IF YOU BUILD IT, WILL THEY SAVE? THE CANADIAN EDUCATION SAVINGS PROGRAM THROUGH A CHILDREN’S SAVINGS ACCOUNT LENS

THE ASSETS AND EDUCATION INITIATIVE (AEDI)University of Kansas, School of Social Welfare

ASSISTANT DIRECTOR MELINDA LEWIS AND DIRECTOR WILLIE ELLIOTT

NEW AMERICASENIOR POLICY ANALYST RACHEL BLACK

November 18, 2014

Joint Project of New America and AEDI

New America

Mission:

to significantly broaden access to economic resources through increased savings and asset ownership, thereby providing families with enhanced economic security, a direct stake in the commonwealth, and the means to pursue their aspirations.

Assets and Education Initiative

Mission:to create and study innovations related to assets and economic well-being with a focus on the relationship between children’s savings and the educational outcomes of low-income and minority children

http://newamerica.net

http://aedi.ku.edu

Overview

In this presentation, we’ll be answering 3 core questions:

• Why Canada and why now?• What are CSAs and what are they intended to achieve?• What can we learn about CSA programing and policy design by

looking at Canada’s experience?

Why Canada and why now?Interests

• Understanding of CSAs is evolving• Momentum around CSAs at the state and local level • Renewed interest at federal level• Canada offers a model of a national CSA policy with the potential

to inform US policy development

Why Canada and why now?Objectives

• Understand Canadian Education Savings Program, especially how its features contribute to children’s savings

• Compare CESP and U.S. Children’s Savings Account policy, particularly related to the system of 529 accounts

• Identify lessons from CESP for CSA policy and programming in the U.S., particularly regarding decisions about delivery systems, enrollment mechanism, incentives, state v. national design, and roles for private institutions

• Facilitate cross-national learning, informed by developing base of knowledge, largely in the U.S., regarding the framework for understanding the effects of CSAs

Why Canada and why now?Process

• Research review• Policy analysis through lens of U.S.-based asset scholarship• Collaborative deliberation with academics, administrators,

providers, and advocates in both national contexts• Report, policy brief, presentations, and opinion media

Why Canada and why now?Research Considerations

• Despite differences, considerable similarities in educational landscape (rising tuition and high debt, growing inequality, reduced need-based aid)

• Canada has education savings program with structures and incentives used/considered in U.S. (initial deposit, savings match, tax-preferred instrument, participation of private financial institutions)

• Chance to look at two dimensions of CSA effects—asset accumulation and account ownership—and their evidence in a national program

What are CSAs and what are they intended to achieve?

CSAs

• Children’s Savings Accounts (CSAs) have been developed to facilitate asset building among low- and moderate-income children. – Universal programs that serve all young people– Leverage investments by individuals, families, and, sometimes third

parties– Initial deposits– Progressively-financed 1:1 to 5:1 match– Often combined with financial education

• Account Ownership– Research discussion

• How do asset effects occur?• What are the effects of owning an account?• How can small-dollar holdings make a difference?

– Policy discussion• How do we get everyone an account?

The Engine Behind Current CSA Momentum in the U.S.: Small

Dollar Effects

Financial Aid Effects: Before, During, and After College

The Special Case of Wilt

• ‘Wilt’ refers to the sizable number of minority and low-income children who desire to attend college and have the ability to attend college, but fail to transition to college after high school graduation.

• In the U.S., the lowest-achieving children from high-income families attend college at a much higher rate than the lowest-achieving children from low-income families (65% versus 33%, respectively).

• Similarly, 88% of the highest-achieving children from high-income families attend college while only 69% of the highest-achieving children from low-income families attend college.

ACSFA. (2010). The rising price of inequality: How inadequate grant aid limits college access and persistence. Retrieved July 15, 2011, from Advisory Committee on Student Financial Assistance http://chronicle.com/items/biz/pdf/acsfa_rpi.pdf.

