San Francisco introduces 'Kindergarten to College' savings program
The Corporation For Enterprise Development (CFED) is behind the effort, launched this spring. EARN, a non-profit dedicated to helping low-income workers and the largest provider of micro-savings in the U.S., and the city of San Francisco are also involved in K2C, which works like this: Each starting student receives $50 in an account from the city. Then, students who qualify for free or reduced-priced school lunches get an additional $50. EARN will match the $100 that families deposit in the first year, and encourage families to contribute what they can to college savings accounts.
K2C focuses on kindergarten students with the hope of teaching the importance of saving at a young age. Because families are welcome to make deposits into the accounts over the course of the student's education, concentrating on school newcomers also allows ample time for contributors to add money. Starting with young students gives each account the most time to gain interest over the years, resulting in the largest amount of college cash growth. The program aims not only to help more students to pursue higher education, but also instill the importance of college at a very young age.
Ben Mangan, president and CEO of EARN, pointed out that K2C is opened for families without needing to fill out countless extra forms or going to visit a bank themselves. This way, every student will be affected. "It represents an optimal time to begin savings for a child in a family and is structurally a great opportunity to make this automatic and universal," he said in an interview with Money College.
To be sure, some skeptics worry about financing the program. With money already scarce, the city is about to cut hundreds of employees as a result of its $483 million budget slashing. Meanwhile, educational budget cuts continue to inflate class sizes and starve program funding nationwide. That also applies in including San Francisco, where the Parents for Public Schools of San Francisco raises concerns.
Although K2C marks an innovation in the U.S., similar programs have been developed abroad. The United Kingdom's Child Trust Fund (CTF), a comparable program in the U.K., provides £250 (about $368) per child that he or she cannot access until the age of 18. But the program, started in 2002, is already taking cuts to save money. The CTF reduction will save an estimated £320 million ($472 million U.S.) in the first year and £520 million ($768 million U.S) after the second year--though it remains to be seen if any budget savings have a long-term adverse affect by depriving British kids of educational opportunities.
Despite current financial struggles in the U.S., Mangan stresses the importance of reinforcing higher education, especially in a time of financial need. "In tough budget times, you can't stop investing. You have to make sure that the investments are prudent and have a very high return on investment," said Mangan. He believes K2C will provide a high return.
City officials also have high hopes for K2C because of a college savings account study done by St. Louis's Washington University's George Warren Brown School of Social Work. The results showed that students with savings are significantly more likely to pursue a higher education.
Another study, conducted by EARN, produced similar results. The research found children are seven times more likely to go to college if they have savings set aside for education. EARN's study also found that saving results in confidence in decisions and positive financial choices. "Savers become strivers and people begin to view their future differently when they begin to save," said Mangan.
The project would officially begin this fall with 18 elementary schools, gradually increasing over the next few years. By the third year of the program, K2C would reside in all 75 of San Francisco's public schools. If a student moved outside of the city, they would not lose the savings, but would lose privileges of any additional money matching.
City budget negotiations are already in the works. K2C requires the city's funding so workers need to convince budget voters of the importance of the savings account program. Mangan said, "All of us working on the project feel very confident that once we're able to share the facts and the proven impact of something like this, it will be no problem what-so-ever for this to be part of the budget."