Newborns typically are mailed birth certificates and Social Security cards within weeks of leaving the hospital. In at least two states they could soon be receiving other important documents: savings account statements.
A bill being considered in the California Legislature would create savings accounts for every child born in the state after Jan. 1, 2008. Each account would be seeded with $500 in state funds, and the money could be used only for specific purposes, such as college or technical education or buying a first home.
Meanwhile, Illinois lawmakers are considering creating a child savings account task force that among other things would look into how best to set up state-funded savings account for every newborn. The Illinois Asset Building Group, a coalition of nonprofits, is suggesting that the state allot $1,000 for each of the roughly 180,000 children born there each year.
Both proposals are a long way from becoming law. An April 25 hearing on the California proposal has been scheduled, but the sheer cost of the program — hundreds of thousands of children are born in California every year — is likely to deter many lawmakers. Even the most ardent supporters say they expect the proposal to be tabled until at least next year.
And though chances are good that Illinois lawmakers will approve the creation of a savings account task force, there are no guarantees the task force would recommend establishing state-funded savings accounts.
Still, consumer advocates say they plan to keep applying the pressure.
Stephanie Upp, the vice president of Asset Policy Initiative of California, said her group’s message to lawmakers is that early savings accounts would raise children’s awareness of the options available to them, including a college education and homeownership.
“It opens the door to a lot of opportunities that a lot of low-income Californians don’t feel are open to them,” Ms. Upp said.
Dory Rand, the supervising attorney of the Community Investment Unit at the Sargent Shriver National Center on Poverty Law in Chicago, said the accounts would go a long way toward improving financial literacy.
“As they are introduced to the accounts and they learn the different investment options, they learn about fees and see their savings grow,” Ms. Rand said. “Those lessons can transfer to other areas of their life,” such as planning for retirement or saving for a home.
Banks and thrifts could have an interest in states’ creating early savings accounts, since the funds would have to be held somewhere. Joyce Nardulli, vice president of government relations at Illinois Bankers Association, said the group supports creating both a task force and early savings accounts.
“Starting early and teaching children the importance and value of savings is crucial to teaching them how to use money wisely as an adult,” she said.
At this point, it is way too early to know where such accounts might be held, but Ms. Nardulli said she would hope banks would have a role to play.
“We’d always rather handle the money than have the state do that job,” she said. “Of course we’d like to handle the money; it is what we do.”
All states and the District of Columbia offer 529 college savings programs, and at least states eight offer financial incentives, such as matching deposits, to encourage families to save. Michigan, for example, deposits $1 for every $3 saved, up to $200, in accounts opened for children under the age of six by families making less than $80,000 a year.
But the program being considered in California would be the first in which a state would set up accounts for all newborns — regardless of family income — and make the initial deposit.
The April 25 hearing is to be held in the Senate Revenue and Taxation committee. Jim Evans, spokesman for Sen. Darrell Steinberg, D-Sacramento, said the senator authored bill on behalf of the New America Foundation, a Washington nonprofit that promotes asset-building programs for the poor.
“There’s a crisis — not enough people are savings and building assets in today’s society,” Mr. Evans said. “We think if you seed accounts with $500 in state money, that will encourage families to put additional funds into these accounts to buttress the original investment.”
California had roughly 550,000 births in 2005, according to numbers available from the Centers for Disease Control’s National Center for Health Statistics. This means the program would cost about $275 million. (The state’s annual budget is about $100 billion.)
A spokesman for Republican Gov. Arnold Schwarzenegger’s office said the governor had not taken a position on the bill.
California is in the first year of a two-year legislative session. Ms. Upp of Asset Policy Initiative said that though she expects the bill to be carried over into 2008, a one-year delay could work to her group’s advantage. “It is an opportunity to build support, identify champions, address critics, and identify funding sources,” she said.
Ms. Rand said it can often take several years for legislation to get passed while advocates try to build a groundswell of support.
“So, we thought it was important in our state to start with a task force, continue to do public education, look at all the options, and get a lot of input from all the stakeholders,” she said.
There are many unanswered questions about how the accounts in Illinois would work, but Ms. Rand said the accounts would be structured in such a way to encourage recipients to continue saving.
“What we don’t want is for there to be a one-time deposit and then for it to just sit there 18 years,” she said. “We want it to be a lifelong education and savings process.”
Both Illinois houses have introduced bills to establish the savings task force. The Senate bill was unanimously passed on March 29 and the House bill passed the Financial Institutions Committee on March 20 and was referred to the rules committee.
If lawmakers approve its creation, the task force would report to the state treasurer, Alexi Giannoulias, a former vice president at Broadway Bank of Chicago.
