'Nudge'-ing Families to Save, From the Time a Child is Born
A new report from the Corporation for Enterprise Development shows that even the poorest families can save for college and other long-term goals from the minute their child is born. Over 1,100 children and families are participating in a 10-year demonstration project offering Child Development Accounts (CDAs) to help families build long-term savings for their children. Through SEED (Saving for Education, Entrepreneurship and Downpayment), a dozen nonprofit community groups around the country have helped families establish savings accounts matched with public or philanthropic funds. The number-one use of the funds when children reached 18 was for post-secondary education.
CDAs work like Individual Development Accounts for adults to save for higher education or a down payment on a home. IDAs are pretty well known in the community banking, housing, and community development worlds.
The report notes that some sites experienced great difficulty recruiting their target number of families to open CDA accounts. However, in Oklahoma, after initial interviews, a random sample of families received initial $1,000 deposits, making enrollment automatic. All but one of the Oklahoma families accepted the account. The report cites interviews with recruits who declined the CDA to suggest that distrust of government and financial institutions, plus lack of cultural competence, may have been factors.
I think the real reason can be found in the book, Nudge, where authors Richard Thaler and Cass Sunstein show that pretty much everybody is more likely to enter a savings plan (like a 401K) when enrollment is automatic.