Child Development Accounts: Lessons for Policy Design

Transcription

1 Child Development Accounts: Lessons for Policy Design Michael Sherraden, PhD Youngdahl Professor of Social Development Director, Center for Social Development George Warren Brown School of Social Work Washington University in St. Louis European Commission Brussels, September 2013

2 Child Development Accounts (CDAs) Child Development Accounts are saving and asset building accounts, usually initiated by public policy. Ideally, CDAs are lifelong (begin at birth), universal (available to all), and progressive (greater subsidies for the poorest children). (policy concept in Sherraden, 1991)

3 Ideal Strategy for Asset Building: Begin Early in Life with CDAs Child Development Accounts (CDAs): Endow children with savings at birth Long-term accumulation Build foundation of a lifelong stability and development (review of CDA policies by Loke & Sherraden, 2009)

4 Examples of Child Development Accounts: A Beginning for Lifelong Accounts Singapore s Baby Bonus and CDAs United Kingdom s Child Trust Fund Korea s Child Development Accounts Canada s several CDA policies YouthSave demonstration in developing countries

5 Singapore s Universal and Comprehensive Child Accounts Baby Bonus : S$4,000 each for first and second children, and S$6,000 each for third and fourth children Additional matched saving into Child Development Account: One-to-one match on as much as S$18,000 Edusave Account for children ages 6 to 16: S$4,000 for enrichment (tutoring, lessons, etc.) Post-Secondary Education Account ages 7 to 20: One-to-one match on as much as S$12, Theme is human capital development from early in life

6 United Kingdom s Universal and Progressive Child Trust Fund (CTF) Proposed by Tony Blair in 2001, established 2005 (CSD advised extensively) Universal and progressive accounts at birth Funds restricted until age 18, then no restrictions on use Worked well over first five years But coalition government suspended payments to CTF in 2010 budget cutting agenda

7 Korea s Child Development Accounts CDAs targeting lower half of income distribution, began in 2007 Matched savings, one-to-one, to be used for education Began with all child welfare population, now working very well (using private sector donors) Conservative government kept policy, but postponed further expansion of CDAs...

8 YouthSave in Developing Countries CSD now in major project to test savings accounts for lowincome youth, funded by MasterCard Foundation In Colombia, Ghana, Kenya, and Nepal Partners are Save the Children, CGAP, and New America Foundation Multi-method, long-term research Includes a long-term experiment in Ghana (N=6000)

9 CDAs in USA: Asset Building for Education CDA policies are focused on asset building for child development, education, lifelong well-being. Saving behavior matters for CDAs, but this is not the primary focus. Psychological and behavioral effects may include hope, control, future orientation, effort (e.g., Elliott & Beverly, 2011). By design, CDA policies can be very paternalistic, with automatic enrollment, restrictions on access until a certain age, and restrictions on use.

10 Policy Potential: Child Development Accounts (CDAs) in the United States Average children s allowance in Western Europe is 1.8% of GDP. US has no children s allowance. (Curley & Sherraden, 2001) Even 0.1% of US GDP would be enough for a $3,000 start in life account for every newborn. Many different proposals have been in the US Congress for CDAs. Often bipartisan legislation, has broad public appeal.

11 CDAs Have Bipartisan Support SEED OK families meet with Oklahoma Governor Brad Henry and Treasurer Scott Meachum. Politicians in both parties support Child Development Accounts.

12 CDAs at Birth in Maine: Harold Alfond College Challenge Every Maine resident child is eligible to receive the $500 grant within one year from birth. Begun statewide in 2009, the first group s program enrollment rate is approximately 39%. Analysis suggests that financial sophistication owning other investments, having a financial advisor, and especially parent s education may be related to early enrollment. When controlling for other variables, income is not associated with early enrollment. (Huang, Beverly, Clancy, Lassar, & Sherraden, 2013)

13 Policy Test of Universal & Progressive CDAs: SEED for Oklahoma Kids (SEED OK) Policy and research initiative designed to test the idea of universal, progressive accounts, lifelong asset building SEED research is multi-method: Experiment, Account Monitoring, and In-depth Interviews Oklahoma selected for the SEED OK experiment through competitive process

