Child Development Accounts: A big gamble that could have a big payoff
The St. Louis College Kids program is an example of a Child Development Account, or CDA, which are savings or investment accounts that begin as early as birth or kindergarten. City- and state-sponsored CDAs are springing up rapidly across America, designed to change how young people from low-income families see themselves and their futures.
The hotbed for generating ideas about CDAs — as well as research to learn about their efficacy — lies just a few MetroLink stops west of St. Louis City Hall, at the Center for Social Development at Washington University’s Brown School of Social Work.
Plenty of research shows that a large percentage of low-income students and students of color fail to move on to college despite the desire and ability to go. Too often they don’t make the transition because they don’t believe they belong in college or would succeed once they got there.
CDAs are designed to flip the script, as it were. And if they work as hoped, they could amount to the first truly game-changing strategy in a century of government efforts to address one of America’s most intractable problems: multi-generational poverty.
William “Willie” Elliott, a Brown School alumnus and one of the nation’s foremost researchers on CDAs and wealth inequality, acknowledged that the St. Louis College Kids’ participation rate of 15 percent is low compared to similar programs nationwide.
“But to me that means don’t get rid of it,” Elliott says. “Fix those things.”
The St. Louis College Kids program is modeled on the K2C — Kindergarten to College — program run by the San Francisco City Treasurer’s Office. Founded in 2011 by then-Mayor Gavin Newsom, K2C is the oldest program of its kind in the nation and oversees 52,000 accounts.
K2C has a participation rate of 35 percent. But Amanda Fried, the chief of policy and communications for the San Francisco Treasurer’s Office, says college savings accounts should not be judged by how much money is saved in them.
What matters most is if students engage with their accounts in some way, Fried says.
“It’s not necessarily the money they save in the account, what’s going to propel them to college or help them defray the cost of higher education,” she says. “It’s really about creating a college-going mindset.”
Last summer, California launched CalKIDS, designed to be the nation’s biggest children’s savings account program. CalKIDS automatically starts college savings accounts with initial deposits of up to $100 for every baby born in California.
Nevada has already set up savings accounts for all kindergarten students in public schools. And five other states — Illinois, Maine, Nebraska, Pennsylvania and Rhode Island — have launched automatic college savings accounts with seed deposits for every child born or adopted in those places.
Perhaps the most influential experiment underway, called SEED for Oklahoma — and overseen by Michael Sherraden, the co-founder of Washington University’s Center for Social Development — began in 2007, with 2,700 randomly selected newborns in Oklahoma. Parents of half the newborns were given $1,000 to invest in an Oklahoma 529 college savings account. Those kids are now finishing their freshman year of high school.
CDA programs collectively enrolled about 700,000 children in 2019, according to a report by the U.S. Government Accountability Office, the Congressional watchdog agency.
The GAO report cites evidence that these programs have positive short-term effects on families.
One study found that families enrolled for seven years saved four times more of their own money, on average, than families who were not enrolled — $261 compared to $59.
Enrollment and participation in CDA programs may also increase families' educational expectations for their children.
“For example, a study found that parents with children enrolled in one CDA program were nearly twice as likely to expect their children to attend college,” the GAO report concluded.
Treating the 'root cause'
Policymakers have for too long tried to solve the challenges of long-term family poverty by treating the symptoms, such as hunger, homelessness and poor healthcare, as problems to solve piecemeal, says Elliott in a recent phone interview from his office at the University of Michigan, wheTreating the 'root cause're he is a professor of social work.
“It also means we never treat the root cause, which is really their ability to build assets,” Elliott says
Elliott himself grew up poor in a neighborhood just south of Pittsburgh. His parents endured homelessness while his mother underwent treatment for cancer. Elliott gave up dreams of attending law school and earned money for college with a stint in the Army.
While earning a doctoral degree in social work at Wash U, Elliott filed for bankruptcy. He remained in school only because he received financial help from Sherraden, a mentor at the university’s Brown School.
One of the key things he’s learned, Elliott says, is that the way out of poverty lies along the path of asset accumulation.
“Building assets allows people to build their full potential,” he says. “Because it augments their ability to tackle the system.”
But universal CDAs represent a long-term gamble for the states and cities that invest in them.
The best programs require big investments in time and money, with the government entities sponsoring them tasked with tracking individual deposits, balances and disbursements over decades.
And the payoff is uncertain. Research into CDAs is still so new that none of the kids enrolled in the first wave of studies has graduated from high school yet.
Elliott believes the results could be big.
Rationally, for a kid growing up poor, it’s hard to make the case for long-term investments in their own futures — not in an unpredictable, disorderly world filled with sudden job loss, health emergencies, bad housing options and early deaths from gun violence, drug overdoses and poor healthcare.
CDAs give kids growing up in poverty something they can control.
“So what you’re trying to do is give these kids a sense of some control over their future,” he says. “That allows them to invest in their future.”
Mike Fitzgerald can be reached at email@example.com. For more on the River City Journalism Fund, which provided funding for this project and seeks to support local journalism in St. Louis, please see rcjf.org.