Parents of newborns with Child Development Accounts deepen their commitment to the child’s higher education and their own efforts to save for that education, research finds.
The findings come from two newly released publications: a research summary of account and savings data from 2008-2019 and a report on analyses of 2020 survey responses. Both publications come from a long-running, randomized social experiment called SEED for Oklahoma Kids (SEED OK).
“This new research reinforces the long-term benefits of effective policies to build assets for children automatically from the time of birth,” says Michael Sherraden, professor at Washington University in St. Louis, the founding director of the Center for Social Development at Washington University’s Brown School, and the experiment’s principal investigator.
Child Development Accounts (CDAs) are investments designed to develop assets for all children from their birth until the accumulated funds are tapped for college or other training. In CDA policy, a newborn’s birth record triggers the automatic state enrollment and a seed deposit on the child’s behalf.
The new findings from the research summary and report show that the Oklahoma 529 College Savings Plan assets increased substantially over time, primarily from investment earnings, which represent 40% of all OK 529 assets for the average treatment child.
Balances in the state-owned accounts fell during the Great Recession but grew in subsequent years, and the initial $1,000 deposit almost doubled from 2008-2019. In addition, the findings show positive outcomes for racial and ethnic subgroups. In particular, the CDA increased by 98 percentage points the share of children of color with any OK 529 assets. Among counterparts in the control group, only 2% had such assets.
The CDA also increased the socioeconomic and racial diversity of families with parent-owned OK 529 accounts.
“Our research shows that all children can have assets for college or trade school and that the CDA in SEED OK greatly increases OK 529 assets for disadvantaged children,” says Margaret Clancy, policy director with the Center for Social Development and director of the SEED OK experiment.
“The CDA also has motivated SEED OK parents to open OK 529 accounts, especially for children from more diverse and less advantaged backgrounds. Due to rigorous research design, we know that many of those children would not have had any college savings at age 12 without the CDA.”
Sherraden says: “Our findings demonstrate that CDAs create more positive outlooks and actions in the family, while also enabling families to grow assets for children’s higher education.”