Before Trump’s account, there was SEED OK: How Our Children Were Influenced

The soon-to-be-launched Trump Account is a new vehicle for long-term savings and investment for kids, but it’s not the first of its kind.

In 2007, thousands of Oklahoma families were randomly selected to participate in a statewide college savings initiative. Saving for Education, Entrepreneurship, and Downpayment for Oklahoma Kids (also known as SEED OK), in many ways, provides a bird’s-eye view of so-called child development accounts (CDAs) and their potential.

Approximately half of the newborns in the program received a $1,000 grant deposited into their Oklahoma 529 University savings account. The other half have neither account nor received their first deposit.

A 2021 experimental analysis by the Center for Social Development at Washington University in St. Louis, which designed and implemented the project in collaboration with the Oklahoma State Department of Finance, found that families with the accounts experienced positive outcomes ranging from asset accumulation to behavioral changes. For example, studies have found that children with CDA are more engaged in education, and both children and their parents have higher educational expectations.

Children from low-income families particularly benefited, according to the center’s 2021 research summary. CDA made economically vulnerable households more likely to save for future college costs, the study found.

“SEED OK is the experiment behind this kind of early wealth-building idea involving Trump accounts,” said Jing Huang, co-director of the Center for Social Development. For 30 years, “our center has been testing early asset building across a variety of projects,” he said. “I think SEED OK provides very strong and positive evidence of the potential outcomes we can achieve.”

Many of my former colleagues have now graduated from high school and are deciding on their next career paths.

“In the treatment group, 100% of treated children still had assets after 18 years,” Huang said. “The total amount of wealth creation has also become much larger.”

In addition to having larger account balances compared to those who did not receive seed money, more participants are concentrated in universities, he said.

“When you have an institutional environment that encourages all children and families to accumulate wealth, it changes their thinking and perspective,” Huang said. “Policy interventions have increased parents’ educational expectations for their children.”

Typically, about 40 percent of Oklahoma students enroll in college immediately after high school, Huang said. In this experiment, he estimated that percentage would be closer to 64%.

Monica Rachelle and her son Hayden were selected to participate and received seed funding. “I found out while I was in the hospital” shortly after giving birth, she said. Rachel said she didn’t know anything about the program at the time and didn’t have the newborn’s educational goals in mind.

Over the next few years, she said, that description was a constant reminder to him that college was possible.

Rachel is a single mother and a healthcare worker at a local hospital. “It’s a great job, but I don’t have a doctor’s salary,” she said. She picked up extra shifts and started saving. “It was like a door opened,” she said.

Hayden excelled in school and found meaningful extracurricular activities, she said. He was accepted to several four-year colleges, including the University of Colorado Boulder, which was one of his first choices.

“No one in our family had a bachelor’s degree, and now he’s on track to earn his first degree,” Rachel said. “I’m so proud of him.”

Maine implemented a similar program more than a decade ago, in which all Maine resident infants born after January 1, 2013 were automatically given a $500 grant from the Alfond Scholarship Foundation included in their 529 plans to help pay for college, technical school, and other post-secondary education.

According to the National College Attainment Network, thanks to the grant, families are twice as likely to report that they expect their child to attend college. Other states, including Pennsylvania and California, are also experimenting with early investment initiatives.

“These serve as a good comparison of what we know works and what doesn’t work on the ground,” said Madeline Brown, senior policy associate at the Urban Institute, a Washington-based think tank.

First of all, having a dedicated college savings account “changes the way parents view their kids,” Brown said. And now, “kids are going to college and spending that money.”

In many ways, these programs paved the way for a new tax-deferred investment account for children: the Trump Account.

“Our most important finding regarding wealth building is that the SEED OK policy experiment is sustainable and scalable,” Huang said.

All parents or guardians of babies born between 2025 and 2028 who open a Trump account, also known as a 530A account, will receive an initial deposit of $1,000 from the U.S. Treasury.

After the official July 4 launch, parents, guardians, grandparents and others can contribute up to $5,000 a year after taxes until the year before the beneficiary turns 18.

Supporters of the Trump administration’s new savings initiative say the Trump Account could provide long-term benefits similar to some of the previous state-based programs.

“What we’ve found is that when kids have just this small amount of money, they’re much more likely to graduate high school, go to college, start a business, start a family, and stay out of jail,” tech company CEO Michael Dell said at CNBC’s American Investment Forum in April. “It improves the mental health of the child, it improves the mental health of the parents. And we thought this could be a great thing.”

Dell and his wife Susan have pledged $6.25 billion to provide an additional $250 seed deposit for children born between 2016 and 2024, who are not eligible for the Treasury’s $1,000 contribution.

TrumpAccounts.gov projects that the account could grow to $6,000 by age 18, assuming no further contributions are made beyond the initial $1,000 in Treasury deposits. But that alone isn’t enough to significantly reduce future college costs.

After joining SEED OK, Hayden’s initial savings and Rachel’s contributions grew to thousands of dollars over the years, but his savings still fell short of the amount needed to cover the cost of college, even at a public institution. For out-of-state students at the University of Colorado Boulder, next year’s tuition alone will cost about $46,000. Once you factor in room, board, and books, the cost jumps to $66,500.

Rachel said she plans to take out federal student loans to make up the difference, and Hayden will enroll in the fall semester. “He earned one of the few spots in the program, and we couldn’t pass up such a great opportunity,” she said.

Subscribe to CNBC on YouTube.