Financial education sans opportunities for hands-on experience and knowledge operationalization may be insufficient for promoting healthy financial behaviors. Financial capability combines financial education with financial inclusion via a savings account, thereby giving an opportunity translate knowledge into practice. This study used data from the 2012 National Financial Capability Study to examine relationships between financial capability and financial behaviors of United States Millennials (N = 6,865). Compared to their financially excluded peers, Millennials who were financially capable were 176% more likely to afford unexpected expenses, 224% more likely to save for emergencies, 21% less likely to use alternative financial services, and 30% less likely to carry burdensome debt. Interventions that focus solely on financial education or inclusion may be insufficient for facilitating Millennials’ healthy financial behaviors; interventions should instead develop financial capability.
This study, generously funded by the FINRA Investor Education Foundation, examined the financial health and capability of Millennial young adults between the ages of 18 and 34 (N = 6,865) from the 2012 National Financial Capability Study (NFCS). In particular, this study explored how varying combinations of financial education and financial inclusion related to Millennials' financial behaviors, like saving for emergencies, using alter-native financial service providers, and carrying debt. The 2012 NFCS is one of the few data sets with extensive questions about financial behaviors. The results identifying significant differences in the data were based on multiply imputed and propensity score weighted (average treatment effect for the treated; ATT) regression analyses of young adults in the sample
Friedline, T., & West, S. (2015). Financial education is not enough (AEDI Research Brief). Lawrence, KS: University of Kansas, Center for Assets, Education, and Inclusion.
The dismantling of the American social contract is jeopardizing the economic security and mobility of today's young people and that of future generations. The labor market no longer delivers on its promises of adequate compensation. Higher education, itself pruning opportunity by expecting young people to borrow heavily for its privilege, now has outsized importance for realizing the labor market’s potential. Young people are increasingly born into opportunity that determines whether and how they can take advantage of these institutions and the opportunities they offer. This paper makes a case for financial inclusion as part of a new American social contract. Like owning stock in a company, financial inclusion may be one way of giving young people a stake within these institutions and affirming these institutions' commitments to their roles in the social contract. Children's Savings Accounts (CSAs) are presented as a way of beginning to deliver financial inclusion and create and shore up a new American social contract—one that can sustain future generations and the United States economy into the 22nd century.
Wittman, L., & Scanlon, E. (in press). From Helena to Harlem: Barriers to saving at two SEED sites. Journal of Community Practice.
Research suggests that Children’s Savings Accounts (CSAs) may be capable of charting improved opportunities for children’s success through the mechanisms of account ownership and transformative asset accumulation. Fueled in large part by evidence of significant effects on children’s educational attainment and economic well-being, the CSA field has experienced rapid growth, with programs and policies proliferating around the country. The accounts that form the core intervention within these CSA initiatives are delivered through two principal delivery systems: traditional depository institutions (banks and credit unions), relied on primarily by local and community-based efforts, and state-sponsored 529 college saving plans, the vehicle of choice for most state-level CSAs. At this point in the CSA trajectory, individual programs and the field as a whole face critical questions about the best ways to build CSAs, in order to maximize their potential for potent effects while facilitating sustainable replication.
This paper, jointly produced by the Center on Assets, Education, and Inclusion (AEDI) at the University of Kansas and the Federal Reserve Bank of Boston, was informed by a roundtable on CSA delivery systems, held at the Boston Fed in December 2014. It describes the design, key features, and respective challenges of each principal delivery system. Assessed in light of the CSA field’s guiding principles for delivery system design (universal and automatic enrollment, national footprint, cultivation of a saver identity, asset-building, administrative efficiency, and adequate consumer protection), these models have distinct advantages and limitations. This paper attempts to contribute to the critical task of building the knowledge base needed to help children’s savings programs begin to weigh the pros and cons of each of these existing delivery systems.
Friedline, T., Despard, M., & Chowa, G. (2015). Preventive policy strategy for banking the unbanked: Savings accounts for teenagers? Journal of Poverty.
