child savings accounts

Youth Savings: The Birth of a Stake in the Future

Jamie Zimmerman — Mon, 29 Jun 2009 19:24:00 -0400

Since the inception of the Global Assets Project in 2006, I have advocated that having opportunities to save and accumulate assets earlier in life will lead to a more economically and socially secure future. Now, as I write my last blog post before beginning maternity leave to care for my first child, this assets "perspective" has transformed into much more of "reality." Now more than ever, I am sensitive to the fact that we all need a fair and decent shot at success in life. Yet such success, all over the world, is often hindered by exclusion from a financial identity; from opportunities to save and grow assets, or from the policies and products that the better-off take for granted that allow them to accumulate wealth and pass it along from generation to generation.

And the research has shown that asset effects will have greater impact the earlier in life they begin. And this is true from Oklahoma to Uganda. In fact, New America Senior Research Fellow and Columbia Professor Fred Ssewamala's research continues to show that even small amounts of savings can have large impacts on a child, not only economically, but socially and psychologically. That is why the Global Assets Project has and continues to study, advocate and support policies, products and programs that enable savings among children and youth.

More recently, we've announced the launch of a MasterCard Foundation-funded effort to design a pilot program to test and implement savings products for young people in developing countries. Led by Save the Children, the Global Assets Project will provide research (through CSD at Washington University in St. Louis), policy analysis and communications (at the New America Foundation) for this program. The Consultative Group to Assist the Poor rounds out this global consortium, as a key partner in product development and regulatory policy research.

We're working together to understand specific savings needs of this special population, and hopefully find ways to provide them with effective tools to save, building a foundation for a more prosperous future than they could have previously envisioned. Yet, financial institutions have yet to discover a universally accepted business case for providing specialized accounts to children or youth. And where they exist, they generally do not benefit the poor or very poor. So that is our goal: to find that "sweet spot" where "effectiveness" of the product relates to the client and the bank, not one or the other. We have our work cut out for us, but I'm optimistic by nature.

As I bring my own child into this economically uncertain and financially fragile world, I reflect with pride and gratitude on my role in a Project that has a vision of one day, accounts for all. And for all, a stake in the future.

Mike Gerson to President-elect Obama: How about KIDS Accounts?

Mark Huelsman — Wed, 12 Nov 2008 16:09:00 -0500

In a pseudo-memo to President-elect Obama today, Michael Gerson (former speechwriter/policy advisor to President Bush and current Washington Post columnist) has this interesting hypothetical:

"Political indifference to durable poverty in our midst has long been a scandal; from Obama it would be a tragedy. America does need to ‘spread the wealth' -- but not in the simply redistributionist sense. The racial divide in our country is widest when it comes to assets. The median net worth of white and Asian Americans in 2004 was $142,700. The median net worth of African Americans was $20,400. There are many reasons for this massive disparity, including what Lincoln called centuries of ‘unrequited toil.' Reparations are a politically self-destructive dead end. But what if President Obama, for example, proposed to set up tax-free savings accounts for every poor child at birth and seeded those accounts with a few thousand dollars? Addressing the wealth gap through the miracle of compound interest would be a lasting contribution to the justice of our country."

Here in the Asset Building Program, we couldn't agree more.

Gerson's proposal is generally compatible with the ASPIRE Act, which currently sits in both the House and Senate. Interestingly, Gerson calls for tax-free savings accounts for every poor child at birth, while the ASPIRE Act would set up an account for every child born in the United States. On the other hand, he throws out "a few thousand dollars" as an initial deposit for the accounts. Current legislation would also seed the accounts, but at a lower initial sum of $500 (while children in households earning below the national median would be eligible for an additional contribution of up to $500).

Minor differences aside, it is incredibly heartening to see opinion leaders on both sides of the aisle come to the same conclusion about the burgeoning wealth gap in this country, as well as see the asset-building opportunity that child savings accounts could create.

Child Savings Accounts: Fad or Phenomenon at the Bottom of the Pyramid?

Jamie Zimmerman — Wed, 03 Sep 2008 22:00:00 -0400

In the United States and many developed nations, banks offering savings to children as a means of social and economic inclusion and empowerment may seem tired tradition of the thrift era that has long passed. Gone are the days of widespread school banking programs once so common in the US. And in the very few developed nations where efforts to provide children social and/or economic opportunity through financial inclusion exist, they typically come in the form of social policy (UK's Child Trust Fund, Singapore's Baby Bonus, USA's ASPIRE Act). In developing nations, however, we're witnessing a wholly different phenomenon: financial institutions are, out of their own volition and with no push from the government, choosing to target the child market segment.

This week, East Africa Business Week newspaper published an interview with Stephen Mkweli, managing director of PostBank Uganda, to discuss the focus annual meeting of the Association of Savings Banks of East Africa (ABSEA) - Child Savings. Mr. Mkweli spends his interview extolling the virtues and benefits of child savings and inculcating a culture of savings among children at an early age. He states that, "The benefits of savings include the fact that the customer is assured of a brighter future since he/she can...own future by planning for it. It instills the discipline of financial planning ahead of time...and also increases the deposit base of the institutions and therefore avails the money for government to borrow for its developmental programmes." ABSEA banks plan to capture this special market segment by holding contests, offering piggybanks, and working with networks to expand the reach of the accounts.

By our account, ABSEA is not alone in its efforts to expand access to savings accounts for children. In 2007, the Global Assets Project researched dozens of financial institutions and non-profits who are offering specialized savings accounts targeted toward financially excluded and/or economically disadvantaged children (we call them Child Savings, Accounts, or CSAs). But with the likelihood of small and inconsistent deposits from such a population, the question remains: why?

In our recently released white paper, "Child Savings Accounts: Global Trends in Design and Practice," we review various reasons why different institutions are choosing to offer CSAs, as well as a variety of common features chosen in designing such products. While there is great variation in design based on the institutions purpose for offering the accounts, among the financial institutions we interviewed for this paper, there are some common threads for establishing a business case for CSAs. First, in the rush to "bank" the bottom of the pyramid, the child segment is seen as an important market niche. Not only is this a largely untapped market, but if retained, these children will likely become long-term clients of the financial institutions. Second, the financial competence they gain by early exposure to and habit of using savings services will make them more savvy users of the banks other products. The child's savings account may be a loss for the bank today, but does it mean greater market share and a more lucrative relationship with the client tomorrow?

To be sure, there are numerous other purposes beyond making a profit that institutions (though not necessarily commercial banks) give for offering such accounts, including economic opportunity, poverty reduction and social inclusion. And interestingly enough, Fred Ssewamala's research on specialized and targeted savings accounts toward poor and vulnerable children in Uganda has shown significant improvements in health and education outcomes, particularly in relation to an improved future orientation. The children with accounts have an outlook on life that children without savings don't (and likely can't) share. But this is a special kind of products, with features that most any bank could not reasonably offer without outside support or government subsidy.

So, whether this interest in child savings in developing countries is simply part of the gold rush to capture the bottom of the pyramid or is a sincere effort to provide, earlier in life, financial inclusion and opportunity to the excluded and vulnerable around the world, I watch this trend with interest and a cautious optimism. If they can get the product right, CSAs could be a new phenomenon in poverty reduction thru financial services. We need serious inquiry to find out if this is the case.

[More information on Child Savings Accounts and/or the research of Fred Ssewamala can be found on the Global Assets Project website]