Investing in Children

Properly designed and integrated Child Development Accounts (CDAs) can have lasting, positive effects on children's educational development and can improve their long-term economic outcomes. While much discussion of CDAs (also known as CSAs or Children's Savings Accounts; the terms are interchangeable) treats the accounts in isolation, Investing in Children: Child Development Accounts as an Early Childhood Intervention argues that, to be most effective, CDAs should be situated within the broader context of other early childhood interventions like pre-K and Head Start.

Poverty, especially when it is experienced early in life, can inhibit children's opportunities for educational and economic advancement by stagnating their early development and educational achievement.

• Children growing up in poverty develop lower cognitive capacity, produce fewer vocabulary words, and struggle with numeracy significantly more often than children growing up in financially secure or higher-income families.
• Children growing up in poverty may arrive to kindergarten unprepared. They may start well behind their peers, struggling to catch up and perhaps never doing so.
• Early gaps in development and educational achievement may expand exponentially across the life course if left unattended and prevent children from experiencing future opportunities for educational and economic advancement.

Early childhood interventions—delivered from birth or infancy through age 8—are designed to prepare all children to reach their full potential and have opportunities for educational and economic advancement, while mitigating the effects of poverty.

• Children's attendance in early interventions like preschools and Head Start is associated with better developmental, educational, and financial outcomes as they grow older.
• Early childhood interventions take a preventive approach to closing gaps created by poverty by making early investments in children and potentially creating long-term benefits experienced by individual children and society

CDAs are a preventive, economic intervention that can complement early childhood interventions and may improve children's opportunities for educational and economic advancement.

• CDAs—accounts opened at birth in children's own names—are preventive because they are implemented early in life (ideally from birth), before the effects of poverty become pronounced.
• CDAs can provide families with an opportunity to make short- and long-term economic investments in their children and leverage and maintain children’s early improvements in development and educational achievement.
• Evidence suggests that CDAs are related to children's improved social-emotional development, reading and math achievement, increased college enrollment and graduation, reduced student loan burdens, established and maintained relationships with mainstream banking institutions, and diversified asset portfolios.
• Research confirming the relationships between children's early savings account ownership and these important life outcomes bolsters the potential of CDAs as an effective and preventive intervention for complementing existing early childhood interventions and narrowing gaps before they become difficult and costly to reverse.

Children can develop ownership over CDAs opened in their own names. Children may be empowered by the mechanism of ownership to internalize that they are the owners of their CDAs and their futures.

• Ownership may integrate CDAs into the self, producing positive effects on children's educational and economic outcomes.
• When CDAs are not in children’s names, children might not associate the accounts with their aims or perceive them to be an extension of the self, losing some power to shape children’s attitudes and expectations about the likelihood of future outcomes.

CDAs opened at birth or shortly thereafter are introduced at a time of children's extensive developmental change. Therefore, if CDAs are to empower children via ownership, it is important to understand when and how children are developmentally prepared to become owners of their CDAs.

• Children achieve detectable milestones in economic knowledge and behavior and cognitive-psychological and linguistic development at age five or six, also referred to as early childhood.
• Early opportunities to save may make use of an important time in children’s development by influencing them when they may be most impressionable.
• With the support of their parents, children at age five or six can carry out simple behaviors like making deposits into their CDAs.

CDAs can be considered an early childhood intervention and an early investment in children's futures. Given that CDAs span developmental milestones ranging from birth to adulthood, it is important to know how development might complement CDAs administered early in life and vice versa to have a comprehensive understanding of the potential policy impact on children. This is especially important if children are to own and interact with their CDAs.

• Open CDAs in children’s names to cue their ownership over accounts.
• Leverage language to message and market CDAs, making the future feel more proximal.
• Allow CDAs to facilitate saving toward short- and long-term goals.
• Integrate desired rules or norms about saving into CDAs as part of their messaging.
• Incorporate observable characteristics to make CDAs understandable to young children.
• Incorporate cues into CDAs that can prime saving behaviors, making it easier for children to store and retrieve information about saving.
• Design CDAs to grow with children’s saving needs across the life course.

Read the full paper