Lessons Learned from Children’s Savings Account Programs: Tools to Leverage Spending to Facilitate Saving among Low-Income Families
Educators, policymakers, and advocates concerned about persistent achievement gaps, stagnant upward mobility, and college unaffordability are increasingly turning to Children’s Savings Accounts (CSAs) as a policy intervention for catalyzing educational opportunity and greater equity.
While state-run 529 college savings plans largely benefit middle- and upper-income families, these financial instruments can serve as platforms for CSAs in ways that help to more equally distribute the benefits of college savings systems.
Asset accumulation in CSAs can be substantial. For example, some CSA models can help families accumulate as much as $31,483 by the time their child reaches 18, if they start to save at birth, use an investment vehicle such as a 529, and receive transfers and incentives that amplify their savings efforts (here, assuming an initial deposit of $500, annual family savings of $600, and $300 in savings matches).
The provision of CSAs and the supports and features that accompany them results in family savings rates between 8% to 30% for opt-out CSA programs and about 40% to 46% for opt-in CSA programs. While this saving reflects authentic engagement and, often, considerable family sacrifice, CSA programs have been in search of a solution to increase saving.
Combining CSAs with reward card programs may be one way to improve saving outcomes and increase wealth accumulation, particularly among low-income families whose ability to divert resources from consumption to saving is necessarily limited.