How Executive Action Can Help Expand Children’s Savings Programs
As we’ve discussed previously on this blog and in other CFED publications, Children’s Savings Account (CSA) programs have proliferated across the country over the past several years. As of the end of 2016, 42 programs—ranging in size from small community-based programs to universal statewide programs—were serving nearly 313,000 children. With growing interest and momentum across the country, CSAs are poised to scale significantly and reach hundreds of thousands more children over the next few years. However, this expansion may be thwarted by the lack of a turn-key account platform that meets the needs of cities and states designing programs. While some programs have developed workarounds, for other would-be programs, the challenge of finding a financial services provider willing to work with them to create an appropriate savings vehicle is too big to overcome.
Working with other organizations in the field, we have developed a proposal for actions the presidential administration could take to address this challenge. As described in Administrative Actions to Close the Ever-Growing Gap, the U.S. Treasury Department could create a low-cost, easy-to-access account platform for CSA programs called myCSA; this idea was first proposed by St. Louis Treasurer Tishaura Jones and Ida Rademacher of the Aspen Institute in February 2016. Modeled after the myRA program, which facilitates small-dollar retirement savings by workers without an employee-sponsored retirement plan, myCSA would address a critical gap in the financial services market. By providing a ready-to-use account platform for new CSA programs, myCSA would unleash a new round of CSA innovation and expansion at the state and local level.
One key adjustment would need to be made to the myCSA structure to make it suitable for saving for postsecondary education rather than retirement. In particular, a Roth IRA, which is used in myRA, would not suit a CSA program. Roth IRAs are primarily meant to save for retirement, and deposits into Roth IRAs must come from earned income. Instead of a Roth IRA, for myCSA, Treasury could consider using a savings account or an investment account more akin to a 529 college savings plan.
In addition, myCSA would also need to accommodate the typical components of CSA programs and the needs of low-income savers via the following features:
- Accessible to multiple depositors, meaning that parents, relatives, children and the CSA program could all deposit funds into the account.
- User-friendly deposit options that facilitate small-dollar saving by low-income families.
- No fees that eat away at families’ savings and no minimum deposit or minimum balance requirements that prevent small-dollar deposits and erode the principal in the account.
- A safe investment product that allows for some growth while minimizing risk.
- Lifelong savings potential, which allows myCSA accounts to be rolled over into a myRA account when participants reach a certain age.
CSAs have the potential to improve the life trajectories of millions of children from low-income households. By making it easier for states and cities to start CSA programs and open accounts, creating a myCSA platform could potentially result in hundreds of thousands of more children having an account. Implementing myCSA is a concrete action the new administration can take within the first 100 days to demonstrate its commitment to promoting opportunity for all children.