Children's Savings, Underserved Studies, and Policy and Project Updates November 16, 2010

1. Children's Savings, Underserved Studies, and Policy and Project Updates November 16, 2010

2. Opening Remarks Diana L. Taylor Chairman, Advisory Committee on Economic Inclusion Sheila C. Bair Chairman, FDIC

3. Children's Savings Accounts Moderator:  Peter Tufano, Sylvan C. Coleman Professor of Financial Management, Harvard Business School, Founder and CEO of D2D Fund, Savings Work Group Chairman José Cisneros, Treasurer for the City and County of San Francisco Robert A. Annibale, Global Director, Citi Microfinance and Community Development Katryn Gabrielson, Deputy General Counsel, Finance Authority of Maine Robert Friedman, General Counsel, Founder, and Chairman of the Board, CFED

4. Listening to Consumers:Informing the Regulatory Agenda Peter Tufano Harvard Business School and Doorways to Dreams Fund, Inc. Study done in conjunction with TNS , a WPP Company

5. A critical time New sense of importance and urgency around consumer finance businesses Re-examination of many consumer financial regulations New Bureau of Consumer Financial Protection

6. What should be the agenda? First principles: Market failures and consumer decision making as basis for regulation. Campbell, Jackson, Madrian and Tufano (2010) Politics: Whose voice is the loudest? Most persistent?

7. A revolutionary concept Polling informs political campaigns Market research informs product design Why not ask Americans about their regulatory “pain points?” Sufficient cross sectional data to see which problems bother which consumers

8. First look, first study • National study of Americans • Internet-administered survey • Weighted to be representative, up to a point • Need follow up survey to probe deeper and certain groups • N = 2276 • Administered October 2010

9. Overall Satisfaction with Financial Regulations • “To what degree do you think that your household’s financial interests are appropriately protected today by laws and regulations?” • Appropriately protected 46% • Neither 27% • Not appropriately protected 28%

10. Segments that feel less well protected Category D % Inapprop. Indebted Americans • Carry some debt 6 – 11 • Overindebted 16-25 Financially fragile ($2K/30days): 11-12 Users of certain financial products • Mortgages 7-8 Pct • Credit card carrying balances 5-9 • AFS User 7-8

11. Identification of Pain points “The financial landscape is likely to change over the coming years. Independent regulators and businesses will be carefully examining many issues to determine where they should focus attention. Suppose you could talk directly to them about how satisfied you are with the current financial landscape, as it relates to credit cards, personal loans, mortgages, banking, credit scores, debt management, investments, retirement accounts and financial skills and advice. For each of the following (45) choices, identify how satisfied you are…”

12. Dis-Satisfaction with Current Financial LandscapeTotal Population, aged 18-64

13. Only first peek • Preliminary results: Perhaps can inform regulatory agenda by listening to consumers • How to weigh disatisfaction? • More cross sectional analysis to come • Hopefully augment sample

14. Starting Young:Childrens’ Savings Accounts

15. Basic Statistics on American Children • Approximately 4.3 million children were born in 2007. • Children and poverty (2008) • 20.7 percent of all children are in poor families (vs. 14.3% of all Americans) • Among Blacks and Hispanics, the fraction of children in poverty is 35.4% and 33.1% respectively. Sources: CDC Nataional Vital Statistics System (http://www.cdc.gov/nchs/births.htm); National Poverty Center (http://www.npc.umich.edu/poverty/#2)

16. The Logic of CSAs Start early: power of compound interest Support asset building: better pay for educational expenses (and other investments) at age of majority Universal: address intergenerational transmission of poverty/opportunity. Plumbing: makes child part of financial system Jump-starting: Encourages financial literacy and other savings

17. Global Child and Youth Savings Accounts Programs in Canada, South Korea, Singapore and the United Kingdom; pilots in developing countries. Most feature accounts opened by or with the government with government matches. A few statistics Canada opened over 3 million accounts since 1998 UK reported participation rate of 74% with £289 average annual contribution Singapore matches can reach up to U.S. $18,000

