Gift Cards Present New Potential for Children's Savings
In addition to banks and credit unions, Children's Savings Account (CSA) programs across the country work with 529 plan providers to offer accounts for children to save for postsecondary education. 529 plans, education savings plans that allow families to invest in funds for future college costs, have successfully been used by statewide CSA programs such as Maine and Nevada as well as local programs like Promise Indiana, "I Have A Dream" Foundation, and El Monte Promise Foundation. In recent news, 529 gift card access arrived just in time for this holiday season – but it also raises larger questions about overall access to the plans themselves.
Giftofcollege.com, a registry for online gifts to 529 accounts, has now made plastic 529 gift cards available for purchase at Toys "R" Us and Babies "R" Us retail stores. This new partnership with national retail chains may help more families think about opening or contributing to 529 accounts for their children or loved ones as they are making in-store purchases during holidays and other significant milestones.
How the gift cards work:
- Shoppers at Toys "R" Us or Babies "R" Us will be able to purchase 529 cards in fixed amounts of $25 or $50, or in variable amounts of up to $500, with a small fee.
- After parents receive the card, they must create an account on Giftofcollege.com – if they haven't done so already – and redeem the card to direct the money to their 529 plan.
- If parents have not set up a 529 account for their children, they must start one and establish an account on Giftofcollege.com to receive the money.
We see potential for some CSA programs to use the gift cards to help increase uptake for families' 529 accounts. For example, gift cards at large chains could help cash-preferred customers make contributions to accounts for their loved ones or be co-branded with a local program's name. However, it's important to note that 529 plans are used by less than three percent of all U.S. families, and these families tend to be wealthier than families who do not have 529 accounts.
To help reduce disparities in access for low-income households, 529 administrators may want to consider additional changes to the account beyond gift cards in stores. For example, they could make the following types of changes:
- Streamline the application forms and disclosure agreements for families, especially those with limited English proficiency or less financial knowledge.
- Reduce initial deposit amounts and/or minimum dollar amounts for one-time and recurring deposits.
- Provide additional deposit options for families that include ways to accept in-person or cash deposits.
- Promote multiple ways to open accounts, including working with local community groups and financial counselors/coaches to help facilitate application submission.
The presence of 529 gift cards at toy retail stories may do some good to help raise awareness for parents of all socioeconomic backgrounds. However, creating easier ways for people to open and contribute to 529 plans will ultimately help the programs assist more families who could benefit the most.