Effects of Child Development Accounts on Family Financial Well-Being: Evidence from a Randomized Policy Experiment

Background and Objective: Financial well-being is the state of being able to meet current and future financial needs while also having the financial freedom to make choices that enable a fulfilling life. Theories and empirical examinations have articulated different ways that asset building may expand families’ financial opportunities, promote financial capability, and improve financial well-being. The study examines the impacts of an asset-building policy on family financial well-being using the 2020 data (Wave 3) from the SEED for Oklahoma Kids (SEED OK), a longitudinal randomized policy experiment of universal Child Development Accounts (CDAs), which are investment accounts that provide financial access, subsidies, and incentives to advance inclusive asset building for children.

Methods: In 2007, the experiment randomly selected a sample of 2,704 individuals from the population of newborns in Oklahoma and randomly assigned their parents to the treatment (n = 1,356) or control group (n = 1,348). The treatment included a CDA consisting of an automatically opened state-owned Oklahoma 529 College Savings Plan account, an initial deposit of $1000, and savings matches for deposits from lower income families. The Wave 3 survey was conducted between January and August, 2020 when the children were about age 14. About 67% (n=1,799) of mothers completed the survey (Treatment=921 and Control=878).

The dependent variable, the brief financial well-being scale contains 5 items and has a value ranging from 0 to 100, and higher scores indicate higher financial well-being. The scale items include statements such as “I am just getting by financially,” and “I am securing my financial future.” The scale is grounded in a conceptualization which includes four elements: (1) control over one’s finances, (2) capacity to absorb a financial shock, (3) being on track to meet financial goals, and (4) having the freedom to enjoy life. We test CDA effects on family financial well-being using both the pre-COVID sample (N = 672) and the whole sample of Wave 3 participants, controlling for baseline demographic and socioeconomic characteristics.

Results: Findings from the regression analysis indicated that, in the pre-COVID sample, CDAs have positive effects on family financial well-being with an effect size of 8.6% of a standard deviation (p <.05). The mean financial well-being score for the treatment group is 2.32 higher than that of the control group. CDA effects however are not statistically significant in the whole sample (effect size = .02). Robustness tests with different approaches to measuring financial well-being consistently find positive CDA effects in the pre-COVID sample.

Conclusions and Implications: After the start of the SEED OK Wave 3 data collection, the COVID-19 pandemic changed the life routines of families and also affected data collection strategy, methods, and implementation. However, in the pre-COVID sample, which had not been disrupted by the pandemic, we observe a clear pattern that CDAs have positive impacts on families' financial well-being. Future research should explore how CDA effects on family financial well-being are associated with other family and child outcomes.