18. Children’s Savings Programs in the United States The most prominent children’s savings program in the U.S. is the tax-advantaged Section 529 plan, which tends to benefit higher income families. There is no federal program to establish children’s savings accounts, although legislation with match dollars has been proposed several times (ASPIRE Act). Some nonprofits, states and municipalities have launched or planned youth and children’s savings programs. A few statistics: SEED, the oldest program, had average balances of more than$1,800 after 4 years Maine’s Alfond Challenge - about 40% participation in year one KIPP, pilot to provide 50,000 low-income students with seeded account and college prep services San Francisco and San Antonio programs are starting up with match funds; promotional efforts are targeted to LMI children

19. Today’s Speakers Jose Cisneros, Treasurer of the City and County of San Francisco Robert A. Annibale, Global Director, Citi Microfinance and Community Development Katryn Gabrielson, Harold Alfond College Challenge Bob Friedman, Founder and Chairman of CFED

20. Kindergarten to collegeLocal Innovation, national impact José Cisneros San Francisco Treasurer Treasurer’s Office of Financial Empowerment City and County of San Francisco

21. TODAY is the first day of college. It just looks like kindergarten. In fall 2010, the City and County of San Francisco will launch the first universal matched Children’s Savings Account (CSA) program in a public school system in the country. San Francisco’s Kindergarten to College initiative will open a savings account for all children entering kindergarten in the City’s public schools, putting San Francisco at the forefront of efforts to model how a national Child Savings Account policy could be implemented in the United States.

22. Why San Francisco? • We have the lowest number of children per capita of any major City in the nation – 14%, down from 25% in 1960 • Despite a median household income of $70,000: • almost 14% of children live in poverty • over half of all students enrolled in San Francisco’s public schools enroll in free and reduced lunch • San Francisco public schools are incredibly diverse: • 32% identifying as Chinese, 23% as Latino and 12% as African American. • Almost 30% of our students are learning English as a second language. • In the 2008-2009 school year, 69.5% of SFUSD graduates enrolled in postsecondary education. • Significantly lower for African-American (54.6%) and Latino (52%) students.

23. Program goals Create a college going culture. A child with a college savings account in any amount is seven times more likely to attend college than one without, regardless of income, race or academic achievement. K2C will increase academic aspirations for every child by making college a reality from the first day of school. Reduce financial exclusion. Low-income and minority families are overwhelmingly excluded from mainstream financial products that build wealth. One in three San Francisco children are born into families with no savings or assets of any kind, one in two for African American and Latino children. K2C will help parents begin saving by simplifying the process for opening a college savings account and incentivizing deposits.

24. Program goals Increase Financial Literacy. K2C will be the vehicle that incorporates financial education into our school classrooms, as part of the math curriculum. With K2C, our schools can create a culture of savings, improve financial literacy, increase assets, and bring more children and families into the financial mainstream. Leverage private investment in San Francisco families. K2C will leverage private funds for savings matches, create behavioral incentives, and help families earn money for college at significantly higher rates than they can earn by saving on their own.

25. Program design • Designed to reach the main success factors identified for CSAs: • Auto-enrollment • Universality • Publicly funded seed deposit • Matched savings opportunities • Range of deposit options • Financial education

26. The basics • Every child entering a kindergarten class in a San Francisco public school will automatically receive a college savings account with an opening deposit of $50 from the City of San Francisco. • An additional $50 deposit is provided to the accounts of children eligible for free and reduced lunch • Seed funding estimated at $100k for year one • Families will be able to contribute to the accounts by mail, in-branch, by ACH or online • Matched savings and incentives are available to all families. • Culturally and developmentally appropriate financial education will be provided to parents/caregivers and children.

