San Francisco Chronicle - (Sunday)
Newsom’s $50 million savings plan for kids
Gov. Gavin Newsom has proposed spending $50 million this fiscal year to expand child savings account programs similar to the one San Francisco started in 2010 when he was mayor.
San Francisco’s program, called Kindergarten 2 College or K2C, automatically opens an account at Citibank for children entering a San Francisco public school and seeds it with $50. The city spends about $1 million a year on the program. Families who contribute to the account and register it online can get up to $90 in one-time matching funds, provided by donors and nonprofit organizations.
Adrian Perez, a fourth-grader at John Muir Elementary, has $300 to $400 in his account, said his mother Dorothy Clark. She adds money and has family put in money at Christmas.
“The fact that it’s there and matched to a certain amount, that motivated me to be serious and not just wait until college to think about it,” she said. She hopes that “by the time he’s 18, he won’t have to work as much to pay for college and take out loans.”
San Francisco’s child savings account program is one of the oldest, but the idea is spreading fast. There are 65 programs in 34 states, said
Bob Friedman, founder of Prosperity Now, a nonprofit focused on financial mobility. About three-fourths require families to enroll. The others, like San Francisco’s, are automatic. Many are premised on research spearheaded by social work Professor William “Willie” Elliott, now at the University of Michigan. It found that children with a bank account designated for college, with $500 or less, were three to four times more likely to go to college than those without an account, Elliott said.
However, the research did not find a causal relationship, meaning there’s no evidence that having a savings account made a child more likely to go to college. “It could be that children with savings accounts had parents who were more likely to take them to the library, make sure they do their homework” and do other things that put their kids on the path to college, said Michael Sherraden, professor of social work at Washington University in St. Louis.
Sherraden is conducting a statewide experiment in Oklahoma to see if there is a causal relationship. Funded by the Ford Foundation, it gave $1,000 to a random sample of children at birth and matched their savings for four years. It’s comparing them to a control group of kids who didn’t get an account.
The kids are now 11 so it’s too soon to determine their impact on collegegoing. “But I can say in causal terms, having an account with a deposit in it improves mothers’ expectations for a kid’s education, improves parenting practices in some important ways and improves a child’s emotional development,” Sherraden said.
Meanwhile, cities and states are plowing ahead with programs. In Maine, every baby born since 2013 gets $500 deposited into a 529 college savings account, from a foundation established by the late shoe tycoon Harold Alfond. Starting this year, every baby born in Pennsylvania will get $100 deposited into a 529 account, gratis the state Treasury.
St. Louis, Boston and Lansing, Mich., have city-funded programs similar to San Francisco’s. They set up a bank or credit union account for students in their public schools and seed them with $50 or, in Lansing’s case, $10.
At the national level, U.S. Sen. Cory Booker, D-N.J., introduced a bill in December that would create an interest-bearing savings account for every baby born in America. It would be seeded with $1,000, and each year thereafter children would receive zero to $2,000 depending on family income. At 18, they could tap the account to buy a home or pay educational expenses. He’d pay for it by raising estate taxes to where they were in 2009. Booker’s plan is more like a universal basic income for kids, aimed at redistributing wealth, and funded entirely by government.
By comparison, most state and local programs see the child savings account as a starting point. “It’s the plumbing for us to find other ways to get money into those accounts,” Elliott said. That money could come from family, nonprofits and spending-rewards cards.
San Francisco’s program originally gave low-income students an additional $50 deposit. It doesn’t any longer, but does give schools with a large percentage of lowincome students additional money from private sources they can allocate to student accounts.
The students don’t actually own the accounts. Instead, the city set up a master account using its tax ID number with Citibank, which set up sub accounts for each child. “We know the name, age and school” for each child. That “insures they all have FDIC coverage,” said Bob Annibale, Citi’s global head of community development. It doesn’t collect the child’s tax ID number.
The master account earns 0.15 percent a year and that rate, called a “growth incentive,” is credited to the child accounts. That way, parents don’t have to worry about taxes on the account while it’s growing, said city Treasurer and Tax Collector Jose Cisneros, whose office runs the program.
Families can’t withdraw money, including their own contributions, until the child graduates from high school. At that point, the money can be spent only on postsecondary educational expenses. The city hasn’t figured out how it will make sure the money is spent that way. Nor has it determined if or how it will report the account to the Internal Revenue Service.
“We still have a few years before we figure out the exact mechanics of the disbursement,” Cisneros said. “One idea I had: Take all the contributions, growth, incentives, etc., and put it into custodial 529 accounts. If there is any need to report it (to the IRS), we’ll do it at that time.”
The city considered opening K2C accounts with the state’s 529 college saving plan, called ScholarShare. Those accounts can be invested in the stock market, which generally return more than bank accounts over many years. And the tax treatment is well established: There is no federal deduction for contributions to 529 accounts, but the money grows tax-free and withdrawals are tax-free if used for higher education. If not, the account earnings are subject to tax and penalty.
K2C can’t offer that tax break. However, if San Francisco opened a 529 account for a student, no one else could contribute to it. Parents could open their own 529 account for the child and contribute to it, although that’s a bit of work and requires Social Security or federal tax ID numbers for the parent and child.
“A core value (for K2C) was making it automatic and universal,” Cisneros cites.
Programs that use 529 plans for the child savings account typically link it to a 529 account set up by the parents. K2C has more than 34,000 accounts and $6.5 million in assets, including $4 million put in by families. About 20 percent of families have made deposits; their average contribution is $559.
The program offers field trips to Citibank for kindergarten and firstgrade classes. On Thursday, Ran Suzuki took her first-graders from Cobb Elementary to a branch on Van Ness Avenue, where they got to make a deposit, check out the ATM, visit the safe deposit box vault and take home a Lego bank.
“I wish I had this program with my two older kids,” said Rufina Gillette, who chaperoned the trip with her son Jonta. “It’s better to learn at a young age. It gives them self-confidence to have their own account.”
Jennifer Jennings is contributing $10 a month to K2C accounts for her kids “to get the incentive,” she said. “I figure it’s free money, whether it’s interest bearing or not.”
She also has 529 accounts for her children Charlotte and James Velasquez, who are in kindergarten and second grade, respectively, at Buena Vista Elementary. “I also tell them every chance I get that they are going to college. I want them to think it’s not optional. One trick I use: My daughter wants pink hair. I tell her, ‘College is the perfect time to have pink hair.’ She even repeats that to me.”
In his 2019-20 budget, Newsom proposed spending $50 million to support pilot projects and partnerships “that will support development or strengthening of cost-effective models that can be replicated or expanded to increase access to Child Savings Accounts among incoming kindergartners.” His office declined to provide any specifics.
In Oakland, the Brilliant Baby program will deposit $500 into a 529 account for children born into families eligible for Medi-Cal. For now, parents must open the account in Utah’s 529 plan through one of seven social service agencies. It has funded 370 accounts, but by 2025 hopes to fund them for all 2,200 babies born per year in Oakland into Medi-Cal families. The money comes from philanthropy.
Brilliant Baby is part of Oakland Promise, a larger program that has different strategies for children at different stages of life. Children in Oakland’s public elementary schools whose parents open a 529 account can get $50 plus another $50 if they make six deposits in the first year. That program is in 52 of the city’s public elementary schools and will expand to all 75 within two years.
“I wish I had this program with my two older kids. It’s better to learn at a young age. It gives them self-confidence to have their own account.” Rufina Gillette, a chaperone on the field trip, about S.F.’s K2C savings program