Reducing Wilt: The College-Saver Identity

• A student with a college-saver identity expects to go to college and has identified savings as a strategy to pay for it– It’s not enough to imagine that college is in your future; you have to

believe that there’s actually a way to get there.

• College Savers ($500 or more college savings) vs. College-Bound identities are (Elliott, Song, & Nam, 2013):– Full sample: 2X more likely to graduate – Black: 2.5X more likely to graduate – Low- and moderate-income: 3X more likely to graduate

• This is where judging the potential power of a CSA intervention by a metric other than mere asset accumulation—in the form of growing balances—is essential.

The Next Step: From Testing Associations to Testing Causation

• The SEED for Oklahoma Kids (SEED OK) began in 2007 (Kim & Nam, 2009) – The experimental sample was drawn randomly from birth records

provided by the Oklahoma State Department of Health for all infants born during certain periods in 2007 (Treatment n = 1,358; Control n = 1,346).

– Integrated into an existing Oklahoma College Savings Plan, or OK 529– Automatically opened state-owned OK 529 with $1,000 initial deposit

for newborns– Time-limited $100 incentive to open an OK 529 account – Savings match for income-eligible treatments on their deposits of up to

$250 per year (2008-11)

Children’s Socio-Emotional Development

• Infants from households with income lower than 200% of the poverty line who were randomly assigned to receive the CSAs+$1,000 demonstrated significantly higher social-emotional skills at age four than their counterparts who did not receive a CSA (Huang, Sherraden, Kim, and Clancy, 2014). – According to Huang et al. (2014), the effect of the SEED OK CSA is

similar in size to estimates of the effect of the Head Start program on early social-emotional development.

– However, what makes CSAs exciting is the potential to maximize the effects of other interventions.

• The largest effects of the intervention were found for students from relatively disadvantaged households.

• Effects occur regardless of whether parents have saved.

SEED OK Findings Provide Support for Prior CSA Research

• The link between social-emotional well-being and academic achievement has been rigorously tested with overwhelming support.– Employing an experimental randomized design, SEL participants,

compared to controls, demonstrate significantly improved social and emotional skills, attitudes, behavior, and academic performance that reflected an 11-percentile-point gain in achievement (Durlak, Weissberg, Dymnicki, Tyalor and Schellinger, 2011).

• Preliminary results show that the SEED OK CSA leads mothers to maintain or increase their expectations of children’s education (Kim, Huang, Sherraden, & Clancy, under review)

Eventually You Have to Purchase an Asset: Asset Accumulation

• Asset Accumulation– The Research Conversation

• Descriptive, how much wealth inequality exists• Can the poor save?

– Is it enough?

– The Practice Conversation• Institutional solutions over behavioral solutions

– The Policy Conversation• Start saving early

The Good News: The Poor Can Save

• Research shows that:

– Families with low incomes can save if given meaningful access to facilitative institutions

– Early and sustained savings can have a significant impact on asset accumulation

But, CSAs Provide an Infrastructure for Wealth Transfers

Figure. College Accounts and College Assets for Young Children in 529 & inclusive CSAs

What can we learn about CSA programing and policy design by looking at Canada’s

experience?

See AEDI’s New Report For More Information: Examining the Canadian Education Savings Program and its Implications for U.S. Child Savings Account (CSA) Policy

.

