Development Finance and Economic Security

Children's Savings Accounts: Time to Push the Envelope

When it comes to obtaining economic security for the poor and dispossessed, new ideas are scarce. Current thinking in the United States revolves around providing services and supplements that enable people to escape the most dreadful consequences of poverty: hunger, homelessness and poor health. But providing such services-however essential-is only a first step. Lasting economic security requires the creation of assets. One concept the Ford Foundation supports, Individual Development Accounts, encourages individual savings that are matched by public and private sources. I.D.A.'s increase the assets of families so that they can purchase homes, obtain higher education and training or start small businesses. The idea has caught on: I.D.A. programs are springing up all over the United States; state legislators have included provisions for them in their new Temporary Assistance for Needy Families pro-grams; the federal government has provided $125 million to encourage their development, and aspects of I.D.A.'s were introduced by President Clinton in his 1999 State of the Union address as part of a proposal for Universal Savings Accounts.

Building on this momentum, the Assets program is now looking at a new application of this idea, Children's Savings Accounts. Children's accounts, like I.D.A.'s, express the belief that asset ownership transforms the way families think about and plan for the future. Children in families with assets go to school secure in the knowledge that their families will be able to contribute economically-helping to pay for postsecondary education, contributing to the purchase of a home or the start of a small business, or helping to meet an extraordinary medical emergency. Children who have this confidence perform better in school and their social behavior improves. But many children in America grow up without such confidence. Nearly half of all children in the United States live in households with no liquid financial assets; about six in ten of all children live in households with only enough financial assets to cushion up to three months of interrupted income. More distressing, nine out of ten African-American children live in such asset-deficient households.

How would Children's Savings Accounts work? There are many models, but all share these elements: an initial government or private contribution at birth, matches of family contributions for low-income families throughout the child's formative years and limited use of the account balances at age 18 and older. Imagine, for example, that every child born in the United States had an initial deposit of $1,000 in such an account. Additional yearly deposits would be encouraged and possibly tied to achievements such as completion of each year of school or community service. The contri-butions of low-income parents would be matched by government funds. The parent's contribution could come from private, employer or charitable sources. At age 18 account holders could use the funds for higher education or training. At age 25 or older uses of the funds might also include small-business capitalization and first-time home purchase. After age 65 account funds could be used to cover retirement expenses or passed on to the next generation. With a $1,000 contribution at birth, $500 contributed annually by the family with half of that amount matched for poor families, a young adult by age 18 could have about $40,000 to start a productive life.

Is such a plan fiscally and politically feasible? Compared with the level of expenditures for direct subsidies to children in Western European societies, the United States shortchanges its kids. The lowest level of European expenditure for cash allow-ances for children is 0.1 percent of Gross Domestic Product-$8 billion a year in United States dollars. If Children's Savings Accounts were funded at that level, $2,000 would be deposited into the account of every child born in America each year! Given historic opportunities to think anew about budget surpluses, this is not out of the question. Politically, policy makers from both sides of the aisle have been making proposals containing elements of the idea: KidSave, Children's Financial Security Act, Educational Savings Accounts. The time is right to push the envelope on this issue.

The foundation supports research, policy development and demonstrations that will provide important information about the ways in which a strong asset-building program like Children's Savings Accounts could be implemented and the social and economic effects it would have. Nations racked by inequalities in wealth and income, like the United States, face a future in which their most important resource, children, may not be able to secure solid footing in an increasingly technolog-ical society in which education is the key to both individual and societal prosperity. From a purely self-interested national perspective, it is myopic not to support the aspirations and talents of those who are born with material disadvantages. There are sound practical as well as moral reasons for a policy that might provide all children with a fair start in life and hope for the future. Children's Savings Accounts may just be one of those ideas.

The foundation supports research, policy development and demonstrations that will provide important information about the ways in which a strong asset-building program like Children's Savings Accounts could be implemented and the social and economic effects it would have. Nations racked by inequalities in wealth and income, like the United States, face a future in which their most important resource, children, may not be able to secure solid footing in an increasingly technolog-ical society in which education is the key to both individual and societal prosperity. From a purely self-interested national perspective, it is myopic not to support the aspirations and talents of those who are born with material disadvantages. There are sound practical as well as moral reasons for a policy that might provide all children with a fair start in life and hope for the future. Children's Savings Accounts may just be one of those ideas.

The Ford Foundation is an independent, nonprofit grant-making organization. For more than half a century it has been a resource for innovative people and institutions worldwide, guided by its goals of strengthening democratic values, reducing poverty and injustice, promoting international cooperation and advancing human achievement. With headquarters in New York, the foundation has offices in Africa, the Middle East, Asia, Latin America, and Russia.