Every kid should have a savings account

A national program should draw on local models for lessons

Boston Mayor Marty Walsh poses in a K1 classroom at the Patrick J. Kennedy School in East Boston, in 2014.John Tlumacki/Globe Staff

Whether you will be wealthy or poor in America is too often determined not by what you do in life, but by the circumstances of your birth. One reason, of course, is that parents with means can start savings accounts and seed investments that eventually pay for college — a down payment on their children’s future that’s out of reach for many families who struggle just to put food on the table.

For nearly 20 years, economists, nonprofit groups, and Congressional leaders have proposed national programs to give every child in America a savings account. None have passed. But in the meantime, child saving accounts have been gaining traction at the state and local level. As of the end of 2018, more than 65 programs serving nearly a half-million children had sprung up around the country, including in Boston, to create government-subsidized long-term savings or investment accounts for kids. These local experiments offer lessons for creating a national program to benefit all American children.

San Francisco was among the pioneers of child savings accounts when, in 2011, then-mayor Gavin Newsom launched the Kindergartner to College program. To date, the city has opened more than 33,000 accounts, seeded with $50 each, for every kid starting kindergarten in the city’s public schools. New York City launched a program in 2017 to give 3,500 children each year a tax-advantaged college savings account, known as a 529 plan, with an initial deposit of $100. Pennsylvania and Maine have programs that give a seeded 529 account to all babies born in the state; similarly, Massachusetts’ own "SeedMA Baby,” launches next year.

The City of Boston’s child savings account program, “Boston Saves,” started as a small pilot in 2016. Roughly 1,600 K2 kindergartners in 11 public schools received savings accounts automatically seeded with $50 at the end of the three-year pilot. As of this fall, “Boston Saves” has gone citywide to include every kindergartner enrolled in the district’s more than 80 elementary schools. This year, Boston Saves opened 4,000 new children’s savings accounts, with a matching incentive to encourage families to add money. The money can be withdrawn after students graduate high school or complete their GED and used to help pay for the cost of college or career training. While the program is laudable, it’s not enough to address profound wealth inequality among residents, which, echoing national trends, cuts along racial lines. In Greater Boston, one of the most unequal areas in the country, black households have a median net worth of $8, compared to white households at nearly $250,000.

So what do we know about these experiments? Research is currently underway in the first large-scale study, in Oklahoma, to track outcomes of these child savings programs. In 2007, SEED OK gave 1,350 newborns a state-owned 529 college savings account with a $1,000 initial deposit and incentives to save. Preliminary insights can inform the design of national policy. For instance, researchers found that an “automatic account opening for all at birth, automatic initial deposits, and a progressive savings subsidy” should be key features of any child savings program. They also cautioned that “college savings policies that . . . rely mostly on individual saving will inevitably favor advantaged children.” A separate study of the San Francisco program found that financial services environment and geography — whether families with the savings accounts live near a bank— may play a role in how much families actually save. While it’s too early to know the impact of local programs on college-attendance rates, there’s strong evidence they can encourage saving if well designed.

Now that Reprsentative Ayana Pressley and Senator and presidential hopeful Cory Booker are proposing a sweeping national “Baby Bonds” initiative, child savings accounts are in the national spotlight. Booker and Pressley’s bill, filed over the summer, is far more ambitious and expensive than existing programs. It would establish a savings account for every newborn in America, seeded with $1,000 in taxpayer dollars. The account, managed by the Treasury Department, would earn interest and be accessible at 18 years of age. It would receive additional annual deposits that vary with family income. According to Booker’s analysis, the poorest kids’ accounts would accrue about $46,000 total, and black and Hispanic account-holders would receive almost twice that of white people on average. In addition to paying for higher education, the money could be used to purchase wealth-building assets like homes. The cost of the Booker and Pressley proposal is estimated at around $60 billion or more, but it also carries a powerful promise: A study out of Columbia University’s Center on Poverty and Social Policy found that this scale of proposal “would considerably narrow wealth inequalities” between blacks and whites, and would alleviate “the increasing concentration of wealth at the top.”

But there’s at least one way that Pressley and Booker’s Baby Bonds proposal falls short: It won’t actually encourage people to save, because it does not allow families to directly contribute to their child savings accounts. Research has shown that, once accounting for income, black and white families save at the same rates. Low-income families save too, if given the right incentives. There’s no reason not to build this feature into any national child savings plan given what we know about small-scale programs.

Amid rising outrage over inequality in America, and presidential candidates getting attention for plans ranging from universal basic income to a wealth tax, a well-designed child savings account should be high on the list of proposals that voters and leaders consider in order to level the playing field. And to get it right, they’d be wise to rely on what we are learning about programs at the state and local level.