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Supercharging savings starts at an early age
William Thomas Jr. invests in his future every month by bringing his piggy bank savings to First Bank of the Delta. The Phillips County pre-schooler already is saving for college and talks excitedly about going to college, thanks to an innovative program that supercharges his family’s own savings. A new state law, Act 597 of 2007, will expand a similar opportunity on a pilot basis to lower income Arkansas families statewide.
Act 597 by Sen. Gilbert Baker of Conway establishes the Aspiring Scholars Matching Grant Program. The program will match the savings of lower income families in an Arkansas 529 college savings plan account and will make $200,000 in matching funds available in the next two years.
Final details for the program are yet to be established but Senator Baker will be recommending a savings match rate that would vary by family income. For families with incomes at or below 100 percent of the federal poverty level, every $1 saved would be matched with $3. For families between 101 and 200 percent of poverty, the rate would be 2-to-1. For families between 201 percent and 300 percent of poverty, the rate would be 1-to-1. The annual savings match would be capped at $500 per account holder and limited to five years. This $2,500 in available matching funds could double the amount of savings for college by the time a child turns 18.
Children like William are already proving that offering incentives for low-income families to save is a smart investment. Since 2004, 75 pre-schoolers in the Saving for Education, Entrepreneurship, and Downpayment program, sponsored by Southern Good Faith Fund, have been saving in these “SEED” accounts.
Helena-West Helena is one of 12 communities in the SEED Initiative, a nationwide demonstration managed by CFED and funded by several national foundations. SEED accounts are college savings accounts that start with an initial deposit of $1,000 and reward account holders with a $1 for $1 match for their own savings (up to a maximum of $1,000).
As of February 2007, the total money saved on behalf of the 75 children is $113,175, with the average account holding almost $1,350.
Thanks to SEED, these 75 youngsters will grow up knowing that college and other opportunities for a bright future are possible. Research has shown that assets, even in small amounts, provide social and psychological benefits that income alone cannot; asset owners are more likely to attend college, be healthy, stay married and engage in their communities. Moreover, the costs to society when children grow up without resources and opportunities are substantial. According to a recent study by the Center for American Progress, children who grow up poor cost the economy $500 billion a year in reduced productivity, lower wages, increased crime, and higher health care costs. In Arkansas, 27 percent of children live in poverty, according the 2006 Kids Count report by the Annie E. Casey Foundation.
Imagine what a difference it could make if, like William, every child in Arkansas grew up knowing that he or she had a small nest egg that would grow over time and could be used to invest in their future. Act 597 is an important step toward this vision.
To more fully achieve this vision, the Aspiring Scholars Matching Grant Program could eventually provide initial deposits into a college savings account for every newborn Arkansan. Maine does this, and several other states are considering it. Southern Good Faith Fund in a December 2006 report outlined such a proposal.
The report, An Arkansas Higher Education Trust Fund: Making College Possible for Every Arkansan, recommends increasing the stateâ€™s severance tax on natural gas production to establish a trust fund to permanently fund this proposal and other efforts to help more Arkansans complete college. The report is available at
Hopefully, one day all children in Arkansas will begin life with a college savings account. In the meantime, Act 597 will help more young Arkansans acquire such accounts. Sen. Baker, his fellow legislators, Gov. Mike Beebe and Lt. Gov. Bill Halter should be commended for their support of this innovative legislation.
Mike Leach of Little Rock is director of Southern Good Faith Fundâ€™s Public Policy Program. Carl Rist of Durham, N.C., is director of the SEED Initiative at CFED.