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Perspective | Why now is the perfect time to launch nest-egg savings accounts for all N.C. kids

North Carolina ranks 32nd among all states in child poverty, with one in five children growing up in households with incomes below the federal poverty level. Growing up poor has long-lasting repercussions and, in a state with such a high child poverty rate, children in North Carolina are particularly at risk of experiencing a wide range of behavioral, social, emotional, and health challenges.

But the poverty rate only measures household income. What if we were to explore household financial security in North Carolina by looking at what households “own,” as opposed to what they “earn?” It’s all money in the end, but economic theory shows that what people own (their wealth or savings) operates very differently than income. Here’s how:

  • Saving helps households get ahead and stay ahead through investments in homes, education, and small businesses,
  • Saving provides flexible resources that can be used for long-term investment or a short-term emergency, and
  • Saving enables funds to be passed from one generation to the next.

Racial disparities in family wealth

Unfortunately, wealth inequality dwarfs income inequality in the U.S. According to recent data from the Urban Institute, the median white household has ten times the wealth (over $170,000) compared to the median Black household (about $17,000).

Another way to look at wealth and inequality is by examining the share of households that lack sufficient assets or savings to subsist at the poverty level for three months, if they were to lose their source of income. On this measure, North Carolina is also among the worst ten states, with 26% of households classified as “asset poor.” What’s more, more than two in five Black households (40.3%) are considered asset poor in North Carolina. If assets and savings are critical to helping households get ahead and stay ahead, what can North Carolina do to address our shocking level of asset poverty?

Seeding savings in childhood

One promising strategy for building wealth for all households is by investing in children’s savings accounts (also known as baby bonds). Children’s savings accounts (CSAs) are savings or investment accounts for children and youth. The accounts are seeded with an initial deposit and provide additional incentives to save. Most CSA accounts are restricted to saving for college or postsecondary expenses.

Fourteen states currently provide some kind of initial deposit and/or savings match to encourage households to save in an account in their state’s 529 college savings plan. Moreover, three states (Maine, Nevada, and Pennsylvania) automatically provide an initial deposit to open a 529 college savings account for all children starting at birth or in kindergarten.

The opportunity now: ARP funds

California is the new kid on the block, having recently appropriated nearly $1.8 billion to provide young people with children’s savings accounts. The CSAs will be seeded with up to $1,000, and provided to approximately 3.7 million low-income public school students in first through twelfth grades. Additionally, California approved $107 million for at-birth CSAs for all newborns in 2022. Importantly, California’s funding for this effort includes $1.8 billion from the federal American Rescue Plan (ARP).

Policymakers in North Carolina should consider allocating a portion of the state’s $5.4 billion in ARP funds for wealth-building accounts for North Carolina children. What better way to use one-time federal funds than by investing in long-term wealth-building for kids in North Carolina?

Take action

Learn more about children’s savings accounts at Prosperity Now. Want to go further? Contact your state legislator and urge them to allocate a portion of the state’s American Rescue Plan funds to help establish CSAs for kids in North Carolina.

Carl Rist

Carl Rist is an independent consultant who has spent nearly 30 years in the nonprofit sector working to advance economic opportunity, wealth-building, and financial security. He is also the former chair of NC Child’s board of directors.