I’m often inspired by the innovative ideas being developed to help low-income families meet both present and future needs. One example I recently shared highlighted community gardens that provide fresh food to low-income neighborhoods in Tulsa. Today, I’m drawing inspiration from the economic seeds being planted through San Francisco’s Kindergarten to College (K2C) program.
Launched in 2011 by the City and County of San Francisco, K2C is the first publicly funded, universal children’s savings account program in the country. Operated through the city’s Office of Financial Empowerment (OFE), the program ensures every kindergarten student in the San Francisco Unified School District is automatically enrolled in a College Savings Account. Accounts are seeded with $50 provided by the city-county government, with students enrolled in the National School Lunch Program receiving an additional $50.
Accounts are designed to make contributing as easy as possible by allowing relatives and extended family to deposit money by mail, online, or in person. There is no minimum deposit amount required, so families can give what they can afford, when they can afford it. Partnerships with local foundations, organizations and businesses also provide matching funds for promotions that encourage families to save regularly and speed the growth of account balances.
The program is still relatively new but the results so far are encouraging. As of 2012, over 8,000 accounts have been opened. During a recent webinar it was announced the total value in all K2C accounts is approximately $745,000. Families have deposited a combined total of over $230,000 of their own money.
Undoubtedly, the account balances will grow over time, but this is only part of the reward. City leaders launched K2C, in part, because research shows that even a small college savings account has a positive impact on a child’s educational future. One study reported that students with savings accounts are seven times more likely to attend college than students without savings accounts, regardless of their parents income. By investing in children’s education, the city is hoping to encourage college graduation rates while also reaping the benefits of a more educated workforce.
Of course, there are existing programs that promote college savings for children. Qualified tuition plans, more commonly called 529 College Savings Plans, offer tax incentives for college savings. However, during the previously mentioned webinar, Reid Cramer of the New American Foundation mentioned that most tax incentives associated with 529 plans benefit higher-income families while offering little or no tax relief for lower- or middle-class families. They also present barriers to families who may find enrollment and management of the 529 plans more complicated than the automatic and universal enrollment offered under the K2C model.
San Francisco’s leaders are also looking for other positive financial outcomes associated with college savings. For many families, this may be their first experience with traditional banking institutions. In 2011, the FDIC estimated 1 in 12 American households were unbanked or underbanked, meaning they lacked access to basic, safe and affordable banking relationships. According to a New American Foundation report published in 2011, 11% of San Francisco families lack a savings account and more than 40% have subprime credit.
With these low-income and underbanked families in mind, the Office of Financial Empowerment designed Kindergarten to College to expand banking opportunities for families with a child in the program. Parents automatically become clients of the bank where the college savings account is held, in this case Citibank, and can open their own accounts as existing customers. To further capitalize on this opportunity, schools are integrating financial education into the K-12 curriculum and using the children’s college savings accounts as a learning tool. The program plants the inspiration to save and invest during a child’s formative years so when students reach adulthood they have the information they need to make good financial decisions.
The ideas behind San Francisco’s program are so appealing, more state and local governments are starting to look into similar programs in order to support positive financial activities and build expectations for a child’s college education. Other innovative ideas regarding children’s savings accounts include:
- Nevada recently announcing a similar savings plan for children in rural school districts.
- Proposals in the last Congress to pass the America Saving for Personal Investment, Retirement, and Education Act (ASPIRE), which would set up Lifetime Savings Account for every child in the U.S. (As of yet, the current Congress has not taken up the issue.)
- The U.S. Department of Education is also moving ahead with plans for a college savings account project. Learn more by clicking here.
- Readers can also access the webinar mentioned in this post to find out more about San Francisco’s program and similar proposals by clicking the following link: Cradle to College: Exploring How Children’s Savings Accounts Pay Off. (Scroll down to link under heading “Past Webinars” to view recording.)