Editor’s Note:This post was authored by Michael Chasnow. Michael is the Operations Manager for the 1:1 Fund, an online community, conceived and capitalized by CFED, that promotes educational opportunity for low-income students. He received an MBA and masters in urban planning from UNC-Chapel Hill.
Graduating college is a critical step for children from lower income families aspiring to join the middle class. According to 2012 Postsecondary Education Opportunity Research, only 10% of low-income children living in families in the bottom quartile of income (~$33,000 and below) graduate from college by their mid-20s. This low graduation rate severely limits their future opportunities. According to the U.S. Census Bureau, individuals with a college degree earn on average over $900K more in their lifetime than high school grads, and, as the Lumina Foundation argues, more college graduates in the work force also benefits the U.S. economy by helping to create jobs. Additionally, graduating college increases one’s chances of gaining employment (and thus building wealth), with college graduates’ unemployment rates at 3.8% and workers with high school degrees at 8.1% as of November 2012.
Access to rigorous K-12 education is a critical component to preparing students for college attendance and success, but financial preparedness is a surprisingly powerful factor. Research from the Center for Social Development shows that children who expect to go to college and have savings are four to seven times more likely to attend college, and significantly more likely to complete college. Having tangible savings helps give students better understanding of their finances, and perhaps more important, the act of saving for college, even in accounts with small balances, helps to build college aspirations among parents and their children (which New America Foundation Fellow William Elliott documents here).
Recent Growth of the Child Savings Movement
Fortunately, new initiatives are taking root to enable children from varied socio-economic backgrounds to save for higher education – two- and four-year colleges, technical institutes, etc. For example, KIPP schools are piloting these child saving accounts (CSAs) with 6,500 children, and the U.S. Department of Education is opening 10,000 CSAs in GEAR UP sites across the country. Moreover, school districts in San Francisco, California and Cuyahoga County, Ohio are implementing universal child savings programs (listen to this NPR story), which taken together will include about 20,000 new child savers every year. The 1:1 Fund, a new social enterprise of the Corporation for Enterprise Development (CFED), will support more than 8,500 student savers by raising matching funds to encourage families to save more towards their child’s college education.
One of the key lessons for investors is that a longer time horizon is likely to yield bigger gains. This lesson applies to children as well; now is the time to effectively invest in the next generation, and these kinds of child savings programs are a broad-based and cost-effective way to seed increased opportunity for lower income students to complete higher education programs (see Al Cantor’s Stanford Social Innovation Review blog post Closing the Divide). Child savings accounts, especially when coupled with quality financial education, can be a critical element in dramatically increasing college attendance and graduation rates among low-income families. Supporting and growing these CSA programs should be a key asset-building tool that continues to grow – 20,000 new child savers in 2013 is a great start, but broad access to simple and easy college savings opportunities to all families would be much better for our country’s future.