An experiment that models the first truly universal Child Development Account policy in the United States shows early positive impacts for parents and children, according to a research summary recently published by the Center for Social Development (CSD) at Washington University in St. Louis.
Child Development Accounts (CDAs)—savings or investment accounts for long-term development purposes, such as postsecondary education—include initial deposits, savings matches, or benchmark deposits from public and private funds. Ideally, CDAs are universal, progressive and lifelong.
SEED for Oklahoma Kids (SEED OK) is a large-scale policy test of automatic and progressive CDAs. Researchers randomly selected children born in Oklahoma in 2007, then randomly assigned them to either a treatment group or a control group after their mothers completed a baseline survey. Children in the treatment group received the SEED OK CDA, which included an automatically opened Oklahoma College Savings Plan (OK 529) account with a $1,000 initial deposit. In addition, treatment families received communications encouraging them to open their own OK 529 accounts for their infants and were offered a time-limited $100 account opening deposit incentive. Low- and moderate-income families received matches on their contributions to OK 529 accounts. Those in the control group did not receive the SEED OK CDA, but they – like non-study participants – had the opportunity to open an OK 529 account.
Research has found that, after four years, the SEED OK CDA has already had an impact on both the children and the mothers. “The SEED OK CDA has a positive impact on social-emotional development of children in families that have low education levels and low incomes, receive welfare benefits, and rent their homes,” the summary states. Those positive effects are evident regardless of whether parents have saved their own money. “In other words, it may be holding an account and having assets for college – not saving behavior of parents – that matter for child development and lead to these effects.”
Also after four years, mothers whose children have the SEED OK CDA have reported lower levels of depressive symptoms than those in the control group. Extended interviews with a cross section of the mothers suggest that the CDA makes them more hopeful about their children’s future and gives them the feeling that someone outside of their family cares. As most families have not started saving for college yet, the effects of the CDA on parents also seem to be due to automatic account opening and automatic initial deposits, not saving behavior.
SEED OK research shows that, without automatic accounts and initial deposits, a very small proportion of young children would have accounts and assets for college, and the vast majority of those with accounts would be socioeconomically advantaged. However, the universal and progressive approach modeled by the SEED OK CDA “gives all children – not just those who are advantaged – the opportunity to benefit.”
The SEED OK experiment is already informing policy, particularly at the state level. In March, Maine became the first state to provide universal 529 accounts with $500 automatically deposited for all resident newborns. “SEED OK research directly influenced the decision to adopt an opt-out structure.”
Also this year, Nevada automatically opened a 529 college savings plan account for nearly 35,000 public school kindergarten students throughout the state. In his 2014 State of the State address, Connecticut Governor Dannel P. Malloy proposed offering college savings accounts for every child born or adopted in the state. This proposal, also heavily influenced by CSD research, was enacted by Public Act #14-217. SEED OK research has shown policymakers that it is possible to put into place a CDA that reaches all children. Building CDAs on a centralized platform, such as a 529 college savings plan, facilitates automatic account opening and deposits, restrictions on use of funds, and efficiencies of scale.
At the federal level, policymakers have discussed using 529 plans to create a system of universal and progressive accounts for children, and SEED OK research will play an important role in informing federal initiatives.
SEED OK research is expected to continue for a number of years. “In the future, researchers can examine whether the SEED OK CDA continues to improve child development, motivates parents and children to prepare for college, and affects high school graduation and college attendance rates.”
Major support for SEED OK comes from the Ford Foundation, and the research has also been supported by the Charles Stewart Mott Foundation and Lumina Foundation for Education.