Banking on the Future: Building an Infrastructure around Children’s Savings

Two days ago, the NY Times published an op-ed describing how the economic recession has called attention to the U.S.’s general neglect of infrastructure development. The op-ed contends that in recent years, the U.S. has made relatively few investments in infrastructure ranging from transportation to energy and that this has implications for the country’s long-term sustainability and growth. Support is made for S.652 Building and Upgrading Infrastructure for Long-Term Development which would create the American Infrastructure Financing Authority (AIFA), recently proposed into Congress with bipartisan support and intended to spur infrastructure development vital to the country’s future. AIFA would invest private capital into grants and loans for long-term and financially sustainable projects related to infrastructure development. I think the interesting parts of the op-ed, though, are the ideas that infrastructure is a worthy investment for long-term sustainability and growth and that widespread investment in infrastructure could be reminiscent of Roosevelt’s New Deal. And especially how these ideas might relate to children's savings.

Why might this be interesting? There are a few reasons. First, the recent economic recession has made us keenly aware that many U.S. households lack a financial safety net. That is, households have few financial resources to buffer themselves during an unexpected event, like job loss or foreclosure. Second, many households lack access to mainstream financial services like basic savings accounts, which are important for developing a financial safety net. This is especially true among low-income households, who often rely on predatory financial services with high interest rates and penalties. Low-income households may ultimately pay interest toward predatory financial services like payday loans whereas high-income households earn interest on mainstream financial services like basic savings accounts. Third, just like investment in transportation and energy, there is need for investment in financial infrastructure to support low-income household’s access to mainstream financial services. This means supporting and encouraging our financial institutions, like FDIC-regulated banks, to be more willing to hold accounts that fit the needs of low-income households (i.e., ‘small dollar’ basic savings accounts with low minimum balance and deposit requirements) because the financial well-being of low-income families is necessary for the country’s long-term sustainability and growth as a whole. Fourth, the sooner the financial infrastructure is extended and households are able to access mainstream financial services, the better. This means that households need to be included in mainstream financial services early rather waiting for an economic recession to shed light on their financial fragility. Finally, and to the point of banking on the future, establishing universal children’s savings accounts beginning at birth and extending across the life course is a proactive approach to making the financial infrastructure available early. Policy innovations like the ASPIRE Act, for instance, would establish universal children’s savings accounts as a way to spark early financial inclusion and hopefully lead to improved financial outcomes throughout their lifetimes.

The pieces to build a better financial infrastructure are moving into place, although at times they seem to be moving separately and in an uncoordinated fashion. One example is the advent of the Consumer Financial Protection Bureau (CFPB), which intends to promote financial education, provide and enforce regulation, and gather and analyze data to eventually create better mainstream financial services. The CFPB breaks out of the running gates just one week from today – July 21, 2011. Another example comes from the 2012 budget proposal, which would allocate $519 billion in resources to promote savings and asset-building opportunities to help households gain access to mainstream financial services and develop their financial safety net.

One piece of the financial infrastructure that is still trying to establish itself as a piece worthy of consideration (and as a result sometimes gets forgotten) is universal children’s savings accounts, such as those proposed by the ASPIRE Act. Children’s savings and the ASPIRE Act are not a part of the already established financial infrastructure, but they very well could be if passed into legislation. Further, children’s savings could go a long way toward helping the other pieces of the financial infrastructure, typically aimed at the household level, fit together. If we follow along that financial infrastructure is necessary for long-term sustainability and growth (especially for low-income households) and that this infrastructure should be widespread (not unlike Roosevelt’s New Deal), then we may need to build this financial infrastructure around children, also. This means several things:

• Promoting financial education and making it available in a widespread fashion, like through the public school system;
• Creating products and services that are relative to children’s needs, like basic savings accounts, and making them universally available;
• Creating products and services for children that are also viable for (and thus attractive to) financial institutions, perhaps like basic savings accounts opened at an early age to help establish long-term relationships with financial institutions;
• Supporting these aforementioned efforts by making the necessary funding available; and,
• Imbedding these efforts into the day-to-day functions of financial institutions, public schools, households, and children to create a coordinated and intentional infrastructure around children’s savings that is a part of their everyday lives.

It is one thing to talk about what needs to be done to build infrastructure around children’s savings, and quite another to accomplish them. However, we need to consider how children’s savings fits into this larger picture so we can build a better and widespread financial infrastructure and bank on the future.