Having assets of even a few thousand dollars connects people to the economy, raises their economic expectations, and enables them to shape their futures. Research and practice demonstrate that possessing even a minimal amount of assets gives people an economic place to stand.

If assets are important to adult prosperity, they are even more powerful earlier in life, when aspirations, knowledge, and savings are growing. With this in mind, policymakers, assetbuilding advocates, and researchers are increasingly focusing their attention on wealth-building strategies that start early in life. The most promising of these are children’s development accounts (CDAs).

CDAs are long-term, asset-building accounts established for children at birth and allowed to grow over their lifetimes. Accounts are opened with an initial deposit (typically $500 to $1,000) and built through contributions from family, friends, and the children themselves. Accounts may also be augmented by savings matches and other incentives. Ideally, savings in CDAs are restricted to financing higher education, buying a home, or funding retirement. CDAs gain meaning as young account holders and their families engage in age-appropriate financial education.
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Expanding the nation’s asset-building policy to support a basic economic foundation for all, beginning at birth, could expand ownership and ensure more equal opportunity for every American. Asset-building accounts for adults have already demonstrated great success. There are powerful social, economic, political, and financial reasons for believing that a policy of providing all children with a CDA at birth might hold even greater promise. At a minimum, such a policy would increase the savings rate, ensure a greater level of investment in children, and increase the economic and social prospects for each succeeding generation. In addition, using the power of compound interest, CDAs offer the prospect of modest investments early in life and lead to substantial lifetime returns. Finally, when offered on a large scale, CDAs also have the potential to grow into a large and profitable market for financial institutions.

This is an excerpt from The NEXT American Opportunity. The full text can be downloaded as an Adobe PDF Document.