Research Highlights from CSA Programs in Indiana and New Mexico
As part of a national Children’s Savings Account (CSA) research strategy—the Center on Assets, Education, and Inclusion (AEDI) is conducting analyses of four programs in select regions of the county: Promise Indiana, New Mexico’s Prosperity Kids, San Francisco’s K2C, and Maine’s Harold Alfond College Challenge. In this blog I will discuss findings on savings from the Promise Indiana and New Mexico programs. Findings underscore what should now be a settled question: low-income Americans can, will, and do save for their children’s educations.
Highlights from the Promise Indiana paper include:
- CSAs can increase ownership of 529 accounts. In this sample, exposure to Promise Indiana intervention is associated with an increase in the odds of reporting owning a 529 account by more than 3.75 times.
- Even with Promise Indiana’s robust community engagement approaches, the percentage of eligible kindergarten children opening accounts through Promise Indiana declined from 63% in 2013 to 28% in 2015. This suggests that only universal CSAs that automatically open accounts will be able to deliver these critical investments to all children.
- Forty-four percent of families who opened an account through Promise Indiana have made deposits. Many families are saving steadily. Average quarterly savings are $25; the median is $5 per quarter.
- With an average tenure of 24 months, Promise Indiana CollegeChoice 529 accounts have an average balance of $134. Considering only savers, the average is $274.
Prosperity Kids’ CSA design includes some distinct features, allowing a range of purposes, providing emergency savings accounts for parents, requiring parents to participate in extensive financial capability training, and using transfers to incentivize parental engagement in children’s development. Most accountholders are Latino, many of them immigrants, and they are substantially economically-disadvantaged. More than 80% of children are eligible for free-and reduced-lunch, and 68% of parents interviewed have household incomes less than $25,000 per year. In Prosperity Kids, our research found:
- 29% of accounts have seen deposits from families’ saving.
- Among savers, median total account value was $345 at the end of 2015. The median amount of family deposits is $123. Average monthly contributions are $12 (ranging from <$1 to $220); average quarterly contributions are $31.
- Parent interviews reveal college-saver identity development. Participation in Prosperity Kids seems to be making college saving a salient financial objective, something worth striving for, starting today, and the support of the program may help to make saving seem like a manageable, albeit still difficult, objective. Prosperity Kids’ structure may be responsible for particularly strong evidence of group congruence. Parents recruit each other and are encouraged to hold each other accountable for adhering to savings goals in an explicit attempt to foster a shared commitment to saving.
- Parents describe saving primarily by reducing consumption, drawing on lessons from the financial education provided by Prosperity Kids. As mom Daniela, who earns less than $25,000 per year, describes: “Well now I make a shopping list. I didn't before. I used to bring money in the purse, and I'd just spend it in things that I didn't really need in the house you understand?...And whatever is left over instead of spending it I go to deposit it… And now there's no fries, no juices, more savings.”
Just as surely as the fact that low-income families can, will, and do save, we can be equally sure they only save relatively small amounts when compared to more affluent families. It is important to note, however, that although these amounts may be relatively small when compared to more affluent families, it does not mean they don’t represent extraordinary efforts on part of low-income families. Moreover, there is strong evidence that CSAs can exert powerful effects with little to no savings activity. SEED for Oklahoma Kids’ rigorous analysis has revealed that CSAs can cultivate gains in children’s social/emotional well-being and parental educational expectations even when accounts are automatically opened and seeded and parents take no action. In short, when it comes to CSAs and their potential to chart more equitable futures, it may not be the amount of savings that matters most.
This does not mean that savings behavior is irrelevant. CSAs serve to facilitate financial inclusion as well as educational attainment. It may also be that CSAs’ effects on children’s well-being, some of which are understood to be fostered through the creation of college-saver identities, may be enhanced through regular interaction with the account. The act of depositing may keep college front of mind, and growing balances may make the task of college saving seem less daunting.
Dr. William Elliott III is an associate professor at the University of Kansas (KU) and founder of the Center on Assets, Education, and Inclusion (AEDI) in KU’s School of Social Welfare.