Every Baby a Trust Fund Baby
Ray Boshara

A

n American Stakeholder Account
(ASA), established for every child
at birth, would build a savings
and ownership culture in America, promote ﬁ nancial literacy, and fortify the
American economy for the long haul.
Every child would automatically receive
a $6,000 deposit in an ASA at birth and
be eligible until maturity for dollar-fordollar matching funds for voluntary contributions up to $500 a year. Over time,
ASAs would evolve into a broad system of
savings accounts that all Americans—especially low-income Americans—could
tap to meet their asset needs throughout life to pursue higher education and
lifelong learning, purchase a ﬁrst home,
start a small business, and build a nest
egg for retirement.
At present, about a quarter of all white
kids and half of all other kids grow up in
households with zero or negative assets,
apart from possible equity in a house.
This means that there are no available
assets for any sort of investment. The
prospects for achieving economic success of children growing up in such
households are pretty dim. Therefore,
imagine what it would mean for such
kids to have an investment account with
their name on it—earmarked for their
education, their ﬁrst home, their retirement. Imagine the enormous effect such
a program would have on our failed efforts to educate our kids about ﬁnancial

basics. And just imagine the effects on
our economy: it doesn’t take an army of
economists to tell us that we would reap
huge rewards if virtually all young people became owners, savers, taxpayers,
and entrepreneurs—and if fewer people
depended on the state, local charities,
their communities, and their parents for
their livelihood and well-being.
Is this pie in the sky? Actually, no.
Starting last year, each British baby
born after September 1, 2002, receives
a “child trust fund” of £250 (about
$460), with the poorest third of children receiving twice that amount. The
government will make similar “top up”
deposits when a child reaches age seven.
Parents, relatives, and others can contribute up to £1,200 tax-free every year.
With compound interest and ongoing
contributions, the account could grow
to £40,000 (about $70,000) at maturity
on the child’s 18th birthday. So far, almost 2 million such accounts have been
opened. The idea is to give all kids—regardless of their backgrounds—a shot at
economic success, to reduce their reliance on the state, and to foster a savings
culture in the U.K.
Whether Britain’s Child Trust Fund
can deliver all this remains to be seen.
But it is already apparent that the program is spurring signiﬁcant savings—
even among poor families. Moreover,
the accounts are serving as “magnets” for

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Every Baby a Trust Fund Baby

contributions. The head of Children’s Mutual, one of
the main providers of the accounts in the U.K., tells
of a Child Trust Fund voucher that came back with
30 baptism checks attached to it. British prime minister Tony Blair launched
Americans
the trust fund to address
challenges that are remarkaccept inequality
ably similar to those facing
Americans. Like us, British
of outcomes,
parents worry deeply about
how their children will ever
but they do not
afford to buy a home—the
average age of a ﬁrst-time
accept inequality
home buyer in the U.K. is
34—and how they can help
of opportunity.
their kids pay for college.
The potential of our
proposed stakeholder accounts is embodied in a 2005 front-page story in
The Washington Post, which tells of ﬁve-year-old
Austin Sambrano, whose own savings account is
teaching him and his family about saving and family ﬁ nances:
Three weeks shy of his ﬁrst day of kindergarten, Austin Sambrano is the only person in
his family who has a savings account. Living

about saving and spending because of Brianna’s
savings account:
Some parents say that they are learning new
habits—and that their children are learning
important lessons. “This program here gives
me a chance to save. I know it’s there. I can’t
mess with it,” said Almedia Jones, of Lexa,
Ark., who opened an account in May and made
a $20 deposit in June and July. She took her
daughter, Brianna, 5, to a SEED class where
the children decorated two cans, labeled “savings” and “withdrawal,” with butterﬂy stickers.
Brianna began to put her allowance into a can.
One day, Jones took Brianna along when she
went shopping for a present for another daughter, Brittney, who had just had surgery. Brianna
spotted a pretty purse and turned to her older
sister. “If you buy me this purse,” Brianna said,
“when I turn 18, you know I will have money
in the bank, and if I go to college, I’ll have even
more money, and I’ll pay you back.”1

As these stories vividly show, the one-two punch of
a owning a savings account, combined with ﬁnancial
education, changes savings habits and the attitudes
and aspirations of both children and their parents.

with his parents and older brother in a trailer
park near Pontiac, Michigan, he is part of an

Why American Stakeholder Accounts?

experiment called the SEED Initiative that

The broader case for American Stakeholder Accounts is compelling.
First, stakeholding, as a public policy, has a long
and successful history in the United States and
around the world. In postwar Japan, land was redistributed to millions of farmers, laying the foundation for broad-based economic success. Singapore
has achieved one of the highest rates of savings and
home ownership in the world through its Central
Provident Fund. In the United States, at least a
quarter of adults can trace their family legacy of
asset ownership to the Homestead Act, signed into
law by Abraham Lincoln, which awarded land in
the American West to those pioneers with the
courage to settle it. The GI Bill, passed in 1944, has
generated returns of up to seven dollars for every
dollar invested. And there is the nearly $400 billion

is opening investment accounts for children,
in an effort to ensure them a college education—and teach their families the habit of
putting aside money for the future. Austin
Sambrano’s mother, Christine Albertson, had
a humbler reason for signing up her son for a
SEED account. Neither she nor her partner of
12 years, Steven Sambrano, has any savings.
On the $400 a week he brings home from his
new job driving a truck, “we are barely making
the bills as it is,” she said. Austin’s account, she
said, makes him feel special. “He’s excited. He
knows this is for college.”

