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Saving Up, Moving Up? Children, Savings & opportunity
The American Dream is based on the simple idea that every
child should have the opportunity for educational and financial
success. Unfortunately, new research demonstrates that a child’s
opportunities depend on her family’s assets, and the Great Recession
has exacerbated asset inequality. As a result, millions of children do
not get a fair shot at obtaining a college degree, buying a first home or
starting a new small business.
FACT: Children are more likely than adults
to live in asset poverty.
Assets—in the form of savings, home equity or investments—help
families smooth over economic difficulties such as job loss and other
income shocks. An “asset poor” family lacks even modest resources,
defined as having sufficient net worth to subsist at the poverty level
for three months in the absence of income.
Numbers to know:
4 in 10: The share of families
with children younger than six
living in asset poverty.
Families with children are
21% more likely than
childless households to live in
asset poverty.
Sources: National Center for Children in Poverty (2010); CFED (2010).
Sadly, research shows that children are more likely than adults to live in asset poor households. CFED found that
more than one in four households with children live in asset poverty. Families with children are 21% more likely to
live in asset poverty than households without children.
Young children benefit most from investments but are most likely to live in asset poverty. Nobel Prize-winning
economist James Heckman argues that investments made during a child’s early years offer the biggest bang for the
buck, creating significant long-term benefits for both the child and society. Unfortunately, the National Center for
Children in Poverty found that families with children under six were more likely than other families to live in asset
poverty. In other words, families are most likely to be financial vulnerable during the most important stage of their
children’s development.
The Great Recession reduced family assets. The numbers above likely understate the extent of child asset poverty.
More recent studies using post-recession data reveal the toll that the Great Recession has taken on family assets. An
April 2013 Pew Research Center report found that the bottom 93% of households saw a drop in net worth between
2009 and 2011, while the wealthiest seven percent of households saw a significant increase in net worth.
FACT: Children in families with savings do better academically.
Family savings and investments are linked to better student outcomes. Researchers at the Urban Institute have found
that families without savings are more likely to suffer financial hardship in the event of a job loss or other sudden
drop in income. Children in families with savings are less likely to face material hardship, such as food insecurity or
forgone doctor visits. In other words, savings helps families overcome the negative effects of income instability.
Given the hardships that families without savings face, it is no surprise that researchers at the Center for Social
Development and elsewhere have found a strong link between family assets and children’s academic performance,
including better grades and graduation rates. This link is independent of family income.
Family savings and investments have big impacts on college success. The positive effects of savings extend to
higher education. A 2011 study by Pew Economic Mobility Project found that for low- and middle-income families,
an increase in home equity from zero dollars to $35,000 was associated with a 210% increase in college enrollment. A
separate study by the Assets and Education Initiative at the University of Kansas found that children from low- or
moderate-income families with college savings of only $1-500 are three times more likely to go to college and four
times more likely to graduate than those without college savings.
FACT: Children in families with savings are more economically mobile. Economic mobility is at the heart of the American Dream, and family asset development improves a child’s chance to
move up. To succeed, children need support at all stages of development, and they must be protected from economic
shocks that can have consequences stretching into adulthood.
Savings and investments are associated with greater economic mobility for children. A 2009 study by the Pew
Economic Mobility Project found that increased family savings is associated with greater future earnings for children.
The study examined children born in the bottom 25% of household earners. For households with low savings, the
child had a fifty-fifty chance of remaining in the bottom quarter of earners in adulthood. By contrast, for households
with high savings, the child had a 71% chance of moving out of the bottom group of earners.
A more recent study by Pew found a strong connection between savings, wealth, income and mobility. Those who
move up from the bottom fifth of earners have almost ten times the wealth of those who remain at the bottom.
CONTACT THE AUTHOR: Ezra Levin, Federal Affairs Manager, [email protected], 202.466.5925
Resources
• Pew Economic Mobility Project, Moving On Up, November 2013
• First Focus & the Urban Institute, Unemployment from a Child’s Perspective, March 2013
• Urban Institute, Can Savings Help Overcome Income Instability?, December 2010
•CFED, The Financial Security of Households with Children, May 2010
• National Center for Children in Poverty, Asset Poverty and Debt Among Families with Children, February 2010
• Pew Economic Mobility Project, A Penny Saved is Mobility Earned, November 2009
• Center for Social Development, Assets and Child Well-Being in Developed Countries, 2009
CFED Experts
• Leigh Tivol, Director, Savings & Financial Security, [email protected]
• Shira Markoff, Senior Program Manager, Savings & Financial Security, [email protected]
• Ezra Levin, Federal Affairs Manager, [email protected]
CFED FACT FILE
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