Childrens Saving Accounts

From the UK to Singapore, children's savings accounts programs are gaining traction around the world.  And that's because studies have shown-- from Uganda to the United States-- that beginning savings and asset-building habits at a young age has a multitude of economic and psycho-social effects on a child.  The Global Assets Project has a hand in some of these (most recently, with our work in developing a  multi-country youth savings account pilot).  And now, it looks like Nigeria is catching on.

 In response to the financial downturn, high schools around the country are adding financial literacy to their curriculum.  Some schools are offering the financial literacy class as an elective.  Others are making it a graduation requirement.  New Jersey is the newest state to join Utah, Missouri and Tennessee in requiring high school-ers to take a financial literacy course.  Some individual school districts, like the Chicago Public Schools, are making the decision without a mandate from the state.

The recent trend to make financial education part of the core curriculum in public schools reminds me of a New America event held last year, "The Effectiveness of Youth Financial Education."  Experts stressed the importance of linking financial education to real-world financial activity, such as a savings account or visits to a bank.  Being able to see how savings grow in a real account engages kids' interest in personal finance and motivates them to learn and retain financial principles. 

Via Blair Benjamin over at the Asset Almanac, there is a very promising upcoming conference in Brooklyn, NY on the impact and potential of child and youth savings accounts, featuring a number of great speakers.

In particular, there should be enriching discussions on the behavioral effects of youth savings, better approaches to college affordability (like, say, progressive 529s!), among other topics.

 The conference will be held June 14th-16th. More to come in the months ahead, I'm sure.

In light of America Saves Week, I can't help but highlight President Barack Obama's nod to "universal accounts" during his remarks last night's to a joint session of Congress:

"To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security.  Comprehensive health care reform is the best way to strengthen Medicare for years to come.  And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans."

So if we're going to talk about universal savings accounts, why not start at birth?

Is there such a thing as a culture of savings? This is a question I have been thinking about for almost a year now since undertaking research into savings accounts for children around the world. Bankers in countries from Sri Lanka to Papua New Guinea to Kenya told me in interviews that their banks are offering child savings accounts (CSAs) with an intention of "inculcating" a habit of savings among young people, or "nurturing" a savings culture. (Of course, these banks are primarily offering the accounts to attract and retain young customers, who will hopefully build their balances as they grow older).

In one conversation, a banker in Sri Lanka told me that Asians are more thrifty than people elsewhere. "We tend to save a lot," a tendency that he said was inculcated into the country's children. Conversely, an executive at an international children's charity told me that Ethiopia, where the charity recently started a child savings program, doesn't have a very strong savings culture. In Ethiopia, the executive said, the people that save, save primarily for death (i.e. through burial societies). Moreover, a banking executive at a multinational bank that operates in the South Pacific told me, in part because of a hot and humid environment, there is no such thing as a habit of savings in the region. If you get something today, you better consume it today, the executive said of the mentality there.

A key goal of New America's Asset Building Program is to encourage governments and other entities to offer each child born in the United States - and around the world - a savings account at birth. We believe doing this is the first step toward ensuring that all children have a stock of financial assets at the start of their adult lives.

With this in mind, we see the "529" college savings account in the United States as potentially an excellent platform for enabling parents to save for their children's education. This type of investment account - established by Congress in 2001 and named after a section of the tax code - allows parents to save money and withdraw the funds tax-free when their children head off to college. Every state, as well as the District of Columbia, offers 529s. Yet, right now, it is primarily mid-to-high-income parents who are taking advantage of them. We believe that making 529s "progressive" (i.e. having the government offer incentives such "seed" funding and/or matches to the accounts of less well-off families) is an excellent way to put these savings vehicles to work for children who come from families of more modest means.

As such, I was intrigued by a new college savings plan in South Africa I came across earlier this week. The Association of Collective Investments, an industry association for investment funds in South Africa, recently launched the Fundisa Fund as a three-year pilot project. The gist of the plan is that family and friends of a learner (or others) make contributions to an investment account opened by the parents at a bank.

Last week I had the privilege of discussing asset building for lower income Americans in three very different settings: the annual Opportunity Economics Colloquium of the Hope Street Group, held at the Lansdowne Resort outside of Washington; an Assets Forum sponsored by the New America Foundation in the State Capitol in Sacramento, California; and with a group of financial services, social service and foundation representatives brought together by the City of Seattle. While the settings and audiences varied, the theme was the same: how to empower and encourage all Americans, particularly those who do not have funds either to cushion an economic setback or to invest to achieve economic security, to take sustainable first steps toward saving. Given the current financial crisis, one wishes these discussions had started ten years ago, but that same crisis makes it all the more important that they're happening now.