Will San Francisco's Kindergartener Bank Accounts Catch On?
San Francisco was the first city to create college savings accounts for every kindergartener in public school. Now other jurisdictions are contemplating a similar program.
Douglas Vasquez, dressed in a sweater vest and glasses, takes his 6-year-old daughter, Mia, by the hand and guides her inside their neighborhood Citibank. Mia is small enough to fit on the ledge of the cashier’s window and young enough not to know about the rising cost of college tuition, much less the crippling debt of student loans. College, Douglas has to explain, is a big school after high school. Yet Mia is already setting aside money for her post-secondary education, thanks to a new San Francisco program for all kindergarteners in public schools.
Vasquez and Mia appear in “A Foot in the Door,” a 16-minute documentary released last September about San Francisco's Kindergarten to College program (K2C), the nation’s first universal college savings account program.
After a two-year test phase, San Francisco offered college savings accounts to every kindergartener in the city school district last fall. At the outset, each child receives $50 from the city, deposited into a trust fund under the city’s name. For low-income children who qualify for free or reduced lunch, the initial deposit is $100. Although families can add money into the account, they can only withdraw funds for educational purposes, such as textbooks or tuition, once the child is enrolled in college or an equivalent post-secondary program.
So far, about 7,500 children have city-sponsored college savings accounts. Each fall, every kindergartener automatically enrolls in the program. Parents receive literature in the mail explaining that they have the savings accounts with the upfront investment from the city. Private donations from local nonprofits cover the cost of bonus payments for good saving behavior. For instance, private funders match up to the first $100 that a family places in its account. Families can raise another $100 if they deposit at least $10 per month for six consecutive months.
If a student chooses not to pursue education after high school, the account dissolves when the student turns 25, with any personal savings returning to the account holder and matching funds going back into the K2C program.
“This is mind blowing to a lot of people,” said José Cisneros, the San Francisco treasurer, who spearheaded the program with assistance from the Corporation for Enterprise Development (CFED), a national nonprofit that specializes in asset building for low- and moderate-income families.
About 43 percent of San Francisco’s population hasn’t earned a post-secondary degree, including an associate’s from a community college. About 11 percent of families in the city do not have a checking account. Academic research suggests the two statistics are related. Children in families without assets -- such as a car, home or bank account -- tend to have lower academic test scores, lower high school graduation rates, lower college enrollment rates and lower college graduation rates.
Children with a savings account are up to seven times more likely to attend college than children without an account, according to a 2010 study from the Center for Social Development at Washington University in St. Louis. Education researchers believe that opening a savings account increases a child’s chances of attending college by defraying the actual cost, but also by making college a long-term goal for the child.
“It’s really about the kid seeing, ‘oh my God, I have a college savings account. I guess this is what I’m supposed to do,’” Cisneros said.
A side benefit of the accounts is the addition of a new learning tool, according to Cisneros. Schools include coursework that incorporates the savings accounts, so students understand how to manage a bank account. In “A Foot in the Door,” children slide digital coins in and out of a cartoon piggy bank and shopping cart as part of a computer game while an instructor warns them to save enough for planned expenses.
San Francisco is the first jurisdiction to launch such a program, but the basic idea dates back to the late 1980s when social scientists and anti-poverty nonprofits became intrigued with the importance of personal bank accounts as a key to self-sufficiency. Congress even considered legislation that would have opened a savings account for every child in the United States: High-ranking senators from both parties, such as Rick Santorum, a Republican, and Ted Kennedy, a Democrat, sponsored one such bill in 2004, but it never became law. The United Kingdom -- which had collaborated with U.S. lawmakers on the initial concept -- had more success, implementing the Child Trust Fund that created accounts for every British child born between September 2002 and January 2011.
The other predecessor of San Francisco’s experiment was the Saving for Education, Entrepreneurship and Downpayment Initiative, a national demonstration project targeting more than 1,300 low-income children in nine states, which ran from 2003 to 2008, with ongoing research and related advocacy through this year. Each location operated slightly differently, though they all tested the impact of giving children savings accounts tied to cash incentives and financial education. An assessment reviewing the first three years at 10 of the 12 locations found that low-income families contributed modest amounts to their savings accounts -- on average about $30 every three months. In other words, despite financial barriers, low-income families can and will save, given the right incentives.
Several local governments are eager build on that research and imitate the San Francisco K2C model. The Cuyahoga County Council in Ohio passed a measure in April that would provide $100 to every kindergartener in every school in the county. Public officials in Colorado, Nevada and the Puget Sound region of Washington State are contemplating similar programs.
San Francisco benefits from having matching jurisdictional boundaries for its city, county and public school district, which may have made its program easier to launch. Cooperation across all three entities was critical, Cisneros said, because schools have the capacity to enroll and track each individual student; and as treasurer, his office could find the right private financial institution (in this case, Citibank) to open accounts for families across the city.
“It’s a blessing and a curse of San Francisco. They’re unlike any other. They’ve worked really hard, but with comparative ease,” said Leigh Tivol, director of savings and financial security for CFED. The danger is that other local governments might shrug off San Francisco’s college savings account program as the product of unusual circumstances. “Can this work in other places? We believe it can,” Tivol said.
Cuyahoga County’s program will require greater coordination across public and private partners since it has 31 public school districts, plus all its private and parochial schools. The learning curve will also be steeper: Whereas San Francisco piloted the program for two years before expanding to all schools and all kindergarteners, Cuyahoga plans to offer accounts to every kindergartener right away. In part because Cuyahoga will include students outside the public school system, it will have more students to serve (about 15,000 kindergarteners per year, compared to San Francisco’s 4,500). In one respect, Cuyahoga’s task should be simpler: The county will offer a flat deposit for all families, rather than San Francisco’s two-tiered approach based on income.
“We wanted a universal approach that treats everybody the same,” said Ken Suratt, who oversees the program for the county executive. “The cost of college is going up for everybody.”