27. Matches and incentives • Limited to activities linked to financial or academic behavior, and verifiable by the school district or financial partner • All matches and incentives provided through philanthropy • Every family is eligible for a $1:$1 match for the first $100 in savings. • Families signing up for auto-deposit will receive a $50 bonus after 6 months • Parents will receive funds to the account for attending financial education • Children will receive a monthly incentive for on-time daily attendance of 95%

28. challenges • Auto-enrollment creates significant issues related to account ownership, patriot act and tax reporting • K2C cannot require parent signatures for account opening, creating significant regulatory and legal hurdles • Need to open accounts with very little information • Working within the school district mitigates some of these challenges • Universality means opening accounts without social security numbers, adding to account challenges. • Public schools mitigates some criticisms about high-wealth families • Unattractive to financial providers due to reluctance to administer large numbers of small dollar accounts for primarily LMI market • Political challenges especially in the current budget climate. CSAs can also be complicated to explain and results won’t be seen for some years

29. Account structure • Began by looking at 529s and other products, and issuing an RFI • City of San Francisco will open all accounts using our tax ID number, with sub accounts for each child • City will provide basic information, obtained from SFUSD, to financial partner to open sub accounts • Signed consent form will allow SFUSD to release additional information to the City • Parents will receive an account number to make deposits. No withdrawals will be allowed unless for an emergency • Money will be held in trust in the child’s name until use for post-secondary education • City will track incentives and matches • Parents and children will be able to view accounts online

30. Roll-out • Launching in 2010 with 18 schools throughout San Francisco; represents 25% of students • Public launch occurred in San Francisco in October and student accounts open in December. • Engaged in community and family outreach to to sign consent forms and prepare for account opening. • Number of enrolled schools will double in 2011, and we will reach full roll out in 2012 – approximately 5,000 students

31. Key partnerships • City partners include Mayor’s Office, Treasurer’s Office, Department of Children Youth and Families, SFUSD • Bulk of program design, implementation and administration through Office of Financial Empowerment • SFUSD responsible for school site administration, classroom financial education, data transfer • DCYF and grantees participate in outreach and support • Citibank will open and maintain accounts • Key non-profit partners: EARN, CFED, New America Foundation • Evaluation and research partners from Stanford University

32. SAVE Steady.Dreamhuge. Leigh Phillips Anee Brar Manager Office of Financial Empowerment City and County of San Francisco (415) 554-4320 Leigh.phillips@sfgov.org K2C Program Manager Office of Financial Empowerment City and County of San Francisco (415)554-4453 Anee.brar@sfgov.org

33. Students’ Savings: Building a Banking Platform Reaching Scale through Partnerships Bob Annibale Global Director, Citi Community Development and Citi Microfinance November 16, 2010

34. Citi’s Historic Role in Matched Savings • Over the past decade Citi has been the leading philanthropic investor in matched savings programs. • Our efforts go back to 1997 when the Citi Foundation provided a $1MM grant to CFED to establish the American Dream Demonstration. We renewed this support for the SEED Children's Savings Demonstration and in 2010 funded a new effort – Partnership for College Completion. • Citibank serves 4,000 of the 15,000 active IDA accounts.¹ • While many of these efforts have produced positive outcomes for low-income households, these efforts are not financially sustainable and have not attained the projected level of scale required to result in systemic change. • After a decade of work in this arena, we stepped back to understand how could we build a matched savings effort that was both effective and efficient? Our objective now is to develop a students’ savings initiative that is both scalable and financially sustainable, and ensures the next generation of consumers enter adulthood with their feet firmly planted on the path to economic success • CFED, 2009-2010 IDA Program Survey, http://cfed.org/assets/pdfs/2009-2010_IDAProgramSurvey.pdf 34

35. Sustainable and Scalable Programs • Reaching scale through savings banking relationships with nonprofits, schools, and municipalitiesthat administer the students’ savings account program across several schools or networks. • Efficiencies and simple account opening through custodial account model. Students’ Accounts are deposit-only, with no fees or minimum balances, and paperless, delivered through a custodial account relationship that allows for streamlined account opening. • Easy and engaging access to promote usage. Students and their families can make deposits easily and view account activity, including incentives, through the Program Website. The Program incorporates financial education and incentives to make saving a routine habit. Citi Platform supports efficient savings programs to reach scale through private and public partnerships 35