Debt is an important component of young Americans’ balance sheets, in part because the effects of different types of debt can vary widely: while some types of debt can contribute to lifetime economic mobility, other types can drain resources. This paper used data from the 1996 Survey of Income and Program Participation to consider the role that a savings account might play in the use of secured and unsecured debt by young adult households. While a savings account was related to more accumulated debt overall, the type of debt accumulated was less risky and potentially more productive. Owning a savings account was associated with a 15% increase, or $7,500, in the value of secured debt and a 14% decrease, or $581, in the value of unsecured debt. Thus, a savings account may help young adults “invest in their debt” by entering better, healthier credit markets and protecting them from riskier ones.
This study, generously funded by the FINRA Investor Education Foundation, examined the financial health and capability of Millennial young adults between the ages of 18 and 34 (N = 6,865) from the 2012 National Financial Capability Study (NFCS). In particular, this study explored how varying combinations of financial education and financial inclusion related to Millennials' financial behaviors, like saving for emergencies, using alternative financial service providers, and carrying debt. The 2012 NFCS is one of the few data sets with extensive questions about financial behaviors. The results identifying significant differences in the data were based on multiply imputed and propensity score weighted (average treatment effect for the treated; ATT) regression analyses of young adults in the sample.
Friedline, T., & West, S. (2015). The landscape of Millennials’ financial capability (AEDI Research Brief). Lawrence, KS: University of Kan-sas, Center for Assets, Education, and Inclusion.
The effects of different types of debt can vary widely: some debt is considered productive by advancing young adult households' financial health while other debt can be unproductive, pushing their financial health out of reach. A savings account may help young adult households reduce their reliance on unproductive debt and increase their access to productive debt that can facilitate wealth building and economic mobility. This study tests the association between a savings account and debt in the lives American young adults during periods of macroeconomic stability and decline. Owning a savings account in 1996 is associated with a 14% decrease ($844) in young adult households’ accumulated unsecured debt, while closing an account in 2008 is associated with a 12% increase ($1,320) in this type of debt. Overall, a savings account may help young adults “invest in their debt” by entering better, healthier credit markets and protecting them from riskier ones—especially during bad economic times. Policy interventions are needed that increase access to savings accounts and help young adult households to use debt productively.
Friedline, T., & Freeman, A. (2015). The potential for savings accounts to protect young adult households from unsecured debt in periods of macroeconomic stability and decline (AEDI Research Brief). Lawrence, KS: University of Kansas, Center on Assets, Education, and Inclusion.
Elliott, W. and Lewis, M. (2015). The Real College Debt Crisis: How Student Borrowing Threatens Financial Well-Being and Erodes the American Dream. Broomfield, CO: Praeger.
Rauscher, E. and Elliott, W. (2015). The relationship between income and net worth in the U.S.A: Virtuous cycle for high but not low income households. Journal of Poverty
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.
Building on evidence of increasing inequality with the 2008–2009 recession, we asked whether households experienced different financial trajectories through the recession depending on initial income and net worth. Using growth curve models of households headed by young adults in the Panel Study of Income Dynamics, we compared the relationship between initial income and net worth and the rate of change of income and net worth from 1989 to 2011 among households with income above and below $50,000. We found different patterns of income change and different relationships among income, net worth, and their rates of change between high- and low-income categories. Results suggest initial wealth helped to stabilize income and wealth changes among higher income households, reducing financial insecurity.
Rauscher, E. and Elliott, W. (2015). Wealth as security: Growth curve analyses of household income and net worth during a recession. Journal of Family and Economic Issues, March.
Student loan balances climbed to $1.2 trillion at the end of 2014, and delinquencies are rising even as they fall for most other types of debt. In fact, students with the smallest balances are most likely to default. Judy Woodruff learns more from Megan McClean of the National Association of Student Financial Aid Administrators and William Elliott of the University of Kansas.
