Expanding Opportunity Through Children’s Savings Accounts

Wealth inequality is exacerbating opportunity gaps between poor and privileged families, but the introduction of children’s savings accounts could help to jump-start children’s futures and revive the American Dream, according to William Elliott III and Melinda Lewis, co-authors of Making Education Work for the Poor: The Potential of Children’s Savings Accounts.

Speaking Wednesday at a New America panel in Washington, Elliott and Lewis noted that educational outcomes today depend more on wealth than effort and ability. Society fails to acknowledge the extent to which wealth provides a leg up when assessing merit, argued Elliott, who serves as Senior Research Fellow in Family-Centered Social Policy at New America.

Widening achievement gaps are not the result of declines in poor students’ SAT scores, Lewis added. Rather, their gains are not keeping pace with “the meteoric increases in achievement for people who start out ahead.” She went on to note that upper-income students have access to a host of benefits, including a greater ability to graduate debt-free, attend institutions of their choosing, and accept unpaid internships. Brookings Institution Senior Fellow Richard Reeves concurred, adding that the “myth of meritocracy is the veneer under which the US class system reproduces itself.”

This cycle could potentially be mitigated through the creation of Children’s Savings Accounts (CSAs). CSAs would be universally available, opened with a federal- or state-funded deposit based on the amount of preexisting family wealth, and reserved until age 18, at which time the child could use the funds for post-secondary activity such as education. At the panel, the authors asserted that CSAs would be “facilitating a successful transfer to adulthood” and ensuring students have financial assets to leverage.

But Darrick Hamilton, Professor of Economics and Urban Policy at The New School, noted that over-incentivizing participation in a higher education system that too often fails low-income and minority students would not provide a universal solution to inequality, even with CSAs available. Elliott responded that CSAs could potentially be used for other expenses such as purchasing a home or raising capital for a business, though the panel agreed education was currently the most politically feasible starting point for a wealth transfer program.

Such policies are already emerging. San Francisco piloted the country’s first universal CSA program in 2012, while Pennsylvania Governor Tom Wolf recently launched the Keystone Scholars program, offering a savings account for every child born in the state.

As Reeves expressed, the snag lies in financing. Hamilton noted that “the question is not whether we [the federal government] can spend, but will we?” In the wake of proposed 2019 budget cuts to Medicaid and other support programs, Elliott disputed the Trump administration’s claim the war on poverty had been won, noting, “the American Dream isn’t ‘can I eat today?’ – it’s ‘can I thrive?’”

“Kids are doing what they need to do,” Elliot said, “but institutions need to provide opportunities so that telling them to work hard will have some meaning. Wealth transfer isn’t welfare – it’s leveling the playing field.”