FROM INDEBTEDNESS TO ASSET BUILDING: CHILDREN’S SAVINGS ACCOUNTS AS AN ALTERNATIVE TO STUDENT LOANS Children’s Savings Accounts (CSAs) are...
FROM INDEBTEDNESS TO ASSET BUILDING: CHILDREN’S SAVINGS ACCOUNTS AS AN ALTERNATIVE TO STUDENT LOANS Children’s Savings Accounts (CSAs) are savings vehicles, most commonly designed for higher education savings, that often incorporate specific incentives and explicit structures to encourage savings by disadvantaged youth and families who otherwise may not have equitable access to financial institutions. While they have specifically designed features for encouraging saving among disadvantaged youth and families,
they are meant to be universal programs that serve all young people. Unlike basic savings accounts, CSAs leverage investments by individuals, families, and, sometimes, third parties. Ideally these investments are leveraged with an initial deposit and/or matching funds adding public or philanthropic dollars to families’ savings, usually on a ratio ranging from 1:1-5:1, in order to extend meaningful incentives for saving and support for building balances to low-income savers, as are already available to higher-income households through tax benefits. CSAs Do More than Help Children Pay for College When thinking about the role CSAs may play in increasing college enrollment and completion rates, researchers, practitioners, and policymakers tend to focus on the interventions’ ability to help children pay for college.
That is too narrow a frame through which to evaluate their effects, though, given the accumulated disparities that drive whether children even reach the point of college enrollment. It was not until the last 10 years that researchers began examining the effectiveness of CSAs in improving children’s educational outcomes and changing the way they think about college. The emerging research (for a review of this research see Assets and Education Initiative, 2013) linking asset development with children’s academic achievement and college preparation suggests that CSAs may be a valuable tool for addressing long-term barriers to closing the college attainment gap as well as inadequate financial resources for college. EVIDENCE OF THE EFFECTS OF CSAS Growing interest in CSAs in the early 2000s led to the first national test through the Saving for Education,
Entrepreneurship, and Downpayment (SEED) initiative. Begun in 2003, SEED was a 4-year demonstration project, in which over 1,300 low-income children and youth in 12 locations across the country received matched savings accounts and financial education. The SEED for Oklahoma Kids (SEED OK) research experiment tests the effects of CSAs opened at birth in a full population.2 In the first rigorous U.S. research on the principles of universal CSA access and automatic account opening, the SEED OK experimental sample was drawn randomly from birth records provided by the Oklahoma State Department of Health for all infants born during certain periods in 2007 (Treatment n = 1,358; Control n = 1,346). By combining random selection from a full population of births, random assignment, and longitudinal data collection,
SEED OK is well-positioned to answer key questions about effectiveness of universal and progressive CSAs for a general population (Nam, Kim, Clancy, Zager, & Sherraden, 2013). Before College The link between social-emotional well-being and academic achievement has been rigorously tested with strong support. For example, Durlak, Weissberg, Dymnicki, Tyalor and Schellinger (2011) conducted a meta-analysis of 213 school-based, universal social and emotional learning (SEL) programs involving 270,034 kindergarten through high school students. Employing an experimental randomized design, SEL participants, compared to controls, demonstrated significantly improved social and emotional skills, attitudes, behavior, and academic performance that reflected an 11 percentile-point gain in achievement.
This is important for building a link between experimental data from SEED OK and children’s long-term educational outcomes. SEED OK’s experimental test of CSAs finds no significant differences at baseline and a significant impact on children’s socio-emotional skills at age four, particularly for children from relatively disadvantaged households.3 That is, infants from households with incomes lower than 200 percent of the poverty line who were randomly assigned to receive the CSAs plus $1,000 demonstrated significantly higher socialemotional skills at age four than their counterparts who did not receive a CSA (weighted mean treatment-control difference [a negative difference indicates a positive outcome on the measure], -2.21; 90% CI, -4.01 to -0.42; p = .04) (Huang et al., 2014)
.4 Attrition (18%) was low and did not differ across treatment and control groups. According to Huang et al. (2014), the effect of the SEED OK CSA is similar in size to estimates of the effect of the Head Start program on early social-emotional development.5 CSAs also have a positive impact on mothers’ depressive symptoms, and social-emotional well-being of children appears to mediate these effects (Huang, Sherraden, & Purnell, 2014). In regards to the first study on children’s social-emotional well-being and the second on mothers’ depressive symptoms, importantly, CSAs have a greater impact among subsamples that report lower income or lower education levels. Findings from the SEED OK experiment with young (about age four) children that are consistent with theory and research developed and tested using secondary data among older children give us additional confidence in the secondary data findings discussed here.
Theory and research developed using secondary data sets suggest that, by turning college into an important and achievable goal and giving students and families a clear strategy for overcoming cost barriers, CSAs may increase the likelihood of college enrollment (Assets and Education Initiative, 2013). In line with this, researchers find an association between having savings designated for college and college enrollment. For example, Elliott, Song, & Nam (2013) find that 45 percent of students from low- and moderateincome families (annual incomes below $50,000) with no savings accounts enroll in college. That compares to 65 percent with school savings from $1 to $499 and 72 percent of students with school savings of over $500. Research suggests that these effects likely occur largely through reinforcing a college-bound identity that increases student engagement and builds parents’ expectations of higher education throughout a student’s academic career (for a review of these and other findings see, Assets and Education Initiative, 2013; Oyserman, 2013).
During College In contrast to high-dollar student loans, which show some negative effects on college graduation, evidence suggests that college savings may improve a student’s chances of persisting through graduation. The results are encouraging, though not yet definitive: five percent of low- and moderate-income (below $50,000) students with no account, 25 percent who have school savings from $1 to $499, and 33 percent of students who have school savings of $500 or more graduate from college (Elliott, Song, & Nam, 2013; for a review of research, Assets and Education Initiative, 2013). There are several ways in which this relationship may unfold, all of which require additional study. Students who come to college with assets to spend may be less worried about financial considerations and the stress of taking on expensive debt, allowing them to focus on their studies. The psychological effects of asset holding,
including increasing students’ sense of ownership of their educational experience, may qualitatively shift how they engage in class. The way that assets affect students’ expectations and preparation for college may better position them for success. After College Getting through college is not the ultimate aim of higher education, however. If college completion is to be the potent tool for economic mobility that it is imagined to be, it should facilitate meaningful improvements in financial wellbeing, positioning children for greater success in life.
Here, too, assets appear to improve the return on investment. By instilling habits of savings, reducing the long-term cost of financing, and connecting young adults to financial institutions, asset holdings, uniquely among college financing options, show promise for improving graduates’ financial status following college completion. In addition to the positive financial effects of reducing dependence on student loans (Elliott, Lewis, Nam, & Grinstein-Weiss, 2014), children who have savings accounts while they are young maybe more likely to own savings accounts as young adults, have more diversified asset holdings,
and accumulate higher net worth (Friedline & Elliott, 2013). These outcomes, of course, are in addition to the spillover effects of improved educational outcomes, which may, in turn, improve employment prospects and lifelong earning potential. And, given the potential connection between initial asset levels and the subsequent ability for income to generate more assets and additional income (Elliott & Lewis, 2014), young adults who leave college with at least some asset ownership may initiate a trajectory of superior earning and asset accumulation.
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