One of the critical questions facing the Children’s Savings Account field at this point is how to construct a delivery system capable of taking this intervention to scale. As advocates and administrators grapple with whether CSAs should be facilitated through state 529 programs or deposit institutions, there is a vital but unspoken precondition to be met: financial institutions have to be more than reluctant partners, if they are to serve as a critical link in the realization of national CSA policy. To date, most of the financial institutions that have partnered with community organizations and schools to facilitate children’s savings have done so because of a belief in the societal value of improving children’s economic security and imparting financial knowledge, even if the accounts are widely regarded as more of a philanthropic gesture than a sound business investment. Changing this accounting within the corner offices of investment firms will require sound evidence about the long-term effects of children’s savings on savings behaviors in young adulthood. Good will can only take us so far, in this effort to win the full support of financial institutions, but the prospect of cultivating lasting relationships between savers and the financial institutions where they got their starts may prove far more persuasive. While children have limited savings to invest initially, they may increasingly invest more money into different products. Indeed, research by AEDI Faculty Director of the Financial Inclusion Project Terri Friedline and colleagues suggests that CSAs may be ‘gateway financial products’, leading to other investments. Overall, young adults might be more likely to maintain relationships with mainstream banks and to own a diverse set of assets when they have accounts as children. Helping children start accounts when they are young gives savings a chance to compound over time.
These effects may be particularly strong for low-income children, who are, of course, a new potential customer base for many institutions. Helping children save can change their life trajectories in ways beneficial to individuals and institutions. Children with savings accounts tend to have better achievement scores and higher college enrollment and graduation rates than children without accounts. In turn, these academic outcomes may have significant effects on lifetime income and asset accumulation potential. Some of Friedline’s earlier research (with Song, 2012) reveals that young adults are two times more likely to own both savings accounts and credit cards and four times more likely to own stocks when they have savings accounts as children. Young adults also have an advantage in median amount saved and total assets owned when they have savings accounts as children. These effects are seen even when accounts are opened relatively late in childhood, but opening accounts closer to birth, as envisioned in most CSA policy proposals, may show even more significant outcomes.
Conversations with financial institutions need to continue to explore their current thinking on the balance of costs and benefits from CSAs. Certainly experiences in Canada and elsewhere have raised some doubts about whether private financial institutions are the best conduit for these accounts, designed as potent forces for social equity and economic mobility. But if for-profit institutions can be convinced that offering and managing high-quality CSAs is in their best interest, they may become ardent champions of this approach. If that level of buy-in is to be achieved, this evidence of CSAs’ effects on financial behaviors is most likely to do it.