Some policymakers have called for the creation of Child Development Account (CDAs). CDAs are basically savings accounts to which parents and/or the government to contribute. Children turning 18 can use the funds for various uses such as college tuition, purchasing a home, or starting a businesses. The SEED for Oklahoma Kids (SEED OK) project aims to create CDAs through 529 College Savings Plans.
Creating a pool of saving for a child’s future gives these children some liquidity to pursue their dreams. The question is, why would the government need to set up a program like this? Most parents will save money for their child’s future. The CDA may be useful in the case where parents have hyperbolic preferences and under-save for their children’s future. If parents save optimally, however, CDAs may crowd out other forms of parental saving for their children and may decrease the parent’s financial flexibility.
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