Child Savings Accounts: Global Trends in Design and Practice
New America Foundation | July 30, 2008
By Jamie M. Zimmerman, Jeff Meyer, and Ray Boshara
Child Savings Accounts (CSAs) exist as policies, products, and programs, and are currently being offered by governments, financial institutions, and non-profits. CSAs are more than basic savings accounts. What distinguishes CSAs from standard savings accounts is the degree to which they serve as means to an end-most often to spur the social and/or economic development of children. Another distinguishing feature is they are often intentionally targeted to children of low- and moderate-income families (as opposed to only children of middle-class and well-off families).
The concept behind CSAs is based on the premise that saving is an important way for an individual to build assets and accumulate the wealth necessary to meet a variety of needs throughout one's lifetime. Households can use savings to build a nest egg for future investments, and in the shorter term to build a stock of resources to cushion against economic shocks (such as sickness, famine, natural disaster, or death of a family member). Such a cushion can forestall the need for households to sell off productive assets (such as equipment used to run a small business), or withdraw their children from school (more common within developing countries). Savings can also have positive long-term effects, known as "asset effects." These include adopting a more hopeful outlook on the future, or what researchers refer to as a "future orientation." As a result, savings products, policies, and programs that are specifically designed to facilitate a child's accumulation of assets at an early age are increasingly considered a viable option for motivating young people to enter formal financial systems, build assets in their youth and throughout their adult lives, and ultimately lead to economic and social advancement for themselves and their families.
There is no universal model for CSAs. The design of CSAs can vary widely, from simple, low-cost savings products offered by financial institutions, to universal, life-long savings platforms with significant financial incentives offered by governments. Variations in CSA design depend largely on the type of institution offering them, and the institution's purposes for doing so. For example, a financial institution may offer a CSA product intended to cultivate new clients or help children develop a habit of savings; a non-profit may establish a CSA program intended to protect children from future economic shocks, help children build a stock of resources for future investments, or enable children greater access to education and healthcare; and a government may design a CSA policy intended to reduce poverty of children and their families, expand opportunity to the disadvantaged, or promote overall development within a society. However, while some purposes of CSAs are unique to particular types of institutions, there are also often instances of overlap in purpose and hence similarity in design.
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