Building Assets from Birth: Lessons from Around the World

Several countries have been implementing or are proposing policies that build assets for every child starting from birth. Similar legislation has been introduced in the U.S. Congress. Now several states are taking the lead in proposing statewide universal children’s savings account programs. The Sargent Shriver National Center on Poverty Law is participating in national, state, and local efforts to test and advance children’s savings account programs and share lessons learned with policymakers and advocates.

As state laboratories of democracy consider options for universal children’s savings account (CSA) programs, how the early adopters devised a variety of distinctive CSA strategies is instructive. A recent paper, “Building Assets from Birth,” by Vernon Loke and Michael Sherraden of Washington University in St. Louis gives an overview of CSA policies and proposals in five countries. These policies are founded on the concept that the way out of poverty is not through additional income and consumption alone but through the accumulation of assets. The policies are intended to encourage financial literacy and savings, expand opportunities, and boost the economy. The full paper is available here.

The following summaries of the CSA programs in Singapore, the United Kingdom, and Canada are drawn from “Building Assets from Birth.” Some common elements include universal structures, initial government investments and incentives, some targeted incentives based on family circumstances (income or family size), and tax exemptions for capital gains.

Singapore’s Cradle-to-Grave Asset-Building Policies
Singapore implemented the first universal CSA program in 1993. In the Baby Bonus program, the government provides at birth an initial cash gift (U.S.$1,875) that is directly deposited into an interest-earning savings account and matches deposits for up to four children per family 1-to-1 over six years up to a cap (U.S.$3,750 or more) to encourage parents to have children and make additional deposits. Funds are used for child care, preschool, special education or early intervention programs, and medical insurance. From ages 6 to 16, each child can receive about U.S.$2,530 in an automatically opened, interest-earning EduSave account for enrichment programs and incentive rewards for academic or cocurricular progress. At age 16 or when the child leaves secondary school, the funds are transferred to a postsecondary education account. The government matches family contributions to postsecondary accounts between ages 6 and18 up to a cap. Unused balances in the three accounts are rolled over into an account that is matched by employers and can be used for retirement, home purchase, investments, life insurance, certain medical expenses, and educational expenses.

The United Kingdom’s Child Trust Funds
The United Kingdom implemented a universal CSA program in 2005 for children born after September 1, 2002. The government issues a certificate worth about U.S.$430 for deposit in a child trust fund of the parents’ choice: an insured, interest-bearing savings account; a stakeholder account with capped management fees invested in mutual funds or a variety of stocks; or a share account invested in equities with no cap on management charges. The government pays a supplement to children in lower-income families and makes an additional deposit to all accounts at age 7. Parents and others can contribute up to a certain amount to child trust funds tax-free. Funds may be withdrawn after age 18 and used for any purpose.

Canada’s Education Savings Program
With financial incentives, the Canadian Education Savings Program encourages citizens to save for postsecondary education. Families must open a registered education savings plan before the child’s 21st birthday in order to benefit from the education savings program. The government provides a universal savings match of 20 percent on the first C$2,000 or less of annual contributions to the registered education savings plan and additional grants of 10 or 20 percent to lower-income families, up to a lifetime limit of C$7,200 (U.S.$6,430). The registered education savings plan is a tax-deferred savings vehicle akin to an American 529 college savings plan. Children in modest-income families eligible for the National Child Benefit Supplement also receive from the Canada Learning Bond an initial deposit of C$500 (U.S.$446) and annual payments of C$100 (U.S.$89) for up to 15 years to a lifetime limit of C$2,000 (U.S.$1,786). Funds must be used for qualified educational expenses or transferred to another child. Unused funds are forfeited to the government.

Early results show that these programs have increased the number of accounts, deposits, and savings among participants, although participation is lower in lower-income households.

For more information on children’s savings accounts, see http://www.povertylaw.org/advocacy/community-investment/national-and-state-policy.html, http://www.cfed.org/focus.m?parentid=31&siteid=288&id=288 or http://www.assetbuilding.org/AssetBuilding/index.cfm?pg=sections&SecID=103 or contact Dory Rand at doryrand@povertylaw.org or 312.368.2007.