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On federal children’s account policy, a new ‘shared vision’ grounded in CSD research

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Amid a flurry of behind-the-scenes Congressional activity, key researchers and policy experts have endorsed central elements of a federal children’s account policy. Shaped in large part by research at the Center for Social Development (CSD), the elements and consensus are the subjects of a new brief from CSD.

“These principles and the associated design features represent a shared vision for a transformative federal initiative to deliver a structure that will build assets for every child in the United States while providing greater benefits to children from disadvantaged backgrounds,” said Michael Sherraden, the George Warren Brown Distinguished University Professor at Washington University and CSD’s founding director.

The consensus emerged in a fall 2023 gathering proposed by Sherraden and Faculty Director Trina Shanks.

“Everyone into the same room”

In mid-2023, Sherraden and Shanks reached out to Signe-Mary McKernan, the vice president of labor, human services and population at the Urban Institute. They asked her to organize a meeting.

“Our primary goal was to get all engaged parties into the same room,” Sherraden explained. “With the opportunity for Congressional action, we hoped to work toward evidence-based policy guidance on the developing national child wealth-building policy.”

McKernan, with Urban Institute colleagues Madeline Brown and Ofronama Biu, brought together Congressional staffers, researchers, advocates, and policy experts – 21 in all. Among those in the October meeting were Sherraden, Shanks, CSD Research Director Jin Huang, Policy Director Margaret Clancy, and Faculty Director William Elliott. Despite apparent differences in perspective, a broad consensus emerged in the discussion. The group agreed to endorse six principles and associated design elements for federal early-life wealth-building policy.

“It was a tremendously productive meeting,” said Shanks, the Harold R. Johnson Collegiate Professor of Social Work at the University of Michigan and director of the Center for Equitable Family and Community Well-Being. “The discussion generated a common commitment to the parameters of a federal children’s account policy for reducing wealth inequality and fostering economic mobility. This is a significant achievement that highlights our many points of agreement.”

The recommendations endorsed by the group are represented in legislation now before the Congress in the 401Kids Savings Account Act and the American Opportunity Accounts Act. Research from CSD underpins the recommendations and informed both legislative proposals.

A foundation in Child Development Account research

First proposed by Sherraden in 1991, Child Development Accounts (CDAs) are designed to enable children to begin accumulating assets at birth, assets that can be tapped in later life for investments in developmental priorities such as higher education. The accounts would be part of a centralized policy that covered every child, provided a substantial initial deposit, and accepted ongoing contributions from multiple sources, delivering extra benefits for children born into disadvantage. The term “Child Development Account” refers to the main purpose of the policy: developing all children to reach their potential for a rewarding life and to contribute to the economy and society.

In 2007, Sherraden and colleagues launched the SEED for Oklahoma Kids (SEED OK) experiment as a test of universal statewide CDA policy. The researchers identified a sample of newborns in Oklahoma and randomly divided them into two groups, treatment and control, exposing the treatment group to the CDA policy and a bundle of incentives. The accounts are held in a transformed 529 college savings plan designed to include 100% of children. An effective and sustainable CDA policy structure is being demonstrated in SEED OK.

In 2010, William Darrity and Darrick Hamilton published a proposal for Baby Bonds. Explicitly designed to reduce the racial wealth gap, the CDA-like accounts would be federally managed as trusts for children from families whose net worth was below the national median. Baby Bonds would receive only public contributions, and the assets would grow at a guaranteed rate. Subsequent iterations of the proposal envisioned a universal policy that would cover beneficiaries from birth through automatic enrollment and would progressively structure contributions to build the largest endowments for households with the least wealth. The policy design and delivery of Baby Bonds are now being worked out.

Both proposals, CDAs and Baby Bonds, feature automatic, progressively structured contributions, a centralized financial platform, and asset growth. Both call for public funding, but CDA proposals would draw upon multiple sources, including contributions from philanthropy and individuals close to the beneficiary.

Whereas Baby Bonds would hold assets in publicly managed trust accounts, CDAs would hold them in 529 college savings accounts specifically adapted to be accessible even to children from families with the lowest income.

Research in SEED OK has compared the outcomes of children with and without CDAs, finding that social-emotional development is better and educational expectations are higher among those with the accounts. Mothers of children with CDAs have higher expectations for the child’s education, fewer depressive symptoms, and more positive parenting. The findings also suggest that the accounts shape the identities of mothers and children, encouraging formation of what Elliott and others have called “college-bound identity.”

“The transformative power of Child Development Accounts lies not just in their structure, but in their ability to shape the expectations and identities of both parents and children alike,” said William Elliott, professor of social work at the University of Michigan School of Social Work, founding director of the Center on Assets, Education and Inclusion, and faculty director at CSD.

Perhaps the most important finding from SEED OK is that the CDAs eliminated racial disparities in assets for higher education. They also eliminated disparities in account holding. Findings indicate that other positive effects of CDAs are greater for disadvantaged families and families of color.

The new brief from CSD connects the principles and design features endorsed in October to the SEED OK experiment and to findings from CDA research.

That research has been foundational for numerous CDA policies. In the United States, seven states have adopted CDA policies that use the SEED OK model and over 5 million U.S. children now have assets in such accounts. Internationally, over 20 million have assets in CDAs. The newest national CDA policy was launched in Kazakhstan in January 2024.

As Congressional committees begin work on child wealth-building legislation, the SEED OK team sees a window of opportunity for policy innovation.

“The principles and design features endorsed at the October meeting represent the best thinking on children’s account policy,” said Jin Huang, professor of social work at Saint Louis University, research professor in the Brown School at Washington University, and research director at CSD. “Grounded in policy experience and rigorous research, the consensus on federal early-life wealth building policy brings us substantially closer to the goals we all share.”

Principles for Federal Policy on Early-Life Wealth Building

  • Start at the beginning
  • Ensure inclusion and reduce wealth inequities
  • Make real investments
  • Structure, scale, and transparency
  • Ease of access and use
  • Support vertical connections

Joanna Ain, Kevin Alvarez, Ofronama Biu, Ray Boshara, Leila Bozorg, Madeline Brown, Margaret M. Clancy, William Elliott, Jason Ewas, Darrick Hamilton, Jin Huang, Corey Husak, Shira Markoff, Julio Martinez, Massachusetts Office of Economic Empowerment (represented by Daphna Gluck), Signe-Mary McKernan, Julie Peachey, Colleen Quint, Melissa Sanchez, Trina Shanks, and Michael Sherraden

“Principles for Federal Early Life Wealth-Building Policy”
Madeline Brown, Ofronama Biu, and Signe-Mary McKernan
Fact Sheet | Urban Institute, 2024

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