Features of Children's Savings Accounts

Features of Children’s Savings Accounts

Children’s Savings Accounts (CSAs) are a type of savings accounts usually specifically designed for higher education savings. They are often available through state or local government programs or nonprofit organizations, in partnership with banks and credit unions. Many CSAs begin with an initial deposit from government or a nonprofit in the name of the child and subsequent family contributions are often encouraged by matching funds.

CSAs often incorporate incentives to encourage saving by disadvantaged youth and families. Withdrawals from CSAs are generally limited to higher education expenses, after the child turns 18. Following college graduation, unspent funds can often be used for other asset purchases (first-time homeownership, small business development, or sometimes cars) or for retirement savings. CSA programs can also include financial education to teach children and families about financial institutions’ products, smart consuming and saving practices, and strategies for long-term investing.

Policy Features 

In the early part of the 21st Century, following successes in asset demonstrations in the prior decade, broad consensus emerged that Children’s Savings Account policies should be universal, progressive, lifelong, and asset-building. Universal accounts would include every child of a given age. Many envision this as account opening at birth, although others argue that there are reasons to tie accounts to other academic or life milestones. Features that would promote universal inclusion include automatic enrollment, concerted outreach and education strategies, and special incentives for lower-income households.

CSAs are also envisioned as accounts capable of keeping individuals connected to financial institutions and facilitating their savings from birth to death. As policies typically include matches and other incentives designed to increase asset accumulation by low-income children and families, CSAs are progressive. Saving is particularly difficult for low-income families and other asset-building policies tend to regressive in their concentration of tax-based incentives to higher earners. Finally, CSAs are understood as vehicles for asset accumulation, not just to build habits of financial savings. When savings are used to purchase other assets—human and financial—their transformative power is much greater.

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