When Israel implemented a child development account policy, 65 percent of households actively enrolled in the first 6 months, research finds.
Such CDA programs aim to advance long-term savings and asset-building for children and improve their economic outcomes in adulthood.
Israel launched the program, the first universal CDA program in the world, in early 2017, automatically covering every child under the age of 18. Each month, the Israeli government deposits NIS 50 (Israeli New Shekels), or around $14, into every child’s account.
Children’s parents can actively participate in the program by deciding to transfer an additional NIS 50 from a separate child allowance program into the SECP accounts and choosing a specific investment vehicle for the SECP deposits.
Who opts in?
Using administrative population-level data on all SECP-eligible children from the government agency that administers the program, the researchers found that 65 percent of Israeli households actively enrolled in the program during the first six months since the SECP inception.
Of these households, 65 percent also deposited an additional NIS 50 into their accounts and 60 percent selected an investment fund rather than a savings account. Therefore, many Israeli households were participating in the SECP in ways that were expected to promote their long-term asset growth.
“However, as can be expected, we also observe key differences in program enrollment and participation behaviors between demographic groups, with low-income, less-educated, less-employed, and ethnic minority households engaging with the program in substantially different ways than less economically vulnerable households,” says Michal Grinstein-Weiss, professor at the Brown School at Washington University in St. Louis. She is lead author of the new study in Children and Youth Services Review.
“The parents’ education and ethnicity are the strongest predictors of how parents choose to invest for their children, even controlling for income, age, employment, and a wide array of other characteristics,” Grinstein-Weiss says.
Enough to pay for college
Program payouts can be large, but they are dependent on beneficiaries’ and their parents’ choices. It is estimated that if the minimum amount goes into the low-yield savings account beginning at birth, children can expect to receive around NIS 12,650 at age 18, or enough to cover the first year of undergraduate tuition at an Israeli university; an amount that increases to approximately NIS 61,700 at age 21 if SECP funds remain in high-yield investment funds and parents deposit an additional NIS 50 from their child allowance, potentially financing a full undergraduate degree.
It is therefore imperative to understand how policymakers can enable households to get the most out of this universal CDA program, Grinstein-Weiss says. The paper concludes by offering a number of recommendations on the program design.
Coauthors of the study are from the Social Policy Institute at Washington University and the National Insurance Institute of Israel.