More voices are starting to promote the idea of statewide or national programs to get children (and families) saving early. Oklahoma and Maine have led the charge to offer child’s savings accounts on a broad scale. In Maine, the Harold Alfond Foundation has offered $500 grants to each child born at Maine General Medical Center in 2008. The program could cost more than $7 million each year, and the Financial Authority of Maine estimates with a $50-per-month deposit, a fund could grow to at least $25,000 by the time a child turns 18.
As part of a seven-year study in Oklahoma starting this year, the Center for Social Development (CSD) at Washington University in St. Louis gave 1,300 infants college savings accounts. Randomly selected, families received $1,000 in state-administered savings plans. Families can then add to the accounts and in some cases receive matching funds from partnering institutions. In theory, families will be more likely to add money to a college account that already exists, and children can see the benefits of saving.
The program is the largest in a national $25 million initiative supported by the Ford Foundation to test the impact of children’s savings accounts on families, while promoting saving and opening the door to education, employment, and homeownership later in life. Similar programs are being piloted in a dozen other communities throughout the country, including Chicago, St. Louis, Philadelphia and Austin.
Michael Sherraden, founder and director of St. Louis’s CSD, would like every baby in the country to receive a tax-advantaged savings account, and he’s not the only one who thinks it’s a good idea.
San Francisco Mayor Gavin Newsom has proposed giving every child born in the city with a $500 Baby Savings Bond. The money, which would earn interest over time, would be available when the student graduates from high school, to be used for college costs or towards a first home. Many states, including California and other nations have either proposed or enacted child savings accounts at birth. These include the U.K., Canada, Singapore, Mongolia, and Hungary.
At the national level, several proposals—offered by Democrats and Republicans alike—have been crafted to create a universal child savings account. In 2007 a bipartisan coalition introduced the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act which would set up a “KIDS Account” at birth for every child in America which they can later use to pursue post-secondary education, buy their first home, or build up a nest-egg for retirement.
“There couldn’t be a better time to re-establish a savings culture in America,” said Ray Boshara, vice president and director of the New America Foundation’s Asset Building Program. “With a negative personal savings rate two years in a row, and one in seven Americans now dealing with a debt collector, we need to put every child – and especially the 39 percent of kids who grow up in homes with no assets – on a path of lifetime savings and wealth accumulation.”
The ASPIRE Act called for each child’s KIDS Account to be endowed with a one-time $500 contribution at birth. Children living in households with incomes below national median income will be eligible for both a supplemental contribution of up to $500 at birth as well as the opportunity to earn $500 per year in matching funds for amounts saved in the account. Financial education would be offered in conjunction with the accounts, which later can be used to pay for post-secondary education, a first home, or retirement.
In the absence of such paradigm-shifting legislation, local communities have started filling in the gaps. Banks across the country have already pushed the trend of children’s savings in their own communities. At Affinity Bank in California, Kids Only Savings accounts offer a 10 percent APY on all balances up to $500. The minimum deposit is $1. It’s a an idea growing more popular across the country.
The Denver-based Young Americans Bank, the only bank in the world designed for those 21 and younger, targets youth out of principle. The founder of the bank, Bill Daniels, wanted to help develop better savings, budgeting, and decision-making habits in youth, and the nonprofit bank has focused solely on that clientele since its launch in 1987.
“He felt that our financial system was part of the ability to achieve the American dream, and so few people understand how it works,” said Richard Martinez, senior vice president of Young Americans. “That’s our mission every day—whether they be youth from a wealthy background or a modest background, everybody has to learn to work with money.”
Young Americans Bank, a for-profit FDIC-insured institution, is under the umbrella of the nonprofit Young Americans Center for Financial Education. The bank has clients in all 50 states and opens approximately 2,500 accounts each year and closes about the same number (as current clients reach age 22), maintaining a fairly constant 15,000 accounts. But those 15,000 accounts add up to just shy of $14 million in total assets. The difference comes down to the bank’s focus—85 to 90 percent of accounts are low balance savings accounts and CDs, with checking making up the remaining percentage.
Dean Bank in Franklin, Mass., with $217 million in assets, has a full-service branch in a local vocational high school and an elementary school savings program with more than a dozen elementary schools where parent volunteers work with 3,000 children to encourage good savings habits. The bank sponsors contests, raffles, and frequently passes out pencils or stickers or bookmarkers to up the ante on kids’ interest.
“These aren’t money makers,” President Wayne Cottle says, “but it’s nice having 3,000 kids growing up thinking of us as their bank.”
