Childrens Savings Accounts: Building Assets for All Illinois Children

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Childrens Savings Accounts Building Assets for
All Illinois Children

• Illinois Asset Building Group

April 2008
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Presentation Format

• Introduce IABG
• Review/ define asset-building
• Discuss Childrens Savings Accounts as an
  asset-building approach to increasing economic
  security
• Highlight the impact of Childrens Savings
  Accounts through a review of similar programs
• Describe efforts in Illinois to create a
  Childrens Savings Account program

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Illinois Asset Building Group

• Developed in 2003 as one of a handful of state
  efforts aimed at promoting an innovative approach
  to eliminating poverty and creating opportunities
  for individuals and communities
• Co-chaired by Heartland Alliance for Human Needs
  Human Rights and Sargent Shriver National
  Center on Poverty Law
• Goals Build Assets, Increase Savings
  Opportunities, Protect Existing Assets, and
  Promote Financial Literacy

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What Are Assets?

• Asset an item of economic value that can be
  turned into cash or increase cash inflow
• Assets
• savings account,
• college education,
• home, or
• a small business
• Help individuals and families live securely
  today, weather difficult financial times, plan
  for the future, and pass wealth on to the next
  generation
• Strengthen communities by creating financial
  stability
• When individuals and communities are stable, the
  entire state benefits job growth, tax revenue

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What Are Childrens Savings Accounts?

• Universal savings accounts opened at birth for
  children
• Seeded with an initial deposit and complimented
  by a progressive matched-savings component
• Used for designated purchases educational
  expenses, homeownership, entrepreneurship
  endeavors when the child reaches least 18
  years old

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Why Build Assets for Children?

• Promotes life-long financial literacy and savings
  behaviors
• Raises aspirations of children and parents for a
  better future
• Helps bring back the idea that education (and
  money) creates new opportunities

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.. and When the Children Become Adults

• Creates opportunities for career advancement,
  skills development through increased education
• Provides family, individual stability through
  homeownership, small business ownership
• Increases lending eligibilities, helps steer
  clear of predatory lending, such as payday loans
• Asset attainment can make the difference between
  getting by and getting ahead

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Research Supporting Childrens Savings Accounts

• More than a quarter of the 180 thousand Illinois
  children born each yearand more than half of
  minority childrenare born into asset poverty.
• Holding assets at age 23 is associated with later
  positive outcomes such as better labor market
  experience, marriages, health, and political
  participation.

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Research Supporting Childrens Savings Accounts

• Over their lifespan, people with bachelor's
  degrees earn over 80 more, on average, than
  those with only high school diplomas.
• Typical costs to attend a 2-year public college
  are below 2,000 per year 4-year public college
  expenses are estimated to be just under 4,000
  annually. Yet, 2 in 5 American children will
  never complete a single year of college.
• For the typical American household, home equity
  represents 30 of their net worth, far
  outreaching any other investment.

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Programmatic Justification for Childrens Savings
Accounts

• Opened at birth, CSAs can inspire, provide
  discipline and guidance, and grow with a child
  from her earliest and most impressionable years. 
• Because CSAs grow over the course of decades,
  they take full advantage of the miracle of
  compound interest and may require more modest
  levels of public investment. 
• From a financial product point of view, CSAs are
  likely to be profitable, particularly if they
  were provided to all children, regardless of
  income, seeded with an initial deposit, and
  allowed to grow with few withdrawals over a
  longer period of time. 

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But Will This Really Fly?

• Asset policy is a new approach to eliminating
  poverty and creating economic security for all
• Corporate, business leaders supportive of
  investment and savings
• Financial institutions see opportunities for new
  customers
• Children are particularly compelling
  beneficiaries for social programs

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Current CSA Programs

• UK Child Trust Funds
• Singapore Cradle to Grave Savings Program
• Canada Education Savings Plan

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Similar State Efforts

• Maine NextGen
• SEED for Oklahoma Kids

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Other Notable Proposals

• Savings for Education, Entrepreneurship, and
  Downpayment (SEED) Policy and Practice Initiative
• a multi-year national initiative to develop,
  test, and promote matched savings accounts and
  financial education for children and youth.
• America Savings for Personal Investment,
  Retirement, and Education (ASPIRE) Act
• New Savers Act

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IABG Principles for a CSA Plan

• Inclusive so that all children can participate
• Seeded with an initial deposit so it creates a
  concrete asset at the onset
• Progressive in structure, providing higher
  initial deposits and/or matching funds for
  savings deposited by lower-income families
• Simple so that investment decisions are limited
  and easily understood
• Linked to age-appropriate financial education to
  build savings and investment skills
• Nondiscriminatory to families receiving public
  benefits
• Protected from use until the child is at least 18

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Illinois Efforts

• Task Force Approach
• Provides opportunity for buy-in from variety of
  constituents
• 2007 HB1662 created the Childrens Savings
  Account Task Force
• Appointed by the Governor
• Administered from the Treasurer
• Aimed at creating a plan for providing CSAs to
  all Illinois children
• Deadline November 1, 2008
• Task Forces plan would be the basis of
  legislation championed by IABG TF members

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Task Force Status

• HB1662 passed the General Assembly with unanimous
  support
• Signed by the Governor in August
• IABG developed list of recommended members to the
  Office of the Governor in September 2007
• Task Force is expected to convene in the summer
  of 2008

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IABG Action

• Continue to talk with advocacy leaders, elected
  officials, financial experts about CSAs
• Developed our own CSA plan based on our
  principles
• Working with organizers around the state to
  conduct extensive outreach
• In discussions with the Treasurers office about
  ways to move the issue forward and prepare for
  the Task Force meetings

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What Can You Do to Help?

• Join IABG
• Add this issue to your policy agenda
• Talk with your community about asset building and
  CSAs
• Contact elected officials and let them know you
  support CSAs
• Visit our website for more information
  www.illinoisassetbuilding.org

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For more informationChris Giangreco312.870.493
9support_at_illinoisassetbuilding.org