New research from the Center for Social Development (CSD) shows that parents of newborns with Child Development Accounts (CDAs) respond by deepening their commitment to the child’s higher education and their own efforts to save for that education.
The findings come from two newly released publications: a research summary of account and savings data from 2008 to 2019 and a report on analyses of 2020 survey responses. Both publications come from a long-running randomized social experiment, SEED for Oklahoma Kids (SEED OK).
“This new research reinforces the long-term benefits of effective policies to build assets for children automatically from the time of birth,” said Michael Sherraden, the George Warren Brown Distinguished University Professor at Washington University in St. Louis, the founding director of the Center for Social Development, and the experiment’s principal investigator.
A policy experiment with CDAs
CDAs are investments designed to develop assets for all children from their birth until the accumulated funds are tapped for college or other training. In CDA policy, a newborn’s birth record triggers the automatic state enrollment and a seed deposit on the child’s behalf.
That initial deposit, made automatically, is a feature of CDAs, which may also include progressively structured subsidies designed to ensure that all children grow assets, regardless of their family’s ability to save. Informed by the research in SEED OK, seven states — both red states and blue states — have enacted statewide CDA policies, and Pennsylvania is testing progressively structured subsidies.
In 2005, CSD researchers began partnering with the Oklahoma Treasurer’s Office to implement the CDA experiment using the Oklahoma 529 College Savings Plan (OK 529) as the financial platform. Working with a data collection firm, the research team identified a random sample of children born in 2007 and assigned them randomly to the treatment group, which received the CDA in SEED OK, or to the control group. This is a true experiment in a full statewide population, with oversamples of populations of color.
Children in the treatment group received a state-owned OK 529 account with a $1,000 deposit. Parents were offered time-limited incentives to open and contribute to their own OK 529. This investment in each child, a much smaller deposit than originally proposed, enabled the researchers to test the policy concept. In keeping with scientific protocol, children in the control group received none of the treatment — no account and no incentive — but their actions were not restricted in any way; control families were free to open a 529 account or make any other investment.
CSD researchers have followed the children’s progress for 13 years.
In March 2019, when the children were about 12 years old, the researchers made supplemental deposits to the state-owned OK 529 accounts of half of the children in the treatment group: $200 for all of the recipients and up to $600 for those from disadvantaged backgrounds.
All SEED OK parents completed a survey before the start of the experiment in 2007, a second in 2011, when the children were about 4 years old, and a third in 2020, during the height of the pandemic. Through the partnership with the state, the researchers also receive account and savings data for all OK 529 accounts opened for children in the experiment.
The new findings from the research summary and report show that the OK 529 assets increased substantially over time, primarily from investment earnings, which represent 40% of all OK 529 assets for the average treatment child. Balances in the state-owned accounts fell during the Great Recession but grew in subsequent years, and the initial $1,000 deposit almost doubled from 2008 to 2019.
“Our research shows that all children can have assets for college or trade school and that the CDA in SEED OK greatly increases OK 529 assets for disadvantaged children,” said Margaret Clancy. She added, “The CDA also has motivated SEED OK parents to open OK 529 accounts, especially for children from more diverse and less advantaged backgrounds. Due to rigorous research design, we know that many of those children would not have had any college savings at age 12 without the CDA.” Clancy is policy director with the Center for Social Development and director of the SEED OK experiment.
In fact, the new findings show that the parents of children with CDAs are over five times more likely to open their own OK 529 accounts. The CDA in SEED OK prompted a 15-percentage-point increase in the number of accounts opened for the children by their parents. Across parent-owned OK 529 accounts that held deposits from families in the treatment group, the average balance was $9,032. Funds deposited in the CDA at the child’s birth did not substitute for parental saving but instead spurred more parental saving.
On average, treatment children accumulated more than three times the OK 529 assets of the control children.
From 2007 through 2019, the percentage of low-income children with assets in an OK 529 account increased by 99 points and the percentage of children of color with such assets grew by 98 points. Among the children whose mothers have low levels of education, the percentage grew by 99 points. The researchers attribute these effects to the experiment’s universal and automatic enrollment. Much like the Social Security retirement system, policies that are universal and automatic can be efficient and have sizeable impacts.
Results in SEED OK’s new report also show that the accounts shape family planning and preparation for higher education. Relative to the parents of children in the control group, the parents of children with CDAs are more likely to have thought about and prepared for their child’s higher education, and for the costs of that education.
“Our findings demonstrate that CDAs create more positive outlooks and actions in the family, while also enabling families to grow assets for children’s higher education,” Sherraden said.
The children of SEED OK, now about 13 years old, will soon begin making decisions about high school and planning for what will come after it. Their CDAs will be there for them, continuing to shape their options and future development.