Abstract: Effects of Child Development Accounts on Family Financial Well-Being: Evidence from a Randomized Policy Experiment (Society for Social Work and Research 28th Annual Conference - Recentering & Democratizing Knowledge: The Next 30 Years of Social Work Science)

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

Thursday, January 11, 2024
Independence BR C, ML 4 (Marriott Marquis Washington DC)
* noted as presenting author
Aytakin Huseynli, PhD, Postdoctoral Scholar, Washington University in St. Louis, St. Louis, MO
Jin Huang, PhD, Professor, Saint Louis University, St. Louis, MO
Michael Sherraden, PhD, George Warren Brown Distinguished University Professor, founder and director, Washington University in Saint Louis, St. Louis, MO
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.