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Why Kids Savings Accounts Have A Chance in 2011
Posted on 03/31/2011 @ 12:00 PM
Today's blog post comes to us from David L. Kirp. David is a professor at the Goldman School of Public Policy, University of California at Berkeley, and author of Kids First: Five Big Ideas for Transforming Children’s Lives and America’s Future (PublicAffairs 2011). He served on the 2008 Presidential Transition Team.
It’s been a long winter for kids’ issues in Washington, and I’m not talking about the weather. The needs of children, like those of other have-less groups, have taken a back seat to the incessant demand for budget cuts. Thus far, the impact on children has been relatively modest—several modest initiatives to promote literacy are the main victims—but more draconian initiatives lurk. If hard-line Republicans have their way, the budget for Head Start, the signature preschool program for poor children, will be chopped in half. And while the President continues to promote what he calls a bipartisan agenda in k-12 education reforms, he has found few takers on the GOP side of the aisle.
Still, there’s a case to be made that child development accounts (variously called “baby bonds,” “child savings accounts” and “asset-building accounts”) could be one of the few kids policy ideas that gets a decent hearing. While Democrats have the proposal because it improves the life chances of poor children, some Republicans appreciate that it also prepares a new generation of money-conscious capitalists. Both sides have it right: that’s why it has been backed both by Chuck Schumer, the quintessentially liberal New York senator, and Rick Santorum, the arch-conservative ex-Pennsylvania senator and 2012 presidential hopeful.
This isn’t just smart politics—it’s also smart politics of the heart. As I assert in my new book, Kids First: Five Big Ideas for Transforming Children’s Lives and America’s Future (PublicAffairs, 2011), the child development account is a linchpin in a cradle-to-college agenda that has the potential to change children’s lives.
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Readers of this blog are likely familiar with how the kids’ savings account works. As outlined in the ASPIRE Act, regularly introduced in recent years, the plan is for the federal government to fund a $500 stakeholder account for every infant, $1000 for families with below-median incomes. Washington would match—on a one-to-one basis, up to $500 a year—contributions made by the less well-off families. When the trust fund matures, and the child reaches age eighteen, the accumulated funds could go toward higher education or a first home, or else could be socked away for retirement. The price tag of $38 billion over the course of a decade is a big lift, but not necessarily an insurmountable one.
The stakeholder account is a quintessential asset-building approach: a dollar invested today will nearly double in eighteen years. What’s ultimately more important is the fact that owning something of value can change the dynamics of a family and, consequently, the lives of children.
Money in the bank, the research shows, prompts parents to save more and to think more carefully about their children’s future. The account obliges them to play an active part in deciding how to invest the funds, for they are drawn out of self-interest into the world of finance. Evaluations of congressionally-funded pilot projects show that parents’ aspirations for their kids escalate when the savings account is opened. Parents are kids’ prime educators, and their expectations for their children’s future are tied to their assets.
More assets mean higher parental expectations; and in turn, parental expectations have an effect on their youngsters’ grades as well as how they cogitate about the opportunities that might realistically lie ahead. “When assets are present the concept becomes a meaningful schema…people begin to think in terms of assets. Assets are the future,” Washington University professor Michael Sherraden points out in his landmark book, Assets for the Poor.
Many of us regard kids as little hedonists who think only about the pleasures of the moment, yet with the right kind of encouragement they morph into little Puritans. In Sherraden’s evaluation of child development accounts, 1,171 elementary, middle and high school students who were offered a dollar-for-dollar match accumulated more than $1.7 million over three years. That amounts to $1518, nearly $50 a month, for each of the youngsters, with half of the money coming from their own savings and the rest from family members. The fact of having an account boosted their self-esteem and made them more money-smart.
The fourth graders who received accounts were more likely to mention savings as one way to finance college—pretty savvy for a bunch of ten-year-olds—and they scored significantly higher on a financial literacy test. That stands to reason, since with their own savings account to attend to they had something to be literate about.
Will the stakeholder account turn poor families into savers? What happens in Maine, where every newborn now receives a $500 trust fund as a kick-start for higher education, will yield additional useful information. An ongoing random-assignment study in Oklahoma will go a long way toward determining whether the child savings account is as sensible a public investment as it appears to be.
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Important as asset-building is, it’s not enough. Voters know this. Polls commissioned by the Corporation for Enterprise Development show that they understand that the incentive will encourage families to save more, that children’s ambitions will expand and they’ll become more knowledgeable about money. But these voters also understand that good early education is necessary to improve opportunities for youngsters unprepared for school and more financial aid is essential to increase higher education enrollments.
Experts in the field know this as well. A universal child development account “is not a complete and sufficient solution for positive child development and educational attainment,” Michael Sherraden and his colleagues conclude, a caution to the overzealous. “We do think, however, that asset accumulation is a key pathway for individuals, families, and communities to formulate goals and reach their potential.”
Still, the baby bond belongs in the same company as other potential game changers—strong support for parents, high quality early education, good schools linked to their communities, and the helping hand of a mentor—that I go to bat for in Kids First. It coincides with the Golden Rule standard for public policy: Every child deserves what’s good enough for a child you love.
Does legislation patterned after the ASPIRE Act stand a chance in 2011? If—and admittedly it’s a huge “if”—the GOP is to be more than the party of “no,” then the child development account could be their signature kids’ issue because it fits their market-driven philosophy. In a generally bleak policy landscape that’s a ray of hope.
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