14 SEED OK Policy Research An experiment with random sample of newborns from a statewide population Oversamples of African Americans, Latinos, and American Indians Random assignment to treatment group (n=1,358) and control group (n=1,346) Integrated into an existing policy structure the Oklahoma College Savings Plan, or OK 529

15 SEED OK Demonstration in USA Experiment: SEED OK treatment is account at birth, with $1,000 initial deposit, and matched savings for lower income families. Experiment implemented successfully with good randomization Initial finding in experiment: Automatic account opening (or opt out ) is highly successful only 1 out of 1361 treatment families declined the account in SEED OK. (Nam, Kim, Zager, Clancy & Sherraden, 2013)

16 Summary: SEED OK 529 Account Holding 529 account holding: 99.9% for treatments vs. 2.3% for controls, and 16.4% of participants have their own account: Large impacts. Compare to 62% take up and retention of 529 account in another SEED impact assessment, with $800 initial deposit, but requiring sign up (Marks et al, 2009). Compare to 3.8% of Oklahoma households with children up to age 18 holding any OK 529 account (State Treasurer, 2011). SEED OK evidence suggests that automatic enrollment in a 529 plan can create universal accounts.

17 Interview Findings: Value in Automatically-opened Accounts Mothers indicate that the automatically-opened account helps to: Reduce negative attitudes about financial institutions Increase knowledge of some financial products and services Increase their expectations for child s education Increase motivation to save Increase security about their child s future

18 Policy Lessons from Asset Building Research Overall, program and account characteristics appear to be more important than individual characteristics in explaining savings outcomes. Research identifies program and account features that are likely to be most effective. This suggests a positive role for policy design. (Sherraden & Boshara, 2009; Sherraden & McBride, 2010)

19 More than Incentives: Institutional Constructs that May Affect Saving and Asset Building Access: eligible, available, default enrollment Information: financial education, feedback Incentives: matching, other inducements Facilitation: direct deposit, personal assistance Expectations: match cap, saving targets Restrictions: pre-commitment, restricted uses Security: money safe, dependable access Simplicity: simple products, limited choices The above constructs arise from IDA and CDA research building blocks for an institutional theory of saving and asset accumulation (Sherraden, Schreiner & Beverly 2003; Sherraden & Barr, 2005, Schreiner & Sherraden, 2007; Beverly et al., 2008).

20 Policy Recommendations for CDAs Adopt a single, automatically-opened account structure at birth (or very early in the child s life) such that a child s account holds public incentives, deposits from family and friends, and earnings. Keep the design simple incentives must be easy to communicate. Include benchmarks for low-income youth tied to academic milestones or activities that contribute to college preparation.

21 What Have We Learned about Policy Design? Create or Adapt a Savings Plan Desirable features include: Automatic enrollment, with initial deposit Greater saving subsidies for the poor Low fees and low deposit minimums Simple investment options Financial education, information, and saving targets Centralized and efficient administration Requires a saving plan, similar to a College Savings Plan or 401(k) Plan for everyone. Asset managers work in partnership with public policy (e.g., Clancy, Orszag & Sherraden, 2004).

22 Potential of College Savings (529) Plans for Universal and Progressive CDA in the US Every state has at least one 529 plan. Inclusive innovations are occurring in many states. Public preference for greater inclusion can be a factor in selection of the asset manager so that inclusive features can be built into 529 policy. This cannot occur with saving products offered by private asset managers alone. Centralized CDA administration facilitates outreach and inclusion, and support for small value accounts with low fees.

23 Potential of 529 Plans for a Universal and Progressive CDA in the US (cont.) Deposits minimums are very low compared to similar products in the market Investments fees are reasonable and declining over time (many options under 0.50% per year and declining) Many states now provide matching deposits for lower income families (Clancy et al., 2004, 2006, 2009)

24 Policy Design Overall Strategy: Aim for Impact and Scale Look for a simple and testable idea that might have large implications. In this regard, two suggestions: Look for a strong independent variable an intervention that can be put in place and might have multiple positive effects. Avoid strategies that are complex and/or too expensive to go to scale (i.e., reach millions of people) do not study costly boutique innovations.

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