Child Saving Accounts: A Cross-National Comparison of Polices in Canada and the United States

PURPOSE: There is great interest in supporting youth, especially those from less advantaged backgrounds, to attend post-secondary education.  One mechanism to encourage education attendance is through child saving accounts (CSAs) or child development accounts (CDAs), specialized saving accounts that help families build assets for their children’s education. Previous research indicates that education saving accounts can increase the college intentions of both parents and children, improve academic performance, and even contribute to healthy child development. This paper uses comparative data from the United States and Canada to explore how family characteristics and variations in policy incentives for child saving accounts contribute to whether families engage in this type of saving.

METHODS: We conduct a comparative analysis using data from the U.S. National Financial Capability Study (2009) and the Canadian Financial Capability Study (2008). We explore the household and demographic characteristics, and the financial attitudes and behaviors that are associated with education saving within the national child savings plans -- the 529 Education Plan in the U.S  and the RESP (Registered Education Saving Plan) in Canada -- and how these relationships differ between the two countries. We also incorporate data on variation in child saving account features (e.g. seeded accounts, matched contributions, tax incentives) between states within the U.S and between provinces within Canada in order to identify whether program incentives increase participation in these accounts.

RESULTS: Descriptive statistics identify vast differences in rates of education saving among adults with minor children in the U.S. (33.8%) and Canada (65.7%).  Results from logistic regression models identify income, education attainment, willingness to take financial risks, and strength of the child saving account incentive as significant predictors of education saving. Analyses of policy variation within U.S states suggests that strong child saving programs may be playing more of a compensatory than supportive role by aiming to increase participation in states with below average levels of education saving.

IMPLICATIONS: In era with college costs that continue to rise, it is important to support the capacity of families to prepare for their children’s education with attractive and accessible saving options. Policies which successfully promote the broad adoption of child saving accounts through mechanisms such as integration with existing education and service systems could expand access. Programs that seed accounts or provide matched contributions to support the development of these savings among families with limited income and other disadvantaged populations may have particular merit.