CHILDRENS SAVINGS ACCOUNTS: AN INVESTMENT IN AMERICAS FUTURE

MorethanonethirdofthefourmillionAmericanchildrenborneachyearandmorethanhalfofminority childrenarebornintoassetpoorfamilies.Thesefamilieslackadequatesavingstosurviveatthepovertyline forthreemonthsiftheyhadnoincome.Suchdisadvantageisharmfultoachildsfuture,affectingtheirability topursueacollegeeducation,achievehomeownership,pursueentrepreneurshipandprepareforretirement. Childrenssavingsaccounts(CSAs)arepowerfulfinancialproductsthatcouldexpandeconomicand educationalopportunitiesforchildrenbyencouraginglongtermplanning,buildingfamilywealth,and promotingfinancialliteracy.Furthermore,CSAsofferacriticalopportunitytoimprovethenationssaving behaviorandchartAmericansbackonthecourseofbacktobasicssaving,investingandownership. CSAsaddressthisproblembyprovidingchildrenwithtaxfavored,investmentaccountsthatallowtheir familiestosaveforpostsecondaryeducation,retirement,amongotheruses.Moreover,someCSAmodels offeradditionalbenefitstochildrenfromlowincomefamilies,counteringthenegativeimpactofpovertyona childsfutureachievement.CSAshelpadultstoo,astheypromotelongtermregularsavingshabitsamong parentsandtheirchildrenthroughoutlifeandencouragehigherratesofsavingthatmayhavepositiveeffects upontheeconomy.Finally,CSAsprovidelongtermpatientcapitaltothefinancialinstitutionsthatholdthe accountsprovidingagrowingsourceofliquidityovernearlytwodecades.

President Obamas Save and Invest Economy:

PresidentObamahascalledforaparadigmshiftfromborrowingandspendingtosavingandinvesting.His budgetincludesanexpansionoffinancialproductstoreachlowincomefamiliesincludingAutoIRAanda progressiveSaversCredit.Healsoincluded$10millioninhisFY2010budgetrequesttoestablish20Promise NeighborhoodsacrossthecountrymodeledaftertheHarlemChildrensZonewhichincludesCSAs.

Types of Childrens Savings Accounts:

Childrenssavingsaccountscantakeonavarietyofforms.Fromuniversalaccountsopenedatbirthto modifiedversionsofexistingsavingsproducts,thereareanumberofwaystoexpandthesavings opportunitiesforchildren,particularlyforchildrenfromlowincomefamilies. OneofthebroaderCSAmodels,universalsavingsaccounts,wouldprovideeverychildwithaonetime governmentcontributionatbirth.Theaccounts,typicallyrestrictedinuse,canreceiveinvestmentsbyfamily andfriendsandareavailableatadesignatedagefordesignatedpurposes,suchaseducation.

Policy Details:
AnexampleoftheuniversalsavingsmodelcanbeseenintheAmericaSavingforPersonalInvestment,Retirement andEducationAct(ASPIRE)(H.R.3740inthe110thCongress).UnderASPIRE: Everychildwouldbeendowedwithaonetime,$500governmentcontributionatbirth. Childrenbornintofamiliesthatearnbelowthenationalmedianincomewouldbeeligiblefora supplementalcontributionofupto$500aswellasmatchingfundsofupto$500/yearuntilthechild reaches18.

 Anyfamilywouldbeallowedtocontributeupto$2,000/yearinaKIDSAccountuntilthechildreaches age18. Withdrawalsfromaccountscouldonlybemadeoncethechildreachesage18andcouldonlybeused forpostsecondaryeducation,purchasingahome,orretirement. Financialliteracyprogramswouldalsobemadeavailabletohelpfamiliesdecidehowtoselectthe appropriateinvestmentsandtoteachchildrentheimportanceofsaving. AnexampleofexpandingexistingsavingsinfrastructureincludestheNewSaversActof2007(S.1967inthe 110thCongress).Underthisproposal: AqualifiedindividualcoulduseherallocationforanIRAtoopenaYoungSaversAccount(YSA) accountforherchild.LikeRothIRAs,theYSAwouldallowpenaltyfreewithdrawalsfor postsecondaryeducationandthepurchaseofafirsthome. Contributionscouldbemadetotheaccountbyanyqualifiedindividual.Contributionsmadebylow incomefamilieswouldqualifythemfortheSaversCredit.

OthermodelsthathavebeenproposedincludetheconversionofCoverdellEducationSavingsAccountsintoa 401accountforchildren(401KidsSavingsAccounts),IndividualDevelopmentAccountsforyouthinthe FosterCareSystem,expansionofIndividualDevelopmentAccounts,andexpansionofexistingstate529 Collegesavingsplanstobenefitlowincomechildren.Additionally,variousformsofchildrenssavings accountshavealreadybeenenactedinothercountries,includingCanada,SouthKoreaandmostnotablythe UnitedKingdom.SinceenactedintheU.K.,morethan3millionnewaccountshavebeencreated.Seventyfive percentofU.K.familiesaretakingadvantageoftheopportunitytosaveandinvestintheirchildsfuture.

Recommended Action:
EnactCSAsaspartoftheupcomingTaxBillorotherlegislativeopportunity. IncludeuniversalsavingsaccountsforchildreninFY2010Budget.

Legislative Language:
SeeAmericaSavingforPersonalInvestment,RetirementandEducationAct(H.R.3740)and(S.3557) SeetheNewSaversActof2007(S.1967)

Resource Information:
http://www.cfed.org/go/seedandhttp://www.cfed.org/go/advocacy http://www.childtrustfund.gov.uk/ http://www.newamerica.net/programs/asset_building/aspire_act_kids_accounts# http://www.aspeninstitute.org/sites/default/files/content/docs/pubs/IFS_CaseforChildAccounts.pdf

For more information:

CarolWayman,Federal Policy Director,CF ED,1200GStreet,NW, Suite400,Washington,DC20005 (202)2070125work,(202)7250762cell,fax(202)4089793,Cwayman@cfed.org.