Center on Assets, Education, and Inclusion

State 529 plans are tax-preferred vehicles for post-secondary education saving, administered by states, usually through contractual agreements with private financial institutions. In large part, 529s have served to intensify the distributional advantages that already accrue to more economically-privileged households. However, a small, but growing number of states are attempting to transform their 529 programs into Children’s Savings Accounts (CSAs) programs so that they better serve children and families disadvantaged economically and educationally. However, there has been little discussion about what might differentiate a CSA program administered through a 529 from a standard state 529 program. Using the case of Promise Indiana’s 529-based CSA as an example, this paper outlines what we believe to be some of the critical elements of Children’s Savings Accounts and the ways that they may help to change the distributional consequences of our current educational and economic systems, such that they facilitate, rather than frustrate, the aspirations of disadvantaged children. The paper traces the origins and evolutions of Promise Indiana, within a discussion of components of 529-based CSAs, identifies design features that align with Identity-Based Motivation, outlines the rationale for a wealth transfer within CSAs, and shares lessons for replication. The Promise Indiana’s model may be relevant in other parts of the country, particularly as communities consider how to address imperatives related to educational attainment gaps and rising student indebtedness, as well as their implications for upward mobility and broader prosperity.

While we believe that there are significant lessons to be learned from the Canadian experience with education savings programs, as the United States moves towards more comprehensive Children’s Savings Account (CSA) policy, we begin with the perhaps obvious acknowledgement that there are some noticeable differences in the political, educational, and economic contexts of Canada and the United States. For example, in 2011, Canada ranked first in overall post-secondary education (PSE) attainment among OECD countries, with more than 50% of adults ages 25 to 64 having some PSE credentials (Kenney, 2013), while the U.S. ranks 14th, with 42% attainment (OECD, 2012). Perhaps related, economic mobility rates—the likelihood that a child born into poverty will not stay in poverty as an adult—are far higher in Canada than in the U.S. (Corak, 2010). Analysis finds that a son raised in the bottom decile in Canada has about the same chances of reaching the top half of the earnings distribution as a third-decile son in the United States; being Canadian instead of American, then, provides as much of a mobility advantage as being born into a family three times more prosperous (Corak, 2010). Although income inequality is increasing in Canada, the distribution of economic advantage is still far more equitable than in the United States (Corak, 2010). This is transmitted to the PSE arena, as well, where the income attendance gap is smaller than in the U.S. (Belley, Frenette, & Lochner, 2011). Despite these and many other differences, there are enough similarities between the Canadian Education Saving Program (CESP) and, particularly, state-sponsored 529 savings programs in the U.S. that each can still inform the other in important ways.

Harnessing Assets to Build an Economic Mobility System provides new empirical insights that help to explain what so many Americans intuitively grasp, and what U.S. policy debates so studiously ignore: Upward economic mobility and a chance at financial security are slipping beyond the grasp of many households. This report examines the drivers of mobility by distinguishing between standard of living, which is related to consumption and available income, and economic mobility and wellbeing, which require assets in addition to income and fuel multiplier effects. The former is supported by the consumption-based welfare system, including programs such as Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP; formerly food stamps), which is designed to help households exit poverty and consume at a level consistent with a near-poverty level. Upward mobility and wellbeing is advanced by an asset-based welfare system, largely made up of tax credits and deductions that helps more advantaged Americans accumulate assets. By highlighting the significance of assets for achieving economic mobility and true wellbeing, this analysis emphasizes the importance of building policy structures capable of helping households generate assets, not just increase income. The report proposes Economic Mobility Accounts—tax-advantaged savings accounts that help Americans of all income levels save and accrue assets across the life course—as a policy structure that may once again make upward mobility accessible to all Americans.

