Education and wealth are inextricably linked. Not only does educational attainment affect earning potential and capacity to build wealth, but family wealth greatly impacts a student’s likelihood of completing postsecondary education.
Sadly, measures of family wealth and education attainment in the U.S. show a widening gap between the rich and the poor.
Perhaps now more than ever, differences in family wealth explain why certain young people persist through post-secondary education and land a living wage job, while others remain stuck in a cycle of poverty.
There are two efforts underway – one in the city of Lansing, the other in rural Barry County -- to try to break this cycle by making education savings a reality for all kids in their communities.
Last January, Lansing opened special savings accounts for every student who enrolled in kindergarten. This coming January, Barry County plans to do the same for its kindergartners.
For us in Barry County, investment in the education dreams of our children has been truly a neighbor-driven initiative.
Due to the generous gift of a local philanthropic family, the Barry Community Foundation secured an endowment that will get each student jump-started with $50 in their account. Recently an estate gift added an endowment to match up to $25 in deposits for each student.
From there, continued investment has spread like wildfire. The project won a challenge grant from a community bank; a foundation serving a local school district jumped in to provide students with an additional savings incentive; and the community foundation expects more gifts when the project is featured at its annual dinner later this fall.
From monetary donations to offering career information and mentoring, everyone in the community has something to contribute, no matter how small. It has been truly exciting to watch as more and more people come to the table.
With this in mind, we’ve taken the “community champions” approach to incentivize private deposits, something we learned from a similar initiative in Wabash County, Indiana. Kids will be taught how to recognize champions in their lives, people who will be there to help them on their path through school and on to postsecondary education. For each of the first five deposits made by their selected champions, five dollars will be added from an incentive fund.
This idea is taking hold in larger, urban communities like Lansing, St. Louis, San Francisco and Boston. Now Barry County’s Kickstart to Career program shows this could work in a smaller, rural community. One can’t help but ask then: What if every community in Michigan invested in its young people through automatic education savings accounts?
So what’s the Next Idea?
Let’s shift the burden of saving for college in Michigan from the sole duty of parents to a shared community responsibility.
Using the Barry County and Lansing programs as inspiration, every child in Michigan could be touched by automatic enrollment in an education savings account, either through their municipality or community foundation.
Each of these programs would be driven locally, with communities responsible for securing initial investment to cover seeding the accounts, additional incentives and other program costs.
To ease the start-up process, however, we could create a Michigan-wide matching fund where large foundations, corporations, financial institutions and private philanthropists can pool resources to match dollar-for-dollar all funds raised locally. While some large foundations, notably C.S. Mott and W.K. Kellogg, have supported individual programs, a public challenge to the wider private and philanthropic community in Michigan could help scale this program and reach as many Michigan children as possible.
An important lesson to be learned from the experience in Lansing and Barry County is that while core goals can be consistent across communities, having flexibility in designing engagement strategies and savings incentives is critical to ensuring the program has buy-in from each community’s stakeholders.
Another piece of the puzzle is the need to create a savings platform that reduces administrative costs for local banks while also maintaining accessibility for all savers, especially those from low income families.
While Michigan’s 529 Plan offers flexible, tax-exempt investment options for middle- and upper-income families, certain structures within the plan create barriers for low income savers. For example, the minimum deposit requirements and limited deposit options pose obstacles for families that face income volatility or lack a bank account.
On the flip side, more traditional savings accounts offered by banks and credit unions definitely have more flexibility and accessibility, but the high administrative costs pose a challenge for institutions that would otherwise like to participate.
Perhaps it’s possible to invent an even better account option.
What if financial institutions, Michigan’s Department of Treasury, and tech leaders could unite to design a hybrid product that includes the administrative benefits of a 529 and the accessibility of more basic depository accounts?
With the right support and a few innovative minds, this hybrid product could make the best use of technology, connecting to student savers and their families through online software, smartphone applications and even texting. In an era of Mint.com, Credit Karma and high rates of smartphone usage even by lower income populations, a scaled attempt at education savings should be enhanced by technology.
Local communities have always been an ideal laboratory to develop programs and policy that can one day be scaled to the state or even federal level. Right now, Barry County and Lansing are working to show that any community, no matter how large or small, can come together and support savings for higher education. Let’s build on these early successes and ensure post-secondary opportunities are within reach for all children in Michigan.
Bonnie Gettys is president and CEO of the Barry County Foundation. Megan Kursik is coordinator of Michigan Communities for Financial Empowerment, part of the Community Economic Development Association of Michigan.
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