College Savings Accounts for Low-Income Children: Early Evidence from the SEED Demonstration

Purpose: Children raised in households with assets are more likely to graduate from high school and enroll in college. Growing evidence shows that even in low-income households with few assets, such assets have a positive effect on children's educational outcomes by positively influencing parental educational expectations. The Saving for Education, Entrepreneurship, and Downpayment (SEED) Policy and Practice Initiative was designed to test the efficacy of progressively funded savings accounts for children. SEED provides the opportunity to test whether having a Child Development Account (CDA) influences parental expectations, motivation, future orientation, and eventually children's educational attainment.

Methods: The multiyear, multimethod study was conducted at the largest of 12 community-based SEED programs, using a quasi-experimental design. This study compiles data from a CDA program targeting parents of preschool children (n=790). In 2004, parents of children assigned to the treatment group were eligible to open college savings accounts with an initial deposit of $1,000 and receive a one-to-one match for deposits up to $1200. Program effects are assessed in 2 waves of a quantitative telephone survey with treatment group parents (n=381) and comparison group parents (n=409), using developmentally appropriate measures of children's educational well-being. In addition, qualitative methods were used with treatment group parents to facilitate understanding the complexities of how parents made decisions regarding program participation.

Results: CDA program recruitment turned out to be difficult. Of the 381 parents eligible to open college savings accounts, 235 (62%) eventually opened CDAs whereas 146 (38%) did not. We find few individual characteristics that reliably differentiate account openers from non-openers. As expected, given that 85% of families in the study are living at or below 150% of the federal poverty level at baseline, resource constraints are a barrier to asset building. However, our qualitative research with parents who opted not to open CDAs shows those decisions were also shaped by misunderstandings, concerns, and fears about the program and college savings accounts. Initial explanations for nonparticipation in SEED were typically simple and alluded to issues that should have been relatively easy for program staff to resolve. However, as discussions with non-enrollees unfolded, their complex reservations emerged, including mistrust of bureaucratic programs and financial institutions, reluctance to share financial information, and embarrassment regarding gaps in financial knowledge.

Implications: Our findings contribute to social work research and policy by helping to illuminate parental economic decision making in understudied populations. Further, this study tests a concrete program model within a quasi-experimental design. Most parents in the study reported wanting to save and build assets for their children. Further, despite serious resource constraints and limited financial knowledge, 37% of parents opening SEED accounts made personal deposits. Qualitative findings for those parents who opened CDAs suggest that the accounts tap into and bolster their expectations and hopes for their children's futures. However, our findings also indicate a need for new ways to introduce and promote CDAs, particularly in low-income minority communities in which many families are unbanked or have limited access to mainstream financial institutions.