Do Child Development Accounts Promote Account Holding, Saving, and Asset Accumulation for Children's Future? Evidence from a Statewide Randomized Experiment

Abstract

This study examines the impacts of Child Development Accounts (CDAs) on account holding, saving, and asset accumulation for children, using data from the SEED for Oklahoma Kids experiment (SEED OK). SEED OK, a policy test of universal and progressive CDAs, provides a 529 college savings plan account to every infant in the treatment group with automatic account opening and an initial deposit. SEED OK also encourages treatment participants to open their own 529 accounts with an account opening incentive and a savings match. Using a sample of infants randomly selected from birth records (N = 2,670) and randomly assigned to treatment and control groups, this study runs probit and ordinary least squares (OLS) regressions. Analyses show significant differences between treatment and control groups in all outcome measures in the targeted accounts. Nearly 100 percent of the treatment group accepted the automatically opened state‐owned account. Compared to 1 percent of the control group, 16 percent of the treatment group hold a participant‐owned account. On average, the treatment group has saved significantly larger amounts in participant‐owned accounts, although a difference in savings amount is modest between the two groups ($47 vs. $13). A difference in total 529 assets of $1,040 is estimated between the treatment and control groups. These early findings from SEED OK suggest that CDAs have positive effects on savings and asset accumulation for children's future development. Further research is required to test long‐term cost effectiveness of CDAs.

Exploring a Model for Integrating Child Development Accounts with Social Services for Vulnerable Families

“…The policy does so by means of automatic account enrollment, automatic initial deposits, progressive subsidies for low‐income families, a centralized account structure, and restrictions limiting use of assets to cover expenses for education. Similar to previous research on the effects of CDAs (Huang et al , “Effects”; Huang, Sherraden, and Purnell ; Kim et al ; Nam et al ), the present study found that, with simple integration strategies, CDAs in SEED OK had positive impacts on financial and social‐development outcomes for mothers and children participating in TANF or the Head Start program. Findings from our analyses suggest that the design and implementation of the CDA policy (Sherraden, Clancy, and Beverly ) can generate meaningful impacts for these vulnerable families.…”

“…Evidence from SEED OK research indicates that CDAs generate positive financial outcomes for treatment families (Beverly et al ; Sherraden et al ). Nam et al () examined the short‐term impacts of the SEED OK CDA on several financial outcomes related to college savings accounts, total assets in college accounts (which include SEED OK incentives), and individual savings in college accounts (which do not include SEED OK incentives). Outcomes were measured in 2009, when children were about two years old.…”

Poor Families Striving to Save in Matched Children’s Savings Accounts: Findings from a Randomized Experimental Design in Uganda

“…More recently, Michael Sherraden and colleagues examined the effect of subsidized CSAs on savings and asset accumulation for children enrolled in the SEED–Oklahoma study, a large-scale study of CSAs with 2,670 randomly selected newborn children, and find that more people in the treatment group (16 percent) held a participant-owned account, compared to the control group (1 percent). Results also show that participants in the treatment group saved more than participants in the control group ($47 vs. $13) (Nam et al 2013). In southern Uganda, participants in the Suubi Program (2005–2008), which is an incentivized CSA program, saved an average of US$75.96 per year in net deposits.…”

“…Without a between-group financial savings comparison (treatment vs. control group), it is difficult to draw firm conclusions on whether a subsidized IDA facilitates savings. Even when looking beyond research in developing countries, Yunju Nam and colleagues (Nam et al 2013) conclude from a plethora of earlier research that there is little consensus on whether asset-building programs increase savings among the populations targeted by the programs.…”

Innovations in asset building

“…The experiment implemented successfully with good randomisation across treatment and control groups. A major initial finding is that automatic account opening (or 'opt out') is highly successful, with only 1 out of 1361 'treatment' families declining the account in SEED OK, leading to 99.9% participation, thus documenting the potential for a truly inclusive policy (Nam, Kim, Clancy, Zager, & Sherraden, 2013).…”