afford to delay.