Childhood Savings Contribute to Increased Academic Aspirations

Early childhood (from birth to age 5) is a critical period in the development of a child’s cognitive, behavioral, and social abilities, as well as his or her lifelong economic prospects. Research has shown that cognitive aptitude is more influenced by a child’s environment during this time than at any other point in his or her life. Living in poverty can increase the levels of stress hormones in young children and impair blood supply to their brains. As a result, children’s language and memory skills can be permanently impaired. By the age of three, large gaps can be seen in the vocabularies of children in families receiving public assistance compared to their counterparts in wealthier families.

Growing up in poverty also has consequences for long-term economic prospects and mobility. Of children born into families in the lowest income quartile, 46 percent never earn more than their parents. Among African-American children, that likelihood increases to 63 percent.

The importance of addressing these effects of poverty is magnified by the number of children impacted. More than 40 percent of young children in the United States live in families whose earnings are less than 200 percent of the official U.S. poverty threshold, the minimum level of income that families need to make ends meet. Similarly, asset poverty, defined as having insufficient net worth to subsist above the federal poverty level for three months in the absence of income, is most concentrated in households with children. CFED’s Financial Security of Households with Children report shows that fully 27.3 percent of these households are living in asset poverty, with 16.6 percent of them in extreme asset poverty. For African-American households with children, these figures reach a staggering 49 and 32.1 percent, respectively.

In addition to providing critical income supports, saving and accumulating assets can serve to improve parents’ financial security and lower their levels of stress. This, in turn, can support the healthy development and economic prospects of children. Assets help families with young children create a financial nest egg, increase economic opportunity, and transform their aspirations and sense of what is possible for their children’s futures, including plans for college. A growing body of research provides compelling evidence around both adult and child savings as key components for increasing economic mobility and life expectations:

• Savings and assets contribute to increased academic achievement. Several studies have shown that, regardless of a family’s income level, the children of parents who own assets are more likely to have higher academic achievement and complete more years of education. Research from the Center for Social Development (CSD) shows that children in families with as little as $3,000 in savings had greater odds of graduating from high school than children in families without savings.

• Savings in early childhood help increase future expectations and college-going aspirations. People who own assets such as a savings account for college are more likely to have a positive outlook and higher expectations for the future both for themselves and for their children. In fact, according to the Pell Institute for the Study of Opportunity in Higher Education, students with college savings are nearly twice as likely to have higher expectations for attending college as students with no college savings.

• Asset accumulation is positively related to college attendance and completion for youth. Recent research confirms a positive relationship between assets and college expectations and completion. After controlling for family income and other characteristics, a CSD study found that assets are consistent, stable predictors of college graduation. In a related study, among youth who expect to attend college, those with a savings account in their name are about seven times more likely to actually attend than similar youth who do not have an account.

With proper support and incentives, families with young children can save and begin to accumulate assets. Asset building strategies such as IDAs can help change the aspirations and financial security of low-income families and their children.

Similar to IDAs, incentivized savings accounts specifically for children are another means of increasing savings among low-income families. Incentivized children’s savings accounts can provide opportunities for economic mobility and help children and youth start building meaningful savings at a young age while also learning about money and finance. A number of municipalities are launching or considering incentivized children’s savings programs; one example is the City of San Francisco, which has initiated its Kindergarten to College Savings program.

Practitioners interested in implementing programs targeting families with young children should consider collaborating with the early childhood development community. Rather than creating standalone savings programs, practitioners should integrate asset building initiatives targeting this cohort into other delivery systems already reaching large numbers of children and families. Such entities include federal or state-sponsored programs such as Head Start, social service networks, municipalities and school systems, and other youth-serving organizations.

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Article content from the Assets For Independence (AFI) Resource Center, IDA Resources Update, February 17, 2011; http://www.graphicmail.com/new/viewnewsletter2.aspx?SID=0&SiteID=29541&NewsletterID=635034