The current young adult generation is expected to lead a resurgence in entrepreneurial activities in the United States and these activities are expected to drive economic growth in the coming years. However, young adults may find it difficult to fulfill the expectations of becoming entrepreneurs and drivers of economic growth. This is because entrepreneurial opportunities are typically reserved for the wealthiest and most privileged Americans who have the financial resources needed to invest in starting small businesses, such as savings and access to credit. In contrast, young adults have not had much time to save money, build credit, or accumulate wealth. Moreover, given historic wealth inequalities rooted in racism and discrimination, young adults from racial and ethnic minority groups may be left out of the entrepreneurial resurgence and its economic benefits. This study analyzes nationally representative, longitudinal data to addresses the questions of whether young adults' wealth can support their entrepreneurial activities by becoming self-employed and whether black and Latino/a young adults leverage their wealth differently to support their entrepreneurial activities. Generally, the probability of being selfemployed;increases for all young adults as they accumulate wealth. However, wealth may play an outsized role in the self-employment of black and Latino/a young adults. Black and Latino/a young adults may not be able to rely on taking out a small loan at a bank or credit union in order to open their business; instead, they may be forced to use their own limited wealth for pursuing entrepreneurship. Policies are needed that support wealth accumulation (particularly for racial and ethnic minorities), remove discriminatory lending practices, and provide young entrepreneurs with access to credit.
Friedline, T., & West, S. (2015). Young adults' race, wealth, and entrepreneurship (AEDI Research Brief). Lawrence, KS: University of Kansas, Center on Assets, Education, and Inclusion.
This study explored relationships among young adults’ wealth and entrepreneurial activities with emphasis on how these relationships differ among racial and ethnic groups. Using data (N = 8,984) from the 1997 National Longitudinal Survey of Youth, results indicate that being Black or Latino/a, as well as liquid asset holdings and net worth, were significantly related to the likelihood of self-employment. In analyses disaggregated by race or ethnicity, greater liquid asset holdings were associated with the decreased likelihood of self-employment among white young adults. Black young adults’ greater debt and net worth were associated with increased likelihoods of entrepreneurial activity. Among Latino/a young adults, greater liquid asset holdings and net worth were associated with increased likelihoods of self-employment. Wealth may play an outsized role in the self-employment of black and Latino/a young adults compared to that of their white counterparts. Racial and ethnic minority young adults may have a heavier burden for generating their own capital to embark on entrepreneurial activities when mainstream credit markets are unresponsive or inaccessible. Policy implications are discussed.
Friedline, T., & West, S. (2015). Young adults' race, wealth, and entrepreneurship. Lawrence, KS: University of Kansas, Center on Assets, Education, and Inclusion.
Although some racial inequalities have lessened in the half-century since the passage of the first major civil rights legislation, the racial wealth gap remains and in recent years seems to be widening. Households with children are the least likely to be asset secure or have sufficient resources to enable investment in opportunities for mobility. Viewing inequality from this perspective indicates that what households are able to save and invest for the future might have a more lasting impact on the life chances of children than their current income and consumption. Summarizing data from the Saving for Education, Entrepreneurship, and Downpayment (SEED) Initiative, a quasi-experimental study that is part of a national demonstration of Child Development Accounts (CDAs) in the United States, this paper describes how African-American households engage with one important investment opportunity - college savings accounts for their pre-school children. Combining account monitoring, survey, interview and focus group data, we explore the reasons that many households chose not to open accounts or invest their own money. We offer suggestions for making asset development programs viable for low-income African-American families and their children.
Shanks, T., Nicoll, K., & Johnson, T. (2014). Assets and African Americans: Attempting to capitalize on hopes for children through college savings accounts. The Review of Black Political Economy, 41 (3) 337-356.
Elliott, W. and Lewis, M. (2014). Child development accounts (CDAs). The Encyclopedia of Social Work.
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.
Lewis, M. and Elliott, W. (2014). Lessons to learn: Canadian insights for U.S. children’s savings account (CSA) policy. Lawrence, KS: Assets and Education Initiative (AEDI).
Friedline, T. (2014). Extending savings accounts to young people: Lessons from two decades of theory and research and implications for policy. In R. Cramer & T. Williams Shanks (Eds.), The assets perspective: The rise of asset building and its impacts on social policy (pp. 203–223). New York, NY: Palgrave MacMillan.
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.
Elliott, W. and Lewis, M. (2014). Harnessing Assets to Build an Economic Mobility System: Reimagining the American Welfare System. Lawrence, KS: Assets and Education Initiative (AEDI).