36. Features and Benefits of the New Platform • Enables universal enrollment. Custodial Account structure allows for all participants, as determined by the Program Sponsor, to be eligible for enrollment and for enrollment to be handled by the Program Administrator. • Simple account management and incentive tracking. Administrative Portal facilitates management of students’ accounts and administering of program matches and incentives by providing online tools and the ability to create a variety of reports. • Easy to build savings. Students and their families can make deposits at Citibank branches, through direct deposit, wire transfers, and via the mail. • Engaging students.Students will be able to view both savings they deposited and incentives they earned via a customized website. We are exploring additional ways to make goal setting and program experiences more interactive and fun. Key enhancements for easy program administration and to engage students 36

37. Students’ Development Account Program Model • Provides product and platform, which houses no fee, deposit-only accounts with easy deposit procedures for students and their families, and account viewing via a customized website • Encourages parents and students to participate in the Program through: • Classroom financial education • Incentives and Matches Bank School Greater financial resources to facilitate higher education Custodian Administrator • Opens and manages accounts for the benefit of the students and oversees program guidelines Owns accounts and ensures all are funded according to the specific program guidelines *Roles and responsibilities are defined and documented for each individual program 37

38. Student-facing Account Process Enroll & Save Learn & Save College Success • As part of school enrollment, students are offered an incentivized, deposit-only College Savings Account to help them on their path to college graduation • Students learn to save through incentive programs, online and classroom education, and progress updates on innovative Program Website • At the time of enrollment in college, students will have access to their savings and financial skills to successfully complete college This Student Savings Program complements a student’s academic preparation for college by building parallel savings behaviors and knowledge 38

39. The Harold Alfond College Challenge Katryn Gabrielson Finance Authority of Maine (FAME) November 16, 2010

40. The Harold Alfond College Challenge A legacy gift of higher education through the Alfond Scholarship Foundation for every Maine resident baby, regardless of family income A commitment to award $500 to a college investing plan account An opportunity to change the way Mainers think about and plan for higher education

41. Transform Lives with Education$7,000,000 14,000 Babies Each and Every Year

42. Harold Alfond’s Dream Mr. Alfond Was passionate about Maine and its people Encouraged teamwork by creating community challenges Knew education was the key to success Believed every Maine child deserved an opportunity to pursue higher education

43. $500 Alfond Grant Invested in Maine’s Section 529 Plan Must open account by first birthday Funds available for qualified higher education expenses up to age 28 No additional investment required, but encouraged

44. Challenges Complete and timely account applications Complex for those with literacy and financial literacy challenges Timing: after baby is born, must wait for social security number (and sometimes name) New parents already facing struggles Costs of administration Creating aspirations Encouraging additional contributions

45. Meeting the Challenges Partners: hospitals, physicians groups, financial advisors, employers, banks Outreach Staff Direct Marketing using vital statistics data Casting Calls Consumer Education Health, Numeracy, Literacy, and Financial Literacy Brochures Quarterly account summaries

46. How Banks Help Accessible and familiar, trusted financial experts Display posters and brochures Distribute enrollment material Assist with applications Expanded customer service opportunities Advise, help budget, assist with preparing for costs of college Give employees with new baby “matching gift” Give bank customers $50 towards college investing accounts

47. Early Signs of Success Over 7,000 Maine babies enrolled in two years 40% of all babies enroll by their first birthday Over 25% make additional contributions “Sibling” accounts

48. Children's Savings Accounts Moderator:  Peter Tufano, Sylvan C. Coleman Professor of Financial Management, Harvard Business School, Founder and CEO of D2D Fund, Savings Work Group Chairman José Cisneros, Treasurer for the City and County of San Francisco Robert A. Annibale, Global Director, Citi Microfinance and Community Development Katryn Gabrielson, Deputy General Counsel, Finance Authority of Maine Robert Friedman, General Counsel, Founder, and Chairman of the Board, CFED

49. Break

50. Underserved Studies Moderator:  Barbara A. Ryan, Deputy to the Vice Chairman Eleni Constantine, Director Financial Security Portfolio, Pew Charitable Trusts Tammy Edwards, Community Affairs Officer, Federal Reserve Bank of Kansas City Betsy Costle, Director of Consumer and State Affairs, AARP Public Policy Institute