Can $50 change the trajectory of a child’s life? Los Angeles has invested millions of dollars to launch the largest universal child savings program in California with the hope that it can, a potential that experts say is backed by research.
Last week the city opened more than 40,000 college savings accounts with balances of $50, as part of a plan to give every first-grader in America’s second largest school district an account.
Officials have heralded the program, which follows a similar experiment in San Francisco, as an important step to “help even the playing field” for students and encourage families to save for higher education. Experts say research has shown these programs, even with small amounts of cash, can have a profound impact.
College costs have risen dramatically in recent decades – jumping 169% since 1980 – outpacing families’ ability to pay and putting some off going to university altogether. In California, tens of thousands of those seeking post-secondary degrees face homelessness and food insecurity amid the dual burdens of high tuition fees and a devastating statewide housing shortage.
Los Angeles has said its program will help ensure more students attend college, citing data that students with college savings accounts of as little as $1-$499 are three times more likely to go to university and four times more likely to graduate. Similar programs have yielded promising results, research shows.
CSA (children’s savings accounts) programs have taken off across the US in the last 15 years, said William Elliott, a professor and expert in college savings accounts, college debt and wealth inequality with the University of Michigan. According to a 2020 report, there are more than 100 child savings account programs in 36 states and Washington DC, serving nearly 1 million children.
“Part of the way this is supposed to work theoretically is that it builds this future orientation and thinking about college and having that be a possible future for themselves,” said Terri Friedline, a professor of social work at the University of Michigan, who has researched improving the wellbeing of lower-income households through saving.
The specifics of the programs vary, but generally involve states and cities awarding child savings accounts to children between the ages of birth and kindergarten or first grade, to which they can add savings and eventually access for college. Nevada launched the first statewide program in the US, which set up a college savings account with $50 for every kindergartner attending a public school. In Maine, every baby born after 2013 will automatically have a $500 grant invested for future education costs, while in Pennsylvania every baby born since 2019 is eligible to receive an account with $100.
In Los Angeles, accounts are available to all first-graders regardless of income or immigration status. Officials’ decision to use Citi accounts allows for undocumented families and others to be included, Elliott said. These programs also create systems that allow third-party donors to more easily contribute, he added.
The funding is intended solely for education costs after high school, including two-year or four-year colleges, vocational schools as well as some trade schools. Every account comes with $50 in funding, and families are encouraged to set up regular contributions, which accrue interest over time. Students or parents can request an early withdrawal in the event of a family emergency.
Officials behind the program looked to a similar effort in San Francisco, which introduced the first publicly funded universal children’s savings account program in the US. Since 2011, San Francisco has opened a college savings account with $50 for every kindergartner in city public schools, totaling nearly 50,000 accounts. In that time, 23% of students have put away $6.8m, according to the city’s data.
Research on similar programs showed a correlation between CSAs and increased savings for college as well as more enrollment in four-year colleges.
A study on a program in Boston aimed at seventh- to 10th-graders showed that families with accounts saved about $2,000 more over four to five years than those without, and were more likely to establish monthly contributions. Those findings are impressive for a program that’s not very intensive – that one started with just $50 in each student’s account – said Paco Martorell, an associate professor with the UC Davis school of education.
And the benefits of CSA programs extends beyond their cash value, Elliott said. He pointed to research that shows positive effects on the social emotional development of kids, effects on parental practices – parents are less likely to use spanking – and even reduced maternal depression.
“It’s not because they’re getting money in their hands, it’s more about understanding their kids have better future,” Elliott said, adding that adults who had savings as children are more likely to build other assets, investing in stocks and buying a home.
Some critiques of such programs argue that the immediate needs of low-income people should be addressed before building future assets for children, a criticism Elliott said is misguided.
“What assets give you is tangible hope. It says you have money stuck away that you’ll one day be able to use to go to college. That’s a different kind of hope,” he said. “Nobody wants to toil every day just to be able a find a way to eat – they want to have a stake in their future. That’s what this LA program is about: giving kids a tangible hope.”
Such a program could eventually be rolled out statewide. Gavin Newsom, California’s governor, has introduced a plan to create college savings accounts for 3.7 million low-income children. This comes as the cost of attending a school within the University of California system has continued to rise. Students now pay between $35,000 and $38,000 a year to attend a UC between tuition, transportation and housing.
Amanda Kahn Fried, the chief of policy and communications for the office of the San Francisco treasurer and tax collector, has also said such programs aren’t meant to solve the college affordability crisis but are aspirational.
“It’s very clear to families that the amount you’re saving isn’t what’s important,” she told the LA Times. “It’s that you are taking the action; you’re talking about college with your children. You’re showing them that you believe in them and that the city believes in them.”
Beyond CSA programs, there must be efforts to create systemic change, Friedline at the University of Michigan said.
“We need to take steps to dismantle the systems that have excluded and marginalized poor and black and brown families,” she said.