The Post also tells the story of young Brianna
Jones. She and her parents have a new attitude

2

Ten Big Ideas for a New America
DISTRIBUTION OF HOUSEHOLD INCOME, 2004

SHARE OF TOTAL INCOME AND WEALTH BY QUINTILE
90%

16.9%

80%
70%

25.6%

60%

Income

50%

Bottom 90%
57.5%

Next 9%
Top 1%

Wealth

40%

DISTRIBUTION OF NET FINANCIAL ASSETS, 2004

30%
20%

19.1%

10%

42.2%

0%
–10%

Bottom

Fourth

Third

Second

Top

38.7%

Source: The State of Working America, 2006/2007
2006/2007,

Source: The State of Working America, 2006/2007,

Economic Policy Institute, 2006.

Economic Policy Institute, 2006.

a year in popular federal tax breaks for homeownership, college, business ownership, investments,
and retirement—subsidies that fail, unfortunately,
to reach the bottom half of the population.
Second, that failure—combined with antipoverty policies that focus on income and consumption
while discouraging asset ownership—contributes
to a severe absence of asset ownership among the
bottom half of the population. When families lack
income, they don’t get by; when families lack assets, they don’t get ahead. According to New York
University scholar Edward N. Wolff’s analysis of
the most recent Survey of Consumer Finances
(conducted by the Federal Reserve), the top ﬁfth of
households in 2004 held 84.7 percent of all wealth,
while the middle ﬁfth held a mere 3.8 percent, and
the bottom ﬁfth actually had negative net wealth—
it owed 0.5 percent of all wealth. Between 1962 and
2004, the top ﬁfth increased its share of wealth by
3.7 percentage points, while the bottom four-ﬁfths
gave up that much. Seventeen percent of all households actually had zero or negative net worth, while
29.6 percent had net worth of less than $10,000.

Thus, nearly half of all households in America had
net worth of $10,000 or less. However, the challenge is not to reduce the wealth at the top—we
should reward creativity and hard work—but rather
to actively create opportunities for lower-income
individuals to save and accumulate wealth.
Third, assets don’t just change people’s pocketbooks, they change the way people think and
behave. Evidence from around the world shows
that owning assets—even among very poor families—is associated with an orientation toward the
future, household stability, staying employed, educational attainment for adults and children, local civic involvement, and health and satisfaction
among adults. Those with assets are also more
likely to stay married, and to see less poverty in
future generations.

How American Stakeholder Accounts
Could Work
Under the proposed American Stakeholder Account
Act, every child born in 2008 and beyond would automatically receive $6,000 in an ASA once a Social

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Every Baby a Trust Fund Baby

Security number was issued. Children from households below the national median income would
also be eligible to receive dollar-for-dollar matching funds for voluntary contributions up to $500 a
year. These matching contributions could be deposited directly into the account, or delivered directly
on tax returns through a larger earned income
tax credit or child
We don’t need an
tax credit. To encourage good performarmy of economists to
ance in school, as well
as community or naknow the U.S. would
tional service, “merit”
and “service” deposits
reap huge rewards
should be offered as
well. After-tax voluntary contributions—
if virtually all young
from family members, churches, corpopeople became owners,
rations, foundations,
etc.—should be ensavers, taxpayers, and
couraged, but limited
to $1,000 a year from
entrepreneuers.
all sources. All funds
would grow tax-free.
A typical low-income kid, saving or leveraging about $20 a month
and earning about a 7 percent annual return
would have over $38,000 by the time he or she
reached 18—an amount that would set generations of kids on a lifelong path of saving, investing, and ownership.
Withdrawals from the account prior to age 18
would not be permitted, but kids—in conjunction with their parents and ﬁnancial educators at
school—would participate in investment decisions
and watch their money grow. An ASA Fund and its
governing board, modeled after the highly efﬁcient
Federal Thrift Savings Plan for government employees, would be established within the U.S. Treasury Department to hold and manage the accounts.
At age 18, the beneﬁciary could choose to keep
accumulated savings in the ASA Fund (the default
option) or roll it out to a ﬁ nancial institution of his
or her choice. However, to preserve the account
and a lifetime platform for saving, a $500 mini-

4

mum balance would have to be retained within
the ASA Fund (that is, rollouts to private ﬁnancial
institutions would be permitted above the $500
threshold), with additional contributions governed
by existing Roth rules.
ASAs could be used tax- and penalty-free for
postsecondary education or for the purchase of a
ﬁrst home, or retained in the account for retirement.
If the assets were used for one of these purposes,
the account holder would keep all the governmentprovided funds (those deposited at birth and all the
matching funds); if the assets were withdrawn for
any other purpose, the account holder would keep
all voluntary contributions (minus some taxes and
penalties) but lose all the government funds. And
to signal that ASAs were not something for nothing—as well as to help endow the next generation of
kids—the account holder would have to begin paying back the $6,000 at-birth deposit at age 30, although payments could be spread out over ten years
and exceptions would be permitted for hardship.

A Fresh Opportunity for Each Generation
There’s no doubt that the American Stakeholder
Account program would be costly. But as the stories of Austin and Brianna show, and given the historical returns on asset building in America, this
would be money well spent. If we ever hope to address the growing problem of inequality of income
and wealth, we must embrace such a program.
It is important to note, however, that ASAs are
not meant to combat inequality of outcomes, but
inequality of opportunity: Americans accept inequality of outcomes as a by-product of how we
reward the hard work, initiative, and creativity that
underpin our much envied economy. But they do
not and should not accept inequality of opportunity. Expanding the ownership of assets by means
of American Stakeholder Accounts would help to
ensure that the inequality of wealth in one generation will not result in inequality of opportunity in
the next.❖
.
.❖
1

Amy Goldstein, “Initiatives to Promote Savings from

Childhood Catching On,” Washington Post, August 20,
2005.