The leading voice for excellence in public finance
The leading voice for excellence in public finance

Thought Leadership Thursday

We Help Parents Save More When We Incentivize Them to Start Early


Thought Leadership Thursday Article

We Help Parents Save More When We Incentivize Them to Start Early
September 21, 2023
State Treasurer
State of Illinois

Dear Colleagues,

For parents, the word early is loaded with meaning. Pregnant mothers are encouraged to seek prenatal care early in their pregnancy. Sleep-deprived parents hope that their newborn might start sleeping through the night as early as possible. Recently, the word early took on new meaning for me when my twin boys, Theo and Max, were born early. Theo spent nearly eight weeks in the NICU but, thanks to the tremendous care he received, he’s now thriving at home.

Starting early – be it with prenatal care, good sleep, or with life itself – can have a tremendous impact. So too can the impact of starting to save early for college. As the Senior Vice President of NAST, the Past Chair of CSPN, and the Administrator of Illinois’ two 529 College Savings Plans, Bright Start and Bright Directions, I’m convinced that helping families start saving early in their child’s life is one of the most powerful ways we can help them achieve their educational savings goals.

It’s common sense that saving earlier is better than saving later. To understand just how much better it can be to start early, let’s imagine two families. For each of these examples, let’s assume an annual return of 5%. The first family starts saving $100 a month from the day their child is born. By the time the child is ready for college, their account has grown to around $38,000. Of that, more than $16,000 is earned through compound interest alone.

Now imagine a second family that delays opening a 529 account until their child turns 7, when they start saving $100 a month. When their child enters college, they’ll have approximately $20,000, or $18,000 less than the family that started saving at birth.

By starting at birth, the first family is somewhat rare. The first months and years of a child’s life can be busy and challenging ones, especially if, like me, you’re the father of newborn twin boys with a round-the-clock eating schedule. It’s hardly surprising that it can take parents a few years to start saving for higher education. According to data from ISS Market Intelligence, the average parent opens a 529 account when their child is approximately 7 years old, with only 25% of accounts opened for children ages 0-2.

This average delay of 7 years can be terribly costly. Of course, it’s not hard to understand why many parents don’t start saving until age 7. Young children can be very expensive, between diapers, formula, daycare, and so much else. Especially in those early years, $100 a month may not be easy to come by.

Nevertheless, small amounts can make a large difference when compounded over time. Take, for example, a third family that saves $30 a month when their child is born and then $100 a month starting at age 7. When their child is ready for college, they’ll have approximately $25,000 saved – or $5,000 more than the second family that started saving at age 7.

To help parents realize the full potential of college savings plans, we need to help them start saving earlier. Marketing and outreach certainly play a role but so do financial incentives to induce stressed and cash-strapped parents to start saving earlier than they might otherwise. In the SEED OK experiment, researchers evaluated the impact of offering parents an Oklahoma 529 College Savings Plan at birth with an initial deposit of $1,000. By age 14, families in the experimental group were nearly 5 times more likely to open a 529 account than parents in the control group.

As of 2022, as described in CSPN’s National Compendium of 529 Plan Efforts to Help Families Save, 9 states provide monetary incentives to families for opening a 529 account. Oregon, for example, offers $25 to parents who open an account before their child’s first birthday. Colorado offers $100 to families who open an account before their child’s fifth birthday.

This year in Illinois, we proudly launched Illinois First Steps – a statewide Children’s Savings Account (CSA) program funded by the Illinois General Assembly. Through First Steps, any Illinois child born or adopted on or after January 1, 2023, is eligible for a free $50 deposit when they open an IL 529 College Savings account. Parents have until age 10 to claim the $50 deposit.

We believe Illinois First Steps will be a great way to incentivize more parents to save and to encourage them to start saving earlier than they otherwise would. Of course, we want to reach out to all parents, not just those with newborn children. To incentivize the broad range of Illinois parents to start saving, we’re also working with our research partners at the University of Chicago on a randomized control trial testing the effect of offering $10, $50, or $100 incentives on opening an account and, later this year, we look forward to sharing the results with our CSPN colleagues.

As the old commercial used to say, "I’m not just the President, I’m also a client." Although my new twin boys came early, I was ready and had already opened an IL 529 account for each of them. College savings is my job and my passion, and I want my kids to grow up knowing they have college savings set aside for them. Our job now, as I see it, is to help many more parents start saving for their children’s future, and to help them start as early as possible.


Hon. Michael W. Frerichs
Illinois State Treasurer
NAST Senior Vice President

NAST Thought Leader Thursday banner