By Julie Peachey, Deputy State Treasurer for Consumer Programs

 February 15, 2022

Assets saved in a 529 plan and scholarships are typically seen as complementary strategies to pay for a child’s post-secondary education. Both are great resources for launching a child into their future, but scholarships can feel like a wild card since there is no guarantee that a child – no matter how hard they work – will be awarded one. Families have much greater control over savings if they have the financial resources available. One crucial advantage that family savings have over scholarships is that families can start saving early in a child’s life. 

There is evidence that even a small amount of money set aside for a child’s future education can positively impact whether they go on to attend and complete college. Furthermore, research shows this may be the case, particularly for children from low-to-moderate income families. The reason for this is found in the psychology of hope.  

People don’t hope for something they already have, but rather for something they want in the future. But if that something feels too far off or out of reach – like going to college when no one in their family has ever done so – it’s easy to feel hopelessness instead of hope. In other words, it’s a goal that doesn’t feel achievable. One way to make a goal feel achievable is to create strong links between the present and the future. When a goal feels closer, it spurs action, like working hard in school and saving even a little bit as often as possible, creating real hope and bringing about real results.  

Let’s tie the two concepts – savings and scholarships – together.  

What if scholarships were given earlier in a child’s life? And what if the funds aren’t a reward for academic success but instead serve as a support or a seed for tangible hope? Early scholarships let a child and their family know that hard work in school and saving for future education today will be rewarded later – they are not wasted efforts.  

Even more, what if an institutional structure was in place to provide scholarships earlier in a child’s life? Child Development Accounts (CDAs), also referred to as Children’s Savings Accounts, were designed precisely for this purpose. They are savings or investment accounts for children typically dedicated to postsecondary education expenses with public or private funds provided as initial deposits and incentives. 

According to the nonprofit organization Prosperity Now, by the end of 2020, there were 109 CDA programs serving 922,000 children in more than 36 states. Several states have legislated CDA programs utilizing their 529 program as the account infrastructure. In 2019, for example, Pennsylvania launched Keystone Scholars, which invests $100 for each child born to state residents to be used for post-secondary education. Families are encouraged to open their own PA 529 account and save alongside these funds.  

Such CDA programs are essentially an early award scholarship that, like the parental investment often made by wealthier families, can influence a child’s trajectory by making the hope of future education feel closer and more tangible.  

Nonprofit scholarship providers are beginning to use some of their traditional scholarship funds as early awards in CDA programs. For example, the Community Foundation of Wabash County in Indiana was approached by a donor who wanted to provide funding for a traditional scholarship. However, after learning about early award scholarships, the donor opted to create $1,000 deposits to the CDA accounts of students in grades K-4 in Wabash City Schools. Similarly, Maine’s Alfond Grant Program provides a $500 education grant to each of its babies, invested in the state’s 529 program.  

Parents, communities, and state/local governments can work together to help build assets for education early in a child’s life and thus provide the real, tangible hope needed to make a bright future feel more achievable. CDA programs and state 529 plans are well-suited to accommodate early award scholarships, ensuring both the account and the child grow to their full potential. 


About the Author

Julie Peachey is Pennsylvania’s Deputy State Treasurer for Consumer Programs and oversees the Bureau of Savings Programs, including the PA 529 College and Career Savings Program where families have nearly $7 billion saved for their children’s future education. The Bureau is also responsible for the development and advancement of Pennsylvania’s universal children’s savings account program, Keystone Scholars, and administration of the PA ABLE program. Julie also oversees Treasury’s Bureau of Unclaimed Property, which is tasked with returning more than $4 billion in financial and tangible assets owed to Pennsylvanians.