Well-Designed CSAs Have the Potential to Help Decrease the Racial Wealth Divide
Supporters of Children’s Savings Accounts (CSAs) often point to the fact that CSAs increase economic opportunity. CSAs are designed to ensure that all families, especially those in low- and moderate-income communities, have at least a modest wealth endowment to pay for postsecondary education. In order to achieve this goal, CSA policymakers should simultaneously address persistent, deep-seated racial wealth disparities in the United States through targeted policy design.
In 2013, the median White household had $144,200 in wealth, which is the value of what a family owns minus what it owes. By contrast, the median wealth of Black households was just $11,200. White families in the bottom quintile of the income distribution have slightly more wealth than Black families in the middle quintiles of the income distribution. Because wealth takes into account the intergenerational transfer of money, it is a better measure of economic security than income. That’s why we see these staggering racial inequities – White families have had much more time to pass wealth from one generation to the next.
The best CSA policies are the ones that are both universal and progressive – that is, they have greater initial deposits and incentive matches for families that come from economically disadvantaged backgrounds.
We know that this targeted approach could work. As CFED and the Institute on Assets and Social Policy have found, a universal, progressive CSA program established in 1979 with investments of $7,500 for low-wealth households and sliding-scale declines to $1,250 for high-wealth households would have reduced the racial wealth divide. The median wealth of Black households would be $7,450 greater today if such a policy were implemented, and the median wealth of Latino/a households would have increased by $6,100. The wealth gap between White and Black households would have fallen by 23%, and by 28% between White and Latino/a households.
Moreover, policymakers should also know that a progressive CSA program would not serve as a panacea to close the racial wealth divide. The returns to investments in education remain unequal for people of color, and for Black people in particular. In 2013, Black college graduates aged 22-27 had an unemployment rate nearly twice as high as their equally credentialed peers overall. In addition to promoting college access through CSAs, policymakers should ensure that people of color benefit equally from the same educational achievements. Increasing funding for the cash-strapped Equal Employment Opportunity Commission stands as one way to address this issue.
In order to achieve their goals of increasing college access and reducing wealth gaps, CSA policymakers should take into account that people have different opportunities and face different barriers toward getting ahead. They should also keep in mind that these disparities do not disappear as education or income levels rise. If CSA policymakers get it right, though, they have a great opportunity to benefit everyone and close wealth gaps.