Where will Children get the Money to Save?

A Lesson from the Global Assets Project

A common critique about children’s savings accounts is that children have little of their own money to save. Advocates of children’s savings contend that children are agents, capable of saving and should be offered opportunities to do so; however, critics propose that children’s savings accounts as they stand may reproduce existing asset inequalities because children may benefit when their parents have access to more financial resources. Simply stated, where will children – particularly those whose parents have little financial resources – get the money to save? International children’s savings innovations are answering this question in a variety of ways, such as by advocating for the linkage between CCTs and savings accounts.

Last month, our friends in the Global Assets Project published a report on the potential of linking savings accounts with conditional cash transfers (CCTs). Their report was based on results from an exciting colloquium held in New York in November 2010 which brought together experts in the field to discuss the potential, develop best practices, and inform future directions for merging savings and CCTs. Conditional cash transfers are anti-poverty programs with broad international support that give low-income families cash for behaviors like children’s school attendance in hopes to improve educational outcomes. The intent of such transfers is to provide families with the needed cash resources to invest in human capital, particularly for families who otherwise might have limited opportunities to invest in such capital. Transfers are often paid in cash or on debit-type cards that can be accessed from local retailers; however, they could easily be paid directly into savings accounts. The report concludes by suggesting that the pairing of the anti-poverty approach of CCTs with the financial inclusion approach of savings accounts (extended to include children’s savings) might produce the best results.

While the colloquium and report focused on international innovations in savings-linked CCTs, there is an important lesson for domestic innovations in children’s savings. Conditional cash transfers might be thought of similarly to incentives in the assets literature. Incentives typically take the form of initial deposits and match contributions to reward saving behaviors; however, using CCTs as an example, incentives could be adapted and expanded upon to provide children with the means to save by rewarding them for educational or other behaviors. As they exist internationally, CCTs are administered to families based on children’s behaviors like attending school or financial education classes. Likewise, incentives could be administered to children directly via their savings accounts for similar behaviors.

What’s more – effects of incentives on educational outcomes are being tested in the U.S., and in some cases, are distributed directly into bank accounts. One example comes from Roland Fryer’s innovative research that tests the effects of financial incentives on educational outcomes. While the results are not conclusive, there are positive, significant effects. (Of note is that Fryer’s original study did not leverage bank accounts in a way that helped children connect incentives for current, short-term behaviors with long-term educational or financial outcomes. Leveraging accounts in such a way might have produced different results). Like the potential of CCTs, a pairing of incentives with savings accounts might help children make connections between how incentives earned for current, short-term behaviors can be used to improve long-term educational outcomes. Importantly, and to the point of where children will get their money, incentives such as these could give children the means to accumulate money apart from their parents’ financial resources.

Many questions remain about how children’s savings accounts will work, like “How will they make deposits?” “Will they even use their savings accounts?” and “How will they learn how to use their accounts?”  These questions should prompt healthy dialogue about children’s savings. And hopefully we can consider how international innovations are relevant and adaptable to domestic innovations as a way to offer solutions and better opportunities for children’s savings.

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Note. We already know from research that adults are able to save when given access to the right combination of financial services and incentives. We may be pleasantly surprised to find that children, even those with limited financial resources, have money to save and can be savvy money managers when given the right supports.