Report on State of Children's Savings Field Reveals Growing, Changing Movement
This morning, Prosperity Now published The Movement Takes Off: The State of the Children’s Savings Field 2017, an overview of findings from the Children’s Savings Account (CSA) program survey. Conducted annually, the survey assesses a plethora of aspects of the design and operation of the CSA program respondents, including number of accounts, account incentives, wrap-around services for students and parents, and other critical program features. This field, now well into its second decade, is seeing some important new trends and developments.
The Movement Takes Off highlights trends across these different program features. For starters, it finds that more than 382,000 children in 54 programs had a CSA by the end of 2017—a 22% increase from 2016. Programs range from small, community-based programs serving a few hundred kids to large-scale programs, which we define as those that enroll at least 2,000 children annually. These largest programs enroll the majority of children who have a CSA; the seven large programs account for 86% of total CSA enrollment.
Large Programs Increasingly Turn to 529 Accounts and Automatic Enrollment
According to the survey results, 71% of large programs use 529 college savings accounts. Large programs may be turning to 529s because of their built-in advantages compared to custodial savings accounts: an existing infrastructure designed for college savings that typically provides a higher return on investment than savings accounts. However, 529 accounts are not without limitations for low-income families. Though some states have made changes to their programs to make them more inclusive, many still require a minimum initial deposit and minimum contribution amount and most do not accept in-person or cash deposits.
The 529 account structure and automatic enrollment go together for big programs—so much so that 71% of large programs utilize an opt-out model, the same percentage that use 529s. Moreover, automatic enrollment helps counteract a big disadvantage of 529 accounts: most Americans don’t even know what they are. Herein lies an opportunity: CSA programs can make enrollment automatic, and conduct outreach to build awareness about the power of 529 accounts as a vehicle for college savings.
However, 529 accounts also carry some important limitations for low-income families. To be more inclusive, 529 programs could streamline the application forms and disclosure agreements for families, especially those with limited English proficiency or less financial knowledge; reduce initial deposit amounts and/or minimum dollar amounts for one-time and recurring deposits; and provide additional deposit options for families that include ways to accept in-person or cash deposits.
Initial Deposits Overtook Savings Matches as the Most Common Incentive Type
Last year, savings matches were the most common incentive type, with 71% of programs offering a match. But among this year’s respondents, only slightly more than half (52%) of programs said they offered savings matches—nearly a 20% drop.
Initial deposits overtook savings matches as the most common incentive type, with 70% of programs offering a “seed” deposit into participants’ accounts. A year ago, initial deposits were a popular incentive type among CSA programs—nearly two-thirds (64%) of programs offered one, according to the 2016 State of the Children’s Savings Field—but the slight uptick from last year may represent growing interest in “seed” deposits.
The shifts between savings matches and initial deposits reflect an active debate in the field. Some practitioners and researchers feel that the most important factor is that children have funds in an account, regardless of the source. They emphasize providing initial deposits and other incentives that do not rely on family contributions to grow accounts. Others focus on family deposits, asserting that prioritizing savings helps build good financial habits for parents and their children. They tend to emphasize savings matches that encourage family contributions. We may see more changes between incentive types as this debate continues.
The Movement Takes Off offers a lot more information, including findings on funding that complement the recent Asset Funders Network study on private funding for CSAs and other information on incentives and account types. If you’d like to dive deeper into our research findings, join us for a webinar on March 14 as our experts unpack these and other details!