According to Shapiro, the American Dream “is the promise that those who work equally hard will reap roughly equal rewards” (Shapiro, 2004, p. 87); that is, the American Dream holds that this country is a meritocracy where effort and ability are the primary determinants of success. Institutions provide the economic conditions that make it possible for people to believe that their hard work and ability will determine their success or failure. This task is facilitated by Americans’ strong desire to feel as though their destiny can be controlled and that institutions will ‘echo’ their own contributions, rather than work against them.1 Primed to look for evidence of this ‘effort plus ability equals outcomes’ equation, Americans cling to this ideal, even as it recedes in reality for many. There is no evidence that Americans today are less capable or less committed than in previous generations, in the aggregate. Instead, particularly in today’s highly specialized, technology driven, global world, the upward mobility that animates the American Dream is only possible if effort and ability are combined with institutional might.

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Most people do not dream of going to college and becoming rich; that is, higher education is, for most, a path to the American Dream of middle-class financial security and upward mobility, not a perceived ticket to great riches. Generally, when people dream of being rich, they think of being a professional athlete, an actor, a singer, or entrepreneur, or winning the lottery. People may dream of getting rich, but it is not this illusion of quick fortune that animates individual actions nor characterizes the American ideal. Instead, Americans expect and work toward the opportunity to become middle-class through education, and it is this promise that underscores our vision of ourselves and our presumed ‘contract’ with the institutions that govern U.S. society. In recognition of the role that educational attainment plays in opening the door to this archetypal middle-class ideal, U.S. policy decided some time ago that children’s work would be school work. Children and their parents believe that the reward for innate intellectual ability and expended academic effort will be a chance to reach, not ease and opulence, but security and upward progress. U.S. policy affirms that education is the primary path for achieving the American Dream. Therefore, quick climbs from rags to riches are presumed to be quixotic, fleeting, and not necessarily even desirable. In contrast, the denial of a fair shot to enter and stay in the middle class through education imperils the foundation on which our collective identity rests and threatens to rewrite the American narrative of ‘success’ through effort and ability, mediated through attainment of education.

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The Biannual Report on the Assets and Education Field, Building Expectations, Delivering Results, brings together a wide body of research to demonstrate the potential that CSAs have for transforming the way that students pay for, and prepare for, college. By changing the timing of aid delivery and strengthening household finances in the years leading up to college, an asset-based financial aid system need not cost more than our current system, either. This transformation could, in turn, restore the promise of economic mobility for a generation of talented but disadvantaged young people.

From a Debt-Dependent to an Asset-Based Financial Aid Model Institutional Facilitation and CSA Effects CSAs As An Early Commitment Financial Aid Strategy From Disadvantaged Student to College Graduates: The Role of CSAs How CSAs Facilitate Saving and Asset Accumulation Designing for Success Investing In Our Future Children’s Savings Accounts and a 21st Century Financial Aid System ​Infographics

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Building Expectations, Delivering Results: Asset-Based Financial Aid and The Future of Higher Education

The federally funded Gaining Early Awareness and Readiness for Undergraduate Program (GEAR UP) is one of the most widely known U.S. programs which attempts to increase college enrollment and completion rates among disadvantaged students. GEAR UP has three main aims specifically targeted toward disadvantaged students historically underrepresented in higher education: (1) to increase academic performance and preparation for higher education, (2) to increase the rates of high school graduation and participation in higher education, and (3) to increase students’ and families’ knowledge of higher education options, including academic preparation and financing.

In 2011, an invitational priority was announced by the Department of Education (DOE) that encouraged grant applicants to include financial access and Children’s Savings Accounts (CSAs) in their programming for students and their families. In a September press release, DOE announced 66 new GEAR UP grantees from the 2011 application cycle. Nineteen grantees were state entities and 47 were community-education partnerships.

In 2012, researchers from the Assets and Education Initiative (AEDI) at the University of Kansas launched a multi-method evaluation of 2011 GEAR UP grantees who accepted the invitational priority. AEDI combed through the GEAR UP applications and identified 33 grantees that explicitly stated in their abstracts the intention to open CSAs and/or teach financial education to students and their families. Among these 33 grantees, 25 programs completed AEDI’s initial survey. AEDI selected five programs to participate in a follow-up survey and in-depth interviews and focus groups during on-site visits. The study aimed to answer four primary research questions: (1) How well prepared do GEAR UP programs perceive themselves to be for planning and implementing CSAs? (2) What steps have GEAR UP programs taken to plan and implement CSAs? (3) What obstacles have GEAR UP programs encountered? and (4) What strategies have GEAR UP programs used to overcome obstacles that they encountered?

