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Experimental Effects of Child Development Accounts on Financial Capability of Young Mothers

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Abstract

In the financial capability policy known as Child Development Accounts (CDAs), investment accounts with incentives enable families to accumulate assets for children’s development and to achieve life-cycle goals. With data from SEED for Oklahoma Kids (SEED OK), a randomized statewide policy experiment, we examine the effects of a CDA intervention on the use of mainstream financial products among young mothers aged 18–24 (N = 825; treatment = 410 and control = 415). Results suggest that, 4 years after implementation of the CDA, asset- and debt-product use was higher among young mothers in the treatment group than among their counterparts in the control group. The treatment–control difference in the use of financial products partially results from the combination of young treatment mothers’ access to the CDA policy, financial knowledge, and financial skills. The CDA policy creates opportunities for them to practice financial knowledge and skills, and has positive impacts on financial capability. This is the first experimental study to test the effects of CDAs on financial capability. Findings indicate that asset-building policy maybe an effective mechanism for delivering financial capability services (such as financial education, financial counseling, and financial coaching) to children and families.

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Notes

  1. This study uses the framework proposed by Sherraden (2013, 2017). That framework draws upon the capability theory of Sen (1985, 1993).

  2. The Balanced Option includes a mix of stock and bond funds. The Moderate Age-Based Option is an investment portfolio that offers a moderate level of risk tolerance and adjusts allocations with the child’s age. For example, an account for newborns under the Moderate Age-Based Option may invest 87.5% of funds in the stock market, and an account for children aged 5 to 6 may invest only 75% in stocks.

  3. To determine whether participants were eligible for matches, the state treasurer’s office obtained data from the Oklahoma Tax Commission and, for participants without tax records, public-assistance records from the Oklahoma Department of Human Services (Beverly et al., 2016).

  4. Details of the experiment and intervention components can be found in Clancy et al., (2016).

  5. Mothers were invited for the baseline survey. In very rare circumstances, typically because the household had experienced a tragedy, the father, a grandparent, or another caregiver was interviewed (Marks et al., 2008).

  6. We report above on young mothers’ ownership of individual OK 529 accounts specifically for the SEED OK children. Those results come from the account administrative data provided by the financial institution. The information on the OK 529 accounts for any child in the household, however, was reported by young mothers in the follow-up survey.

  7. Hereafter, we use “White” in lieu of “non-Hispanic White” and “African American” in lieu of “non-Hispanic African American”.

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Acknowledgements

We are grateful to Margaret Clancy, Sondra Beverly, and Mark Schreiner for their great work on SEED for Oklahoma Kids. We are grateful to Margaret Clancy for her careful review and insightful comments, and to Chris Leiker for providing editorial assistance.

Funding

The study is supported by the American Institutes for Research, the Department of Health and Human Services (HHS), Office of the Assistant Secretary for Planning and Evaluation, and the Consumer Financial Protection Bureau (CFPB). Support for SEED for Oklahoma Kids comes from the Ford Foundation and the Charles Stewart Mott Foundation.

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Authors and Affiliations

  1. School of Social Work, Saint Louis University, St. Louis, MO, USA

    Jin Huang

  2. Center for Social Development, Washington University in St. Louis, St. Louis, MO, USA

    Jin Huang, Margaret S. Sherraden, Michael Sherraden & Lissa Johnson

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  1. Jin Huang
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  2. Margaret S. Sherraden
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Correspondence to Jin Huang.

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Ethical Approval

SEED for Oklahoma Kids was approved by the IRB committee at Washington University in St. Louis.

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SEED for Oklahoma Kids participants provided their informed consent before the study baseline survey.

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Huang, J., Sherraden, M.S., Sherraden, M. et al. Experimental Effects of Child Development Accounts on Financial Capability of Young Mothers. J Fam Econ Iss 43, 36–50 (2022). https://doi.org/10.1007/s10834-021-09774-4

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