Reimagining Children’s Savings Policy to Address the Racial Wealth Divide

In 2003, Prosperity Now helped launch Saving for Education, Entrepreneurship and Downpayment (SEED), a national policy and practice initiative to demonstrate the potential of Children’s Savings Accounts (CSAs) as catalysts for social and economic mobility among low-income children. Since then, Prosperity Now has advocated for cities, states and community organizations to launch their own CSA programs. But 15 years later, we are exploring an issue SEED initially failed to grapple with—the racial wealth divide.

In a new Prosperity Now report, Reinventing Children’s Savings Accounts to Address the Racial Wealth Divide, we find that historical asset-building scholarship and the emerging field of practice did not develop policies or design programs to address the deep asset poverty of Black and Latino communities. The report offers three key takeaways:

Low initial deposits do not help the racial wealth divide. The most common initial deposit for a CSA is $50—an amount that reflects funding realities for nonprofit practitioners and state and local governments, but is not designed to address the scarcity of wealth found in so many communities of color. Potential alternatives include a $10,500 initial deposit in “Opportunity Investment Accounts” and the even higher  “baby bond” proposal, which gives low-wealth children a $50,000 deposit. These kinds of asset-building programs for children could address the racial wealth divide and benefit all low-wealth households. 

New data on the racial makeup of CSA accountholders. Our report reveals previously unpublished Prosperity Now research on the demographics of CSA accountholders. We estimate that 51% of children with CSAs are White, 27% are Latino, 11% are Black, 6.5% are Asian or Pacific Islander, .2% are American Indian or Alaska Native and four percent are “other” or multiracial. This demographic breakdown approximates the proportions of children nationally though Black Americans are underrepresented by a few percentage points, while Whites, Latinos and Asians and Pacific Islanders are overrepresented by a few percentage points.

Higher education alone is not the solution. College education has limitations as a tool for economic success. As we discuss in the report, Black college graduates aged 22 to 28 suffer unemployment rates twice as high as equally credentialed peers in the same age range. Equalizing college graduation rates on its own will not close the racial wealth divide. Rather, we need to equalize returns to education among all racial groups to decrease the racial wealth divide.

Policymakers can take three steps to reimagine CSAs as a tool to fight the racial wealth divide:

  1. Allow accountholders to use their money for any asset-building purchase, not just postsecondary education.
  2. Increase the initial deposit and savings matches in CSAs.
  3. Deploy CSAs in concert with bold policy proposals that address the racial wealth divide from other angles.

It took centuries of calculated harm across multiple institutions to create and exacerbate the racial wealth divide. Only equal and countervailing power will undo it.

Read Reinventing Children's Savings Accounts to Address the Racial Wealth Divide here.  

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