How can all children see a future? The Ferguson Commission recommends child development accounts.
Child development accounts are nest eggs, or investment accounts, for long-term goals like postsecondary education. CDAs are progressive, “seeded” with an initial deposit of $50 to $500, and put in extra for the poorest children. The accounts are universal. Every child is included. Children, parents and others can contribute.
There are many benefits. With interest and new savings, these accounts grow over time. Companies and governments can set up savings matches and other incentives. For children and their families, the accounts are learning opportunities. All participants have a stake in good financial management.
In communities near Ferguson, CDAs are taking root. Next door, the 24:1 Initiative — organized by Beyond Housing in partnership with 21 small municipalities and the Normandy School District — has opened a Promise Account for every child entering public school kindergarten. In the city of St. Louis, the treasurer’s office recently announced College Kids, a program that will deposit $50 in the accounts of all public school kindergarten children, funded in part with revenue from parking meters.
Farther away, in the states of Maine, Nevada and Connecticut, thousands of children have child development accounts. The first universal, statewide program in the nation, the Harold Alfond College Challenge in Maine, automatically deposits $500 for every newborn. To date, 40,000 Maine children have received an account. In Nevada, the College Kick Start program opened accounts with $50 for about 70,000 public school kindergarten students. Last year, Connecticut enacted legislation offering an initial deposit in CDAs for resident children.
Do these initiatives work? In the SEED for Oklahoma Kids experiment, the Center for Social Development at Washington University in St. Louis created a rigorous test of universal child development accounts to find. In SEED OK, children were randomly assigned to receive an account or not.
Findings reveal positive outcomes. For example, having a CDA with assets improves mothers’ mental health, raises mothers’ educational expectations for their children, and even boosts child development.
Interestingly, in the early years, the amount of savings is not the most important factor. Instead, having an account with assets seems to change parents’ outlook and behavior. As one mother told us when her child was about 2 years old, the SEED OK account “gives me a sense of security, a little bit of relief that something has begun, you know, and hopefully very soon I’ll be able to add to that.”
As Maine and other states have demonstrated, child development accounts can be set up as 529 college savings plans, taking advantage of already built financial infrastructure that was designed to help families save for postsecondary education. This is infrastructure, like an interstate highway, only not everyone is as yet driving toward the future with a 529 plan.
All children, not just the advantaged, can be on the road to college. Child development accounts provide an initial, automatic deposit (with an opportunity to “opt out”). Savings incentives can encourage and reward individual deposits.
The plans also have growth potential. Since deposits in child development accounts begin early, there are many years to take advantage of market gains. For example, between 2008 and 2014, Maine’s plan yielded a 25 percent gain, despite market declines in 2008-09.
By creating and expanding child development account programs, Ferguson can join other communities and states around the nation that recognize that investing in the future of our youngest citizens has the potential for large social and economic payoffs.
These initiatives work. Child development accounts help build stable families and communities, where every resident, including the very poorest and the very youngest, and completely regardless of race or ethnicity, has a stake in the future.
Michael Sherraden is a professor and founding director of the Center for Social Development at Washington University in St. Louis. Jason Q. Purnell is assistant professor at the Brown School at Washington University in St. Louis, and a leader of "For the Sake of All," a multidisciplinary study on the health and well-being of African-Americans in St. Louis.