The federally funded Gaining Early Awareness and Readiness for Undergraduate Program (GEAR UP) is one of the most widely known U.S. programs which attempts to increase college enrollment and completion rates among disadvantaged students. GEAR UP has three main aims specifically targeted toward disadvantaged students historically underrepresented in higher education: (1) to increase academic performance and preparation for higher education, (2) to increase the rates of high school graduation and participation in higher education, and (3) to increase students’ and families’ knowledge of higher education options, including academic preparation and financing.

In 2011, an invitational priority was announced by the Department of Education (DOE) that encouraged grant applicants to include financial access and Children’s Savings Accounts (CSAs) in their programming for students and their families. In a September press release, DOE announced 66 new GEAR UP grantees from the 2011 application cycle. Nineteen grantees were state entities and 47 were community-education partnerships.

In 2012, researchers from the Assets and Education Initiative (AEDI) at the University of Kansas launched a multi-method evaluation of 2011 GEAR UP grantees who accepted the invitational priority. AEDI combed through the GEAR UP applications and identified 33 grantees that explicitly stated in their abstracts the intention to open CSAs and/or teach financial education to students and their families. Among these 33 grantees, 25 programs completed AEDI’s initial survey. AEDI selected five programs to participate in a follow-up survey and in-depth interviews and focus groups during on-site visits. The study aimed to answer four primary research questions: (1) How well prepared do GEAR UP programs perceive themselves to be for planning and implementing CSAs? (2) What steps have GEAR UP programs taken to plan and implement CSAs? (3) What obstacles have GEAR UP programs encountered? and (4) What strategies have GEAR UP programs used to overcome obstacles that they encountered?

Higher education plays a critical role in the U.S. economy, creating a ladder of economic opportunity for American children, especially for those in poverty. However, despite our collective belief in an American dream of equitable opportunities for all, higher education today increasingly reinforces patterns of relative privilege, particularly as students rely more and more on student loans to finance college access. As borrowing reduces the return on a college degree—by failing to support strong educational attainment and by compromising post-graduation financial security— the inequity of our financial aid system is laid bare. By investing in student borrowing to the exclusion of asset-based approaches with the potential to deliver superior outcomes, we jeopardize the legitimacy of the American dream.

Reimagining financial aid to include asset accumulation for those currently disadvantaged has the potential to meet one of our most critical challenges: equipping enough students to succeed in college education to power future societal economic prosperity, at a cost individual students and our collective economy can afford. This report challenges current assumptions about the innocent nature of student loans and proposes asset-based complements that could transform higher education into an institution of equitable opportunity and a foundation of a revitalized America.

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Wealth is increasingly included alongside income for predicting youth’s educational outcomes. However, the natural log and categorical transformations may not always be appropriate for adjusting for skewness given wealth’s unique properties. We introduce an alternative transformation—the inverse hyperbolic sine (IHS)—for simultaneously dealing with skewness and accounting for wealth’s unique properties. We also explore non-linearity and accumulation thresholds by combining IHS transformed wealth with splines. We predict youth's math achievement with two data sources: (1) U.S. households from the Panel Study of Income Dynamics and (2) Ghanaian households from the YouthSave Ghana Experiment. IHS transformed wealth relates to youth’s math achievement similarly when compared to categorical and natural log transformations. In both U.S. and Ghanaian households, we find evidence of non-linearity between wealth and youth’s math achievement. We also find evidence for wealth accumulation thresholds that relate to youth’s math achievement. In an aggregate sample of U.S. households, accumulating zero and negative net worth is significantly related to decreases in youth’s math achievement whereas accumulating moderate values of positive net worth is significantly related to increases in youth’s math achievement. Among black and low-to-moderate income U.S. households, holding net worth sufficient to remain above the poverty line for three months is significantly related to youth’s improved math achievement. In Ghanaian households, accumulating assets between the 25th and 50th percentiles is related to a significant increase in youth’s math achievement.