A new analysis by the Social Policy Institute at Washington University in St. Louis examines enrollment and participation trends in a newly implemented national Israeli child development account (CDA) policy, finding that 65 percent of households actively enrolled in the program during the first six months.
“Israel’s implementation of a robust, universal CDA program represents a unique opportunity to explore initial enrollment trends in a universal CDA program and examine how household engagement with the Saving for Every Child Program (SECP) during the first six months of its implementation varies across key demographic and financial characteristics of participating households,” said Michal Grinstein-Weiss, the Shanti K. Khinduka Distinguished Professor at the Brown School. She is lead author of a new study, “Enrollment and Participation in a Universal Child Savings Program: Evidence From the Rollout of Israel’s National Program,” published in the journal Children and Youth Services Review.
CDA programs aim to advance long-term savings and asset-building for children and improve their economic outcomes in adulthood, and Israel’s CDA program is the first universal CDA program in the world.
Israel launched the program in early 2017, automatically covering every child under the age of 18. Each month, the Israeli government deposits NIS 50 (Israeli New Shekels), or around $14, into every child’s account.
Children’s parents can actively participate in the program by deciding to transfer an additional NIS 50 from a separate child allowance program into the SECP accounts and choosing a specific investment vehicle for the SECP deposits.
Using administrative population-level data on all SECP-eligible children provided by the government agency that administers the program, Grinstein-Weiss and her co-authors found that 65 percent of Israeli households actively enrolled in the program during the first six months since the SECP inception.
Of these households, 65 percent also deposited an additional NIS 50 into their accounts and 60 percent selected an investment fund rather than a savings account. Therefore, many Israeli households were participating in the SECP in ways that were expected to promote their long-term asset growth.
“However, as can be expected, we also observe key differences in program enrollment and participation behaviors between demographic groups, with low-income, less-educated, less-employed, and ethnic minority households engaging with the program in substantially different ways than less economically vulnerable households,” she said.
“The parents’ education and ethnicity are the strongest predictors of how parents choose to invest for their children, even controlling for income, age, employment, and a wide array of other characteristics,” Grinstein-Weiss said.
Program payouts can be large, but they are dependent on beneficiaries’ and their parents’ choices. It is estimated that if the minimum amount is invested into the low-yield savings account beginning at birth, children can expect to receive around NIS 12,650 at age 18, or enough to cover the first year of undergraduate tuition at an Israeli university; an amount that increases to approximately NIS 61,700 at age 21 if SECP funds are kept in high-yield investment funds and parents deposit an additional NIS 50 from their child allowance, potentially financing a full undergraduate degree.
It is therefore imperative to understand how policymakers can enable households to get the most out of this universal CDA program, Grinstein-Weiss said. The paper concludes by offering a number of recommendations on the program design.
CDA accounts present a promising way to help economically disadvantaged families build long-term wealth and to address the growing issue of wealth inequality. CDAs have been long promoted by Washington University researchers through the leadership of Michael Sherraden, the George Warren Brown University Professor.
Co-authors on the study are Olga Kondratjeva, postdoctoral research associate at the Social Policy Institute at Washington University; Stephen Roll, research assistant professor at the Social Policy Institute at Washington University; Sam Bufe, statistical data analyst at the Social Policy Institute at Washington University; and Ofir Pinto, Netanela Barkali, and Daniel Gottlieb of the National Insurance Institute of Israel.