Lessons - Enrollment

• Difficult to secure universal participation without automatic enrollment– Targeted outreach can work, but hard to scale, especially if not

connected to K-12 policy/system– Organizations that succeed most in encouraging enrollment

leverage social networks, integrate into financial security programs, link with employers, engage other providers, and reduce ‘friction’ (e.g. helping with SIN application, providing vouchers, coaching families)

– Without automatic enrollment, the most advantaged households will benefit disproportionately, even with progressive incentives

Lessons - Savings

• Canada’s national plan has increased PSE savings– RESPs far outperforming 529s in utilization– Potential for lower administrative costs– Low-income households save ~$740/year in CESP—higher than most

U.S. CSA programs

• Group plans– Setting savings expectations may be important, but these also increase

risk of principal loss

• Leveraging income supports may improve CSA outcomes– Low-income Canadians may have more resources for saving (UCCB,

supplement); removing asset limits reduces ‘friction’

• Transfers may increase balances and may also encourage saving (even when HH saving not required)

Lessons - Delivery System

• Potential trade-offs in using existing structure v. designing one intentionally redistributive – Utilizing existing infrastructure may make universal

engagement more elusive• RESP requirement for SIN, cultural distance to institutions

– Separating accounts from incentives, administratively, may frustrate policy reforms

– Having account architecture may accelerate development of asset approaches

– Human-centered design may influence savings outcomes– May lose ‘gateway’ effects if providers don’t offer other

products

Lessons – Use of Private Institutions

• Private account administration may not serve most disadvantaged– May contribute to skew to advantaged households– Institutions may have few apparent incentives to serve poor

• Provider mix, plan options, regulatory constraints important– Institutional performance varies– Savings contracts may increase savings, but at cost of increased

risk and reduced account ownership effect• Public/private arrangement may drive down costs– CESG administration costs just $12.85 per beneficiary over six

years, on average (annual administrative costs of just $0.06 for every $1 of financial assistance)

Lessons - Incentives

• Matches and initial deposits may work together as effective tools to increase savings, asset accumulation, account opening– Incentives encourage private institutional participation, but

may not secure active partnership– May not have to choose between ‘seed’ and ‘match’—98%

of CLB recipients also saving in their RESP• It appears that incentives must include direct redistribution to

overcome liquidity constraints and counteract disproportionate participation of advantaged households

Additional Lessons

• Policy may need to find levers for account ownership and asset accumulation effects

• CSAs may need to include robust transfers to build balances• Equity in outcomes is important, including attending to asset

accumulation and account ownership effects • Policy/program structure may increase positive effects with

attention to asset theory:– Encourage regular deposits and early opening by setting clear

savings goals – Cultivate ‘ownership’—even automatic enrollment doesn’t

guarantee engagement– Make accounts lifelong

References

• Durlak, J.A., Weissberg, R. P., Dymnicki, A.B., Taylor, R. D., and Schellinger, K. B. (2011) The Impact of Enhancing Students’ Social and Emotional Learning: A Meta-Analysis of School-Based Universal Interventions. Child Development, 82 (1), 474–501.

• Elliott, W. (2013). Small-dollar children’s savings accounts and children's college outcomes. Children and Youth Services Review, 35 (3), p. 572-585.

• Elliott, W., Song, H-a, and Nam, I. (2013). Small-dollar accounts, children's college outcomes and wilt. Children and Youth Services Review, 35 (3), p. 535-547.

• Huang, J., Sherraden, M., Kim, Y., & Clancy, M. (2014). Effects of child development accounts on early social-emotional development an experimental test. Journal of American Medical Association Pediatrics 168(3), 265-271.

• Kim, Y., & Nam, Y. (2009). The SEED for Oklahoma Kids experiment: Comparison of treatment and control groups (CSD Research Brief 09-59). St.  Louis, MO: Washington University, Center for Social Development.

• Mason, L. R., Nam, Y., Clancy, M., Loke, V., and Kim, Y. (2009). SEED Account Monitoring Research: Participants, Savings, and Accumulation (CSD Research Report 09-05). St. Louis, Mo.: Washington University, Center for Social Development.

• Nam, Y., Kim, Y., Clancy, M., Zager, R., & Sherraden, M. (2013). Do Child Development Accounts promote account holding, saving, and asset accumulation for children’s future? Evidence from a statewide randomized experiment. Journal of Policy Analysis and Management, 32 (1), 6–33. doi:10.1002/pam.21652

Questions