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CSD research spotlighted at U.S. Senate hearing

Center for Social Development Faculty Director William Elliott, professor of social work at the University of Michigan, testifies before the Senate Finance Committee on May 21, 2024.

Research conducted by the Center for Social Development (CSD) took center stage at the U.S. Senate Finance Committee’s May 21 hearing on proposed federal children’s account policy.

The hearing on the 401Kids Savings Account Act legislation and other proposals featured testimony by CSD Faculty Director William Elliott of the University of Michigan, Alfond Scholarship Foundation President and CEO Colleen Quint, Veronique de Rugy of George Mason University, and Adam N. Michel of the Cato Institute.

“In America in 2024, children who grow up poor face substantial barriers to moving up the economic ladder through effort and ability in school, barriers wealthy children do not face,” Elliott told senators. “The inability to buy necessities due to a lack of income – income poverty – is only half of the story. The other half – asset poverty – is rarely talked about. Policies are seldom created to address it among low-income families.”

Elliott, a professor of social work at the University of Michigan, director of the Center on Assets, Education, and Inclusion, and faculty director with CSD, described research on children’s account initiatives in the United States, much of it from CSD’s SEED for Oklahoma Kids (SEED OK) experiment, a long-running test of a design for statewide Child Development Account (CDA) policy.

A design developed over 30 years

The idea for CDAs first surfaced in the 1991 book “Assets and the Poor,” by Michael Sherraden. Sherraden’s proposal called for a national system of asset-building accounts, a system that would cover every child from birth and ensure that even children from the most disadvantaged backgrounds accumulated assets for family development priorities such as higher education and homeownership.

“Child Development Accounts began as a proposal to initiate lifelong asset building for everyone, with greater support for the most disadvantaged,” said Sherraden, the George Warren Brown Distinguished University Professor at Washington University in St. Louis and CSD’s founding director. “I wanted to create a policy that would build assets for every child, assets that would grow over time until invested for key purposes. The policy model we have designed and tested in SEED OK does all of that.”

With the launch of the SEED OK experiment in 2007, CSD researchers began studying how to implement a statewide CDA policy for children at birth and to assess its effects over time.

The researchers randomly selected a group of newborns from Oklahoma birth records, assigning half to a treatment group and half to a control group. Children in the treatment group automatically received a CDA with a $1,000 seed deposit, and the experiment offered their parents a small incentive to open a separate Oklahoma 529 college savings plan account. Children in the control group received no account or incentive.

As CSD Policy Director Margaret Clancy explained, “The SEED OK policy model purposefully transformed a 529 college savings plan. Our research shows that 529s can serve all children, and do so effectively and sustainably, while greatly increasing the likelihood that disadvantaged children have assets for postsecondary education. Under existing 529 policy, plans serve about 6% of the population of children.”

Evidence from SEED OK shows that the policy builds assets for all children, regardless of the mothers’ education, race, or income level. And there are positive nonfinancial effects as well.

“These accounts, even with small dollar amounts in them, can affect children’s expectations, parents’ expectations, social-emotional development, maternal depression, and many other things,” Elliott told the committee.

He also noted results showing that the accounts positively affect academic performance, likelihood of enrolling in college, and likelihood of persisting to graduation from college.

“These are valuable gains that are often difficult to produce at scale through other interventions. These gains largely eluded the significant investments in debt-centered financial aid.”

“Interesting enough, the effects are strongest among the low-income kids,” Elliott said.

This evidence has led to policy change.

“SEED OK evidence has already informed statewide child account policies in multiple U.S. states,” said Clancy, who oversees the SEED OK experiment and advised state officials on the CDA policies in Maine, Pennsylvania, Nebraska, California, and many other states.

“Of the more than five million child wealth-building accounts in the U.S. today, about 95% are using the SEED OK policy model – because it has been shown to work,” added Sherraden. “Groundwork has been laid for a nationwide policy.”

Evidence from SEED OK and insights from other children’s account initiatives informed the 401Kids proposal now before Congress. CSD Senior Policy Advisor Ray Boshara, working as a legislative fellow in the office of Sen. Bob Casey, shared the findings with legislators from both parties and discussed the implementation of CDA policies in Maine, Pennsylvania, Nebraska, California, and elsewhere.

“It may be important to emphasize that this work is taking research evidence to policy design. It is not about politics,” noted Sherraden. “The Congressional process is bipartisan – both Republicans and Democrats participate. The committee chair, Senator Ron Wyden of Oregon (representing a mostly blue state), spoke very positively about the SEED OK research evidence coming from Oklahoma (a mostly red state).”

Through the bill, every child in the United States would receive a 401Kids Savings Account: some because their states opt in to stand up 401Kids programs, with all others through a federal backstop. Accounts for children from low- and moderate-income households would come with annual, automatic federal deposits. Parents, relatives, nonprofits, employers, foundations, and others could contribute up to $2,500 combined per year to the accounts. At age 18, the account owner could access the funds to pay for higher education or training, purchase a home, or start a business. They could also roll the assets into ABLE or retirement accounts.

“SEED OK research was highly influential with legislators: It demonstrated that the existing 529 platform could be inclusive and wealth-building – with the greatest benefits for the most disadvantaged families,” said Boshara. Speaking of Sen. Bob Casey, the Senate bill’s primary sponsor, he added, “Senator Casey really wanted to build on the success already operating in states and communities nationwide, not create a top-down federal program; the 529 platform is ideal for that.”

In her testimony, Colleen Quint spoke of her experience administering the Alfond Scholarship Foundation’s role in Maine’s universal CDA policy. The foundation operates the My Alfond Grant, which invests $500 for each resident newborn in the state, placing the grants in an account within Maine’s NextGen 529 plan. By the spring of 2023, the foundation had invested over $72 million for more than 145,000 children.

“It changes behaviors and is motivating to families,” Quint said of the My Alfond Grant CDA. “It changes the orientation of the family to think not just about today, but tomorrow as well.”

“The 529s are designed to do exactly what we wanted to do, and so having that already established platform has been important to our program,” she explained. “The vast majority of CSA programs across the country do use that 529 platform. It also allows for contributions from multiple sources, which has been really important. Obviously, the invested funds have opportunity for growth over time. Investment options are often streamlined into an age-based portfolio, or a year of enrollment, which kind of simplifies things and provides that platform for communications also, as a way of really working with families over the years as their child grows.”

“We don’t have to reinvent the wheel”

In exchanges with the witnesses, Sen. Wyden took up Quint’s point about the policy structure being already in place for state 529 plans. “These accounts are not some kind of radical, new idea,” he observed. “We’re using essentially the 529 model.”

“We don’t have to reinvent the wheel here!” he added, “We’ve got existing architecture.”

Proposals to build assets through children’s accounts have drawn bipartisan support in the past. Wyden alluded to that history as he acknowledged election-year priorities.

“I remember when we started talking about this and I was a young member of this committee. So we’ve been talking about this a long time,” Wyden said.

“In my view, this ought to be the kind of idea that’s able to bring Democrats and Republicans together,” he noted. “This committee has proven that helping Americans save is a bipartisan priority. There’s been a lot of progress, but the numbers show that there’s a lot more work to be done making sure that lower-income families benefit too.”

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