Child Savings Accounts: Global Trends in Design and Practice

INTRODUCTION

Child Savings Accounts (CSAs) exist as policies, products, and programs, and are currently being offered by governments, financial institutions, and non-profits. CSAs are more than basic savings accounts. What distinguishes CSAs from standard savings accounts is the degree to which they serve as means to an end-most often to spur the social and/or economic development of children. Another distinguishing feature is they are often intentionally targeted to children of low- and moderate-income families (as opposed to only children of middle-class and well-off families).

The concept behind CSAs is based on the premise that saving is an important way for an individual to build assets and accumulate the wealth necessary to meet a variety of needs throughout one's lifetime. Households can use savings to build a nest egg for future investments, and in the shorter term to build a stock of resources to cushion against economic shocks (such as sickness, famine, natural disaster, or death of a family member). Such a cushion can forestall the need for households to sell off productive assets (such as equipment used to run a small business), or withdraw their children from school (more common within developing countries). Savings can also have positive long-term effects, known as "asset effects." These include adopting a more hopeful outlook on the future, or what researchers refer to as a "future orientation."[1] As a result, savings products, policies, and programs that are specifically designed to facilitate a child's accumulation of assets at an early age are increasingly considered a viable option for motivating young people to enter formal financial systems, build assets in their youth and throughout their adult lives, and ultimately lead to economic and social advancement for themselves and their families.

There is no universal model for CSAs. The design of CSAs can vary widely, from simple, low-cost savings products offered by financial institutions, to universal, life-long savings platforms with significant financial incentives offered by governments. Variations in CSA design depend largely on the type of institution offering them, and the institution's purposes for doing so. For example, a financial institution may offer a CSA product intended to cultivate new clients or help children develop a habit of savings; a non-profit may establish a CSA program intended to protect children from future economic shocks, help children build a stock of resources for future investments, or enable children greater access to education and healthcare; and a government may design a CSA policy intended to reduce poverty of children and their families, expand opportunity to the disadvantaged, or promote overall development within a society. However, while some purposes of CSAs are unique to particular types of institutions, there are also often instances of overlap in purpose and hence similarity in design.

CSA Typology: Products, Programs, and Policies

            ● CSA Product-This type of CSA is typically offered by financial institutions such as banks, credit unions, or microfinance institutions. It may have features such as a low initial deposit and in-kind incentives, such as a mug or school bag, for achieving certain balances.

            ● CSA Program-This type of CSA is typically offered by institutions such as non-profits and research organizations attempting to test impacts of CSAs on health, educational, and other outcomes. It may have features such as those mentioned above, as well as features such as significant financial incentives (i.e. a lump sum of "seed" money when the account is first opened and/or "matches" to deposits made by the family of the accountholder or the child him/herself.

            ● CSA Policy -This type of CSA is typically implemented by governments, both local and national. It may have features such as those mentioned above, as well as features such as being progressive (i.e. giving more financial support to those more in need) and/or being universal (i.e. being offered to every newborn or child in a locality).

This paper aims to augment the limited existing literature and research on CSAs by providing an overview of the current global landscape of CSAs in their various forms. By describing and briefly assessing some of the reasons why institutions offer CSAs and the range of features that can constitute their design, we aim to broaden understanding of these accounts in their various forms. Furthermore, we hope to illustrate some global trends in child savings accounts. For example, our examination of the current breadth of CSAs illustrates their perceived potential as a flexible and effective tool in the fields of social policy, philanthropy, and financial services. While the goal of this paper is not to advocate CSAs along these lines, we argue that they warrant further attention and examination.

The paper begins with an introduction containing an overview of CSAs and some notes on the research methodology we used for data collection. It then provides a description and analysis of common features and purposes of CSAs in their variety of forms and purposes, while providing related anecdotes and insights from our research that inform our views. The paper concludes with a discussion of a few major obstacles faced by existing and potential providers of CSAs. An Appendix at the end of this paper offers a comparison of features of and rationales for various CSA products, programs, and policies in operation around the world.

[1] For an introduction to the concept of "asset effects," see: Michael Sherraden, "Key Questions in Asset Building Research," Center for Social Development, 1999, at http://gwbweb.wustl.edu/csd/asset/keyquestions.htm (accessed June 10, 2008). For an example of a study showing effects of holding assets on health attitudes and educational plans, see: Fred M. Ssewamala et al. "A Novel Economic Intervention to Reduce HIV Risks Among School-Going AIDS Orphans in Rural Uganda," Journal of Adolescent Health, 42, 2008, pp.102-104.