Savings accounts in child’s name provide lifelong benefits

Center for Social Development testing national asset building accounts model

Child Development Accounts (CDAs) are savings accounts that begin as early as birth and allow parents and children to accumulate savings for postsecondary education, homeownership or business initiatives.

“There is evidence that when there are savings and assets in the household — particularly savings in a child’s name — that children have greater educational attainment, are more likely to do well in high school, attend college and graduate from college,” says Michael Sherraden, PhD, the Benjamin E. Youngdahl Professor of Social Development at the Brown School.

Sherraden, who recently was named to TIME magazine’s TIME 100, directs the Center for Social Development (CSD), which focuses much of its research on asset building.

In the United States, there are a growing number of high profile CDA programs based on the work of the CSD. Most recently, a bipartisan group in Congress introduced the America Saving for Personal Investment, Retirement and Education (ASPIRE) Act of 2010, which would provide to every newborn an endowed account with a one-time $500 contribution.


The purpose of the bill is to encourage savings, promote financial literacy and expand opportunities for young adults.

Children in households earning below national median income would be eligible for an additional contribution of up to $500.

“We hope that children in lower income households will get larger initial deposits because there already are plenty of savings and asset building strategies with tax benefits for people who are not poor,” Sherraden says. “An additional incentive to save for lower income families would be very important. All families should benefit.”

Sherraden introduced CDAs in his groundbreaking book, Assets and the Poor: A New American Welfare Policy. In the book, Sherraden points out that asset accumulation is structured and subsidized for many non-poor households, primarily via retirement accounts and home ownership. He argues that opportunities for structured and subsidized asset building should be available to all.

“Promoting and encouraging asset holding by everyone will contribute to economic growth in the long-term,” Sherraden says. “Savings for all is a sensible public policy because it would increase the capabilities, engagement and productivity and enable more people to contribute to their communities and the economy.”

Sherraden and CSD are leading the SEED for Oklahoma Kids (SEED OK) initiative, which tests the impact of giving every child a CDA at birth to be used for post-secondary education. This work is intended to inform a national CDA policy in the United States.

“Through SEED OK, we have randomly given 1,300 children an account and randomly selected 1,300 children as controls,” Sherraden says. “This is a scientific test of these accounts over time. We’re following the kids to see how they do in their early year and into schooling. Hopefully, someone will follow the children all the way through college.”

Sherraden says that because people are thinking more about savings than credit during these tough economic times, the timing could not be better for introducing development accounts.

“It’s hard to move public policy during this time, but there is popular and bipartisan support for this idea,” he says. “The first challenge is to create a system of accounts. The initial deposits can be very modest, but if you create a system of accounts, it’s like setting up a plumbing system.

“Once the pipes are there, the water can flow through the pipes. So, the money could come from various sources — families, corporations, philanthropy, government — once you have the accounts in place.”