FDIC Shines a Spotlight on Children's Savings Accounts
On November 16, 2010, the FDIC Advisory Committee on Economic Inclusion held its most recent committee meeting which included a panel discussion on one of Prosperity Now's core areas of work: children's savings accounts (CSAs). Guest speakers on this panel included moderator Peter Tufano, Sylvan C. Coleman Professor of Financial Management, Harvard Business School and Founder and CEO, D2D Fund; José Cisneros, Treasurer for the City and County of San Francisco; Robert Annibale, Global Director, Citi Microfinance and Community Development; Katryn Gabrielson, Deputy General Counsel, Finance Authority of Maine; and Prosperity Now Founder, Board Chairman and General Counsel Bob Friedman.
Bob summarized remarks from the previous speakers and highlighted the key aspects of CSAs that speak to their effectiveness and success in providing asset-building opportunities to low-income and underserved children:
- Savings. The savings patterns of participants of the SEED Initiative showed that low-income and very poor families will save for their children's economic futures given the opportunity.
- Automation. CSAs need to be opened automatically to ensure higher take-up and participation rates, and then linked to financial education. Overcoming barriers to automation such as obtaining Social Security numbers and parental consent are hefty challenges but necessary to ensure wide access to these accounts.
- Lifelong. There is a false dichotomy pitting children's savings against retirement savings. The fact is these two are not really in opposition. CSAs are and should be the first step on a path to lifelong savings and interaction with the mainstream financial system.
- Incentives. Research (from the Center for Social Development at Washington University in St. Louis) suggests that the amount of incentives is perhaps less important than the pure existence of the account. Specifically, this research found that youth with savings accounts expecting to graduate from a four-year college were 4-7 times more likely to go to college. Given the high levels of asset poverty for adults and children however, matching funds are still essential components of CSA programs.
- Affordability. The ASPIRE Act, which would create a savings account every child born in the United States, would cost $40 billion over 10 years. That cost is minimal compared to the current federal asset-building subsidies that disproportionately benefit high-income Americans. Eliminating some of those subsidies would save taxpayers money and easily pay for CSAs and other asset-building incentives such as expanding the Saver's Credit.
- Politics. Polling data collected during the SEED Initiative showed the impact of including CSAs in a platform for hypothetical candidates. CSAs have always been a "bipartisan" issue, but the word "bipartisan" doesn't go very far in our current political climate; rather, CSAs are a "Republican idea and a Democratic idea."
- Growth. The reach of CSAs needs to be significantly expanded in order to deal "back into the system the majority of families that I think right now are dealt out."
For more facts about Children's Savings Accounts, check out this Prosperity Now Assets and Opportunity Scorecard factsheet.
To watch parts or the entire webcast of the meeting, click here. More information about the FDIC's economic inclusion initiatives can be found here.