Children’s Savings AccountsAn innovative idea to help break the cycle to poverty is Children’s Savings Accounts (CSAs). Children’s savings accounts are small accounts that can be opened at birth for every child born in America. The purpose is to provide a savings account that would grow throughout childhood that could then be used when the child reaches a certain age. This money could then be used to fund post-secondary education, buy a home, or save for retirement. Why Create Children’s Accounts?Children’s accounts are one of these strategic and effective solutions that brings politicians from across the political spectrum together to change the lives of millions of low-income families. Right now, two of five American children will never complete a year of college. People with bachelor’s degrees earn 80 percent more than those with who have not attended college. Typical costs to attend a four-year college are about $4,000 annually. Children’s accounts could help to insure that all children can attend college if they so choose. Children’s accounts also help promote financial literacy and gives low-income Americans access to the benefits of savings. For these low-income children, it’s a chance to be a part of the American dream. CSA legislation appeals to both conservatives and liberal alike, having been supported in the past by former Congressmen Patrick Kennedy, Rahm Emanuel, and Newt Gingrich and Senators Chris Dodd, Chuck Schumer, and Rick Santorum. The Child Trust Fund in the United KingdomIn 2005, the United Kingdom created the Child Trust Fund (CTF), which was the most developed CSA program in the world. For children born after September 1, 2002, parents of every child born in the U.K. would be given a voucher from the government for up to 250 pounds to be redeemed in a share or cash-based savings account. Low-income families would be eligible for an additional voucher. The government then would make another 250 pound contribution at age 7. All the accounts were tax free. The accounts were frozen until age 18, at which time the child could spend the money as he/she sees fit. The program was a great success. As of November 2009, 4.6 million child trust accounts had been created with over $2 billion pounds saved. Unfortunately, due to drastic budget cuts, the British government announced in 2010 that it would end the CTF in January 2011. While existing accounts would remain open (with no new government contributions), children born after December 2010 would not be eligible for the CTF. CSA Legislation in the United StatesThe U.S. is the only economically developed nation that does not provide any direct monetary support to families with children. The U.S. has the resources to guarantee financial stability for all of its children and yet it is the only such nation that refuses to do so. However, there have been efforts to change that. While ideas for CSAs have been floated for years, the key piece of legislation on CSAs in America is the Americans Savings for Personal Investment, Retirement, and Education Act (the ASPIRE Act). The accounts in this legislation, called KIDS Accounts, would provide an account for every child born in America. Here is an outline of what the most recent version of the ASPIRE Act would include:
The Corporation for Enterprise Development (CFED) estimates that an initial contribution of $1,000 to a CSA at a six percent interest rate would grow to $3,000 by age 18; by adding $50 per month, it would increase to $22,000 by age 18. Former Sen. John Corzine (D-NJ), a supporter of an earlier version of the ASPIRE Act said, “Every American child should grow up knowing that when they reach adulthood, they will have the ability to invest in themselves and in their own education. This proposal will promote savings, enhance financial literacy and help realize the American ideal of equal opportunity.”’ The most recent House version of ASPIRE, H.R.4682, was introduced by Rep. Patrick Kennedy (D-RI-1), along with Reps. Jim Cooper (D-TN-5) and Tom Petri (R-WI-6) in 2010. The Senate version, S.3577 was introduced by Sens. Chuck Schumer (D-NY) and Chris Dodd (D-CT). Unfortunately, neither bill was not acted upon before the 111th Congress adjourned. Other InitiativesSavings for Education, Entrepreneurship, and Down payment Initiative Accounts (SEED) is a program of CFED, the Center for Social Development at Washington University, the University of Kansas School of Social Welfare. The program was a ten-year “national policy, practice and research endeavor to develop, test, inform and promote matched savings accounts and financial education for children and youth.” The SEED accounts were long-term accounts established for children at birth and allowed to accumulate over their lifetime. SEED accounts are opened with a $500 deposit for most program sites. The accounts included a one to one match typically up to $1,000. The savings accumulated in these accounts may be used for funding higher education, the purchase of a home, the start of a small business, or to pay for retirement. Financial education was also a key component of the program. The program was wound down in 2008. Lessons learned from SEED were that CSAs appeal to a bread spectrum of people and families at all income levels can save. However, the results also showed that saving is not easy for everyone and that program design can have a significant impact on the success of CSAs. Additional Resources:RESULTS' 2011 Economic Opportunity Campaign PowerPoint Presentation Asset Building for Children from the Corporation for Enterprise Development (CFED) Children’s Savings Accounts policy paper from the New America Foundation ”Cash on Delivery” article in the Sunday Boston Globe, February 1, 2009. Savings for Education, Entrepreneurship, and Down (SEED) payment Initiative Accounts Building Assets from Birth (PDF) from the Center for Social Development at Washington University |