Banking on Children and Parents Together

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Can you imagine a child in preschool with her own bank account? How might she feel as she takes a trip to the local bank or credit union branch to make her deposit? Equally important, how can this account not only change her life, but also change the lives of her parents?

Preschool children in Mississippi today and in Colorado later this year will have the chance to build their savings for college through a relatively new product known as a “Children’s Savings Account,” or CSA. CSAs are long-term, matched savings accounts for children that are generally used for higher education, engaging low-income parents and their children in financial education and savings activities. CSAs can serve as a bridge to connect families to financial management and asset-building tools and products. The rapid growth of CSAs has been supported by an influential body of research which illustrates that even modest asset ownership – something as simple as a savings account – can both increase financial security and, perhaps even more importantly, raise the hopes and aspirations of both children and the adults in their lives.

The increasing interest in Children’s Savings Accounts reflects today’s economic reality: while college is indisputably the most secure pathway to economic opportunity, the soaring cost puts it out of reach for too many families. According to the Brookings Institution and the Pew Economic Mobility Project, barely one in three children from the poorest fifth of families enroll in college, and only about one in ten graduates. By comparison, among the wealthiest fifth of families, four in five children go to college and more than half (53 percent) graduate.

It should come as little surprise that Ascend at the Aspen Institute embraced CSAs as a powerful two-generation strategy that engages both children and their parents with products and services that can move families toward opportunity. In particular, the two-generation approach integrates education, economic supports, social capital, and health and well-being to create stability and generate significant financial outcomes for low-income families. This framework also uses CSAs to mobilize savings for education within a social context trusted by low-income families, such as early childhood programs.

It was through the Ascend Fellowship that I had the good fortune to meet Reggie Bicha, the visionary leader of the Colorado Department of Human Services (CDHS), who was in the process of re-inventing the design and delivery of services to align with a two-generation approach. He had already identified the lack of financial literacy programs as a gap in his department’s services when he was introduced to CSAs, and it didn’t take long for him to decide that this was a product that must be brought to Colorado.

Colorado will join several other CSA initiatives launched by local and state policymakers over the last several years. Last year Cuyahoga County, Ohio, home to Cleveland, launched a program that will provide all kindergarteners with college savings accounts seeded with $100 each starting this fall. The Nevada State Treasurer recently started the Nevada College Kick Start Program, which is establishing college savings accounts with $50 for all Nevada public school students enrolled in kindergarten in 2013-2014. These efforts follow in the footsteps of San Francisco’s pioneering Kindergarten to College program, which provides a $50 deposit in a college savings account to every child entering public kindergarten.

The Colorado CSA program will be distinctive in that it will open accounts for students in the state’s public preschool programs, and therefore will be the first statewide initiative in the nation to serve children this young. In the proposed model, a 529 college savings account would be opened and seeded with an initial $50 deposit and each child would be eligible for another $100 per year in savings matches for up to five years. By incorporating the CSA program into the state’s preschool programs, Colorado is including asset building for children in programs that engage their parents. Moreover, CDHS can use CSAs as a “hook” to link parents to a range of other asset-building resources, such as financial education, banking products, credit counseling and free tax preparation assistance. Funding to “seed” and “match” the accounts can come from private and philanthropic sources. For example, CFED recently launched the 1:1 Fund, which raises private dollars for the purpose of matching college savings by lower-income kids through an online platform.

Every five-year-old wants a piggy bank to fill with nickels and dimes that hold the promise of dreams. But for too many low-income children, even filling a toy bank can be a challenge.

Learn more about how to help the youngest students save for a future that includes college and teach them and their parents the benefits of depositing their money in a real bank:

• Read Reggie Bicha and Andrea Levere's answers to key questions from their webinar on CSAs
• Download "Investing in Hope," a brief on the power of children's savings accounts and the Colorado CSA pilot