Braylon Dedmon was 3 days old when his mother, Talasheia, was offered $ 1,000 to open a college savings account in his name.
âI thought, ‘What? Ms. Dedmon remembers. The antennae of his skeptic tingled. “I was a bit scared.” Was it a scam?
This was not the case. The offer was the start of a large-scale research project launched in Oklahoma 14 years ago to investigate whether setting up savings accounts for newborns would improve their graduation rates and their outcomes. chances of going to college or business school years later.
A few weeks after that initial conversation in 2007, the first statement arrived, showing $ 1,000 on behalf of Braylon. âI was shocked,â said Ms. Dedmon, who now lives in Muskogee. “They started sending me statements every three months and have been sending me ever since.”
The experiment, called SEED for Oklahoma Kids or SEED OK, is one of a growing effort by cities and states – ruled by Democrats and Republicans – to help a new generation move up the educational ladder and to build up assets. This study and others are not finished, but at a time when the gap between the richest American and everyone else is widening, the results are encouraging.
Research on Project Oklahoma released this month by the Center for Social Development at the University of Washington in St. Louis, which created SEED OK, found that families who had received accounts were more focused on the university and contributed more of their own money than those who had not been. And the effects are most pronounced among low-income families.
The approach breaks with most of the social policy programs created over the past half-century that focus on income support. Children’s savings accounts, on the other hand, focus on building assets over the long term.
Michael Sherraden, the founder of the University of Washington center, said the idea was to give everyone an interest – an investment – in the future. The benefits of the program extend not only to bank accounts, but behavior as well. Households with start-up capital – especially poorer ones whose parents did not attend university – have higher expectations of higher education, are more optimistic, have higher rates of depression. low and save more.
University savings accounts, known as 529 plans, which limit withdrawals and grow tax-free, are only used by a tiny fraction of American households, mostly in the upper end of the scale. income.
The Oklahoma program expands that scope. The more than 1,300 children randomly selected to receive accounts in 2007 had an average of $ 3,243 saved at the end of 2019. Among the control group – 1,300 other children who were randomly selected to participate but who did not received no money – only 4% had an account.
Parents of children with accounts were also about five times more likely to contribute cash than those in the control group.
Without the SEED OK account, Ms. Dedmon admitted, âI never would have thought of saving for college.â
When Braylon was born, Ms. Dedmon was 21. At the time, she said, she didn’t understand that saving in a bank would generate interest income. Subsequently, when she had some extra cash, she added it to Braylon’s account.
âHe told me he was going to college,â Ms. Dedmon said, and with the money he has accumulated, âwhen he turns 18 he will be ready.
The first of seven children in her family to graduate from college, Dedmon plans to return to school in the fall to become a pharmacist. She hopes that she and her husband will eventually have enough money to open college accounts for their two youngest children.
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âMost important is how a stock of assets can change the attitudes of mothers and children,â said Ray Boshara, senior advisor at the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. “College accounts are changing their attitude about their ability to go to college.”
âA relatively small intervention has the potential to change economic outcomes,â he added. “And that has a bigger impact on people of color.”
Federal proposals for creating savings accounts at birth, for colleges, homes, businesses, or retirement savings, date back to the 1990s. Some of these efforts have garnered support from Republicans, but Newer versions, such as a plan by Senator Cory Booker of New Jersey to create “baby ties” for newborns, have been mainly supported by Democrats.
Mr Sherraden, who developed the idea three decades ago in his book ‘Assets and the Poor’, lobbied for savings accounts, also known as development accounts, which would be automatically opened for every child born in the United States. Canada, Israel, South Korea and Singapore have established versions of the idea.
âWe need to create structures to allow people to accumulate assets over the long term,â said Sherraden. He argues that a universal agenda is necessary to maintain political support, but that it would nonetheless produce disproportionate gains at the lower end of the economic scale.
âYou will reduce the difference in the gap between the highest group and the lowest group over time,â he said.
In Maine, the Harold Alfond Private Foundation began offering every child born in the state a grant of $ 500 in 2009. Mr. Alfond, who founded the Dexter Shoe Company before selling it to Warren E. Buffett, wrote a check for $ 500 to each of her newborn grandchildren.
“Why shouldn’t all babies in Maine be given what my grandchildren have?” he said starting the program.
So far, 116,000 children in the state have received a total of $ 58 million. Additional family contributions total $ 114 million.
In recent years, state legislatures have embraced the idea. Pennsylvania in 2018 was the first to pass legislation to create accounts for all children born in the state – about 140,000 each year – with a deposit of $ 100.
Last year, Nebraska began enrolling every baby born in the state into its 529 program. There is no grant yet, but starting next year, families with incomes below 200 percent of the poverty line will receive matching funds for contributions.
And this year, Illinois started giving every newborn baby a $ 50 account. California has allocated $ 25 million for a similar program.
Rhode Island and Nevada are among the states that have child development account programs in place. There are several other programs of varying scope and size across the United States, according to the nonprofit group Prosperity Now. Several programs include incentives and grants for low-income families, who are disproportionately black and Latin American.
Automatic enrollment in a savings program, with the ability to opt out, turns out to have a much higher participation rate than relying on individuals to take the initiative. During the early years of the Maine program, when families had to open accounts themselves, participation never exceeded 50 percent. In 2013, the Alfond Foundation switched to automatic enrollment, and since then almost every newborn baby in the state has been granted an account.
William Elliott III, professor of social work at the University of Michigan and co-author of âMaking Education Work for the Poor,â said knowledge about managing savings accounts and their impact had surged over the years. last decade.
âIt’s one of the best delivery systemsâ for helping low-income children build assets and get them into college, Elliott said. He added that there was more rigorous data on the positive impact of children’s savings accounts than on student loans, government Pell grants and free colleges.
âA savings account for a low-income child means a lot more to them than it does to a rich kid,â said Elliott, and setting it up early can transform expectations about the future.
Kandynace Boyd, who lives in Oklahoma City, was unable to contribute additional money to his son Manuel’s account. She works part-time in an acute care facility and struggles to meet her bills. But she said Manuel, 13, was already talking about going to cooking school.
âHe’s got almost $ 2,000 in it,â she said of the account. “I wish I could do it for my two other children.”