Children's Savings Initiatives

The field of children’s savings is growing quickly. Many new initiatives are currently in development to significantly expand the number of children and youth participating in savings programs.

This emergent marketplace has been largely built on the lessons learned and information gathered during the first national demonstration of Children’s Development Accounts (CDAs), known as SEED.

What was SEED?

The Saving for Education, Entrepreneurship, and Downpayment (SEED) Policy and Practice Initiative was a 10-year national policy, practice and research endeavor that developed, tested, and implemented matched savings accounts and financial education for children and youth. SEED set the stage for universal, progressive American policy for asset building among children, youth and families. The initiative brought together national and community partners to design, administer, and document specific aspects of children’s savings programs.

At the 12 community-based demonstration sites, young savers received an account with an initial deposit ($500 at most sites), a 1:1 match on deposits (typically up to a cap of $1,000), and “benchmark” incentive payments for engaging in specific activities, such as financial education, that reinforced savings or led to positive behaviors. Account uses were restricted to postsecondary education, home purchase, business start-up and retirement, though in practice most sites focused on saving for postsecondary education. Learn more about SEED accounts and how they worked.

Key Lessons from SEED

1. Children’s Development Accounts (CDAs) appeal broadly to Americans across political and geographic lines.
   A national telephone survey¹ suggests that no matter their political ideology or geographic location, Americans like the idea of universal CDAs. Specifically, those polled support a saving account opened at birth for every child in the nation to be used for approved purposes. They also support accounts with an initial deposit made by the federal government that permits additional contributions and incentives for saving, and is allowed to grow tax-free. Close to seven out of every ten respondents (69%) – and more than three-quarters of parents (78%) – articulate support for this idea.

1. Families of all income levels can save.
   Despite high levels of poverty and limited financial knowledge, a significant percentage of SEED participants made deposits to their accounts. Participants saved an average of $30 per quarter over the course of the program. At the end of almost three years, the average total accumulation, including incentives, for SEED participants was $1,500². While levels of saving may seem modest, the average accumulation of $1,500 is sufficient to cover 60% of one year’s tuition at a community college. If these averages were to be maintained from birth to age 18 with modest returns, the nest egg for college would likely exceed $6,500 – enough to cover three years of community college tuition and fees.
2. Saving is not easy, especially for lower-income families.
   While many SEED accountholders did save, it was by no means easy. Economic barriers to asset accumulation were prevalent among families participating in SEED. Almost half of SEED participants are from families with income below the federal poverty line, 10% from families that receive Temporary Assistance for Needy Families (TANF), and 41% from families that receive assistance through the Supplemental Nutrition Assistance Program (SNAP). Many parents who participated in focus groups noted that their income was sufficient to cover household expenses but nothing more³. Low-income families may find it difficult to save because of a variety of factors, including low incomes, high costs of food and energy, long-term goals competing with short-term needs, predatory lending and excessive credit, complicated financial products, and inaccessible financial institutions. ^{4 5 6}
3. Program and account design can have important effects on saving.
   SEED account design and program arrangements – “institutional” features – appear to facilitate savings for participants, especially those with very low incomes. Findings from 14 focus groups with parents from SEED programs serving preschool through middle-school children suggest that account features that made money less immediately accessible, such as withdrawal restrictions, facilitated savings. While some parents were unaware or skeptical of electronic banking mechanisms, a number of SEED parents used direct deposit successfully to save in their children’s accounts.