Asset Building and Child Development: A Policy Model for Inclusive Child Development Accounts

Abstract

jIn hua ng, mIch a el sher r a den, m a rga r et m. cl a ncy, sondr a g. bev er ly, tr Ina r. sh a nks, a nd youngmI k Im Extreme wealth inequality imposes significant constraints on financially vulnerable families, especially on the development of children in those families. Child Development Accounts (CDAs)-investment accounts offering financial access, subsidies, and incentives to provide assets for children-are designed to reduce wealth inequality over time and promote human development. We review existing evidence from a test of a CDA policy in a population sample. Findings show that, in addition to stimulating account holding and asset building, universal and automatic CDAs for postsecondary education have positive effects on outlooks for and behaviors of parents and children. This long-running CDA experiment suggests ten design elements for a universal, progressive, and potentially lifelong CDA policy. Informed by findings from this experiment, seven states have adopted some version of this model. These innovations illustrate potential policy pathways to reducing asset inequality and improving child development.

Childhood Wealth Inequality in the United States: Implications for Social Stratification and Well-Being

“…The positive relationship between wealth and college outcomes is likely mediated through parental expectations ( Shanks and Destin 2009 ; Elliott, Destin, and Friedline 2011 ), and parental expectations may be a stronger explanatory factor for the effects of wealth on educational attainment than parental investments ( Diemer, Marchand, and Mistry 2020 ). Consistent with this mechanism, Jin Huang and colleagues (2021 , this issue) provide evidence that child development accounts raise parental expectations about their child’s educational future.…”

“…The physical manifestations of wealth—most notably, homeownership, and neighborhood choice—shape child opportunities and expectations that exist independently from income ( Chetty and Hendren 2018 ). Perhaps more than they do income, parents may use their levels of wealth as cues to their child’s future life chances ( Huang et al 2021 , this issue) and shape their current parental investment choices accordingly.…”

“…Even experimental and quasi-experimental studies that leverage policy shocks to income or wealth often test interventions that could change both income and wealth, making it difficult to disentangle the effects of each separately. Huang and colleagues (2021) offer a promising example of interventions designed to change wealth without changing income.…”

“…Depending on our problem definition, policies could be designed to promote multiple goals, including building savings and assets in low-wealth families, or in families of color; reducing “bad debt”; and reducing extreme wealth by individuals and firms. Some evidence is provided in this volume on the value of specific interventions for asset accumulation among low-wealth families, including both asset-building and income-support programs ( Jackson, Agbai, and Rauscher 2021 ; Michelmore and Lopoo 2021 ; Huang et al 2021 ). Notably, interventions to reduce inequality would need to be far more ambitious, targeting both the top and the bottom of the wealth distribution and redistributing wealth systematically and intergenerationally.…”

“…These tensions will exist in the context of wealth interventions as well. In this issue, Huang and colleagues (2021) suggest that CDA accounts should take a universal approach. Another possibility is targeted universalism , a relatively recent framework in which goals are universal but interventions are targeted to the specific needs and burdens of historically marginalized groups ( powell, Menendian, and Ake 2019 ).…”