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National Conference on Children and Youth Savings: Market Development Plenary

Session June 15, 2009

Hosted by CFED, Brooklyn, NY

June 14-16, 2009

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Introduction- Lisa Mensah

Session Panelists:

Bill Ray, CEO Bank Plus, Jackson, MS (video message).

Dr. Lew Mandell, Kermit O. Hanson Visiting Professor of Finance and Business Economics at the University of Washington.

Michael Johnston, Executive Vice President of The Capital Group Companies, New York, NY.

David White, Chief Executive of The Children’s Mutual, United Kingdom.

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Introduction – Lisa Mensah

Market Development Exploring how the private sector can rise to the

challenge of building a system of accounts for every child in America.

Balancing the roles of Government and the private financial sector to deliver a national child accounts policy.

Benefits of partnering with the private sector

Moment is ripe to “Add the Kids”!

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BankPlus Video- Bill Ray and Max Yates

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The Importance of Utilizing the Private Sector - Dr. Lew Mandell

The Investment Gap:

Equities are the only way to build significant wealth.

Initial $500 grant invested at 2% (after fees) in a fixed income account would equal just $714 after 18 years. At 8% (after fees) in an equity account this would be nearly $2,000. If families contributed $50/month in addition would reach $13,703 and equity would be $26,105 after 18 years or nearly twice as much.

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The Importance of Utilizing the Private Sector

The Private Sector Advantage: The private sector has the motivation to drive account

contributions: Fee generation from more mature accounts (remember that

everything won’t be withdrawn at age 18). Developing customers for life. With nationwide banking and

ATM’s, there is little reason to switch away from first account relationship.

Ability to cross-sell other products over the life cycle including investment, loan, and risk-management products.

The private sector has the scale and experience to invest and manage the funds at low cost.

The simplicity of the product helps reduce marketing costs.

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The Importance of Utilizing the Private Sector

Impact of child accounts on school age children and economic education in our nation’s schools:

Financial education seems to work best with younger children.

Good habits are easier to form when children are less subject to peer-generated consumption patterns.

Having an account gives a child both “ownership” and relevant experience.

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Child Accounts and the Private Financial Sector - Michael Johnston

The significance of the Child Account opportunity The perspective of the mutual fund industry.

What it would take for industry to rise to the challenge of delivering child accounts

$500 starter account contribution Simplified and protected investment products Appropriate fee cap Restricted, efficient system of withdrawals at age 18

How the industry CAN run the market to reach all American kids

System of players works now, but doesn’t include the kids. Potential roles and interactions of different industry players.

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“2020 Vision”David White

Chief Executive Officer

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2020 Vision

Imagine a world where -• Opportunity, choice, control (not compromised)• 18 years: lowest income family: $ 3,500• 18 years: minimum: $ 1,700• 45-50%: $16,000

Imagine no more!

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UK Government Policy

• Thomas Paine, Michael Sherraden• IPPR• Tony Blair and Gordon Brown

• An asset• Savings habit• Financial education

The Child Trust Fund• Introduced January 2005• All children born since September 1, 2002• Today 4.5 million open accounts

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Child Trust Fund – How it works

1. Register child’s birth

2. Apply for Child Benefit

3. Government issues information and certificate for £250 / $400

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4. Parents/Guardians choose provider (default after 1 year)

5. 40 Providers, 100 distributors

Child Trust Fund – How it works

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6. Low income family (below $25,000) – another $400

7. $400 / $800 again at age 7

8. Family, anyone can add up to $2000pa

9. Consumer protection (universal)• Price cap, 1.5% pa• Invest in stocks and shares (tax-free)• Lifestyle

Child Trust Fund – How it works

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So does it work?

YES!!

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The Children’s Mutual

• Market leader• 25% share• 70 primary schools in May• Web, post, telephone• 75% share of voice• Data

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The Children’s Mutual Data

• (75% Opening rate)• Lump sums: 5.6% @ $670• 47%-50% open direct deposit transfer• Direct deposit average: $40 per month• Year on year increases• Recession proof (ish!)• $16,000 at 18

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Success and Improving

• 200% increase in savers• 60% increase in savings• 30% of low income families save• Christmas, birthdays, baptisms• Grandparents• 10 x £10

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What happens at 18?

• Freedom of use, tax free• Potential for incentives• Automatic rollover into ‘ISA’• Financial education

• Government initiative• “My Money” in schools

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Private Sector

• Universal – can you ignore it?• Live or Die!

• Competition• Escalator• Pocket money• Child friendly statements

• Cross-sell• Wills• Life Assurance• More

• 25%, 30% of new adults with money!

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Give Every Child Every Chance

• ….. To fulfil their dreams and aspirations• To have opportunity and choice• To avoid economic crisis• A stake in corporate America

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Ask 100 Senators

• Would you like to change the savings habits of the nation in less than a generation?

• What would it cost?

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