Everyone wants their kids to start out on the right financial foot. Some even propose that all children should start out on an even playing field — provided by the federal government.
An Out-of-the-Box Concept
One man has an innovative idea to establish trust fund–style accounts for all newborns in the country. At first glance, it seems like an outrageously idealistic concept. But after explaining the math, he makes a compelling case for how this could be a game-changer.
The Power of Compounding Interest
The key factor that makes this idea viable is the long-term power of compound interest. By investing $7,000 at an infant’s birth and letting it accumulate entirely tax-free with market returns, the balance could easily grow to over $1 million in 65 years due to compounding interest.
Starting Early Is Critical
The key is starting investment early — on day one of a child’s life. This solution captures those critical extra years of growth compared to waiting until adulthood to start saving in a retirement account.
A Shared Stake in America’s Success
This idea is bigger than just giving babies a nest egg. It would give every American a share in the country’s prosperity.
Surprisingly Affordable for the Benefits
At first, a universal savings plan would have an astronomical price tag. But estimates put the annual cost at around $20 billion, assuming 4 million births per year and $7,000 per account.
Implementation Challenges Remain
This idea is brilliant in its simplicity. However, large-scale programs still face daunting implementation challenges.
Who controls and invests the funds? Can the rules prevent parents from exploiting the accounts? How can we keep administrative costs minimal?
Unique Benefits Beyond Retirement
While the main goal is retirement savings, lifelong accounts could have other uses earlier in life. For example, they could help fund college costs or a home down payment. Loans against the balance could provide emergency cash flow during crises.
The Risk of Early Withdrawals
This idea doesn’t come without concerns. For example, some argue that no one would actually wait until 65 — and if banks allowed people to borrow against the money, it could disappear.
Who Should Foot the Bill?
The cost of childbirth in the US is another concern. When it costs thousands of dollars to have a baby, some argue the money could be put to better use by parents than sitting in a trust fund.
The Impacts of Inflation
Inflation is another potential concern. One million dollars in today’s money likely won’t hold up by the time current kids reach retirement age. However, this doesn’t negate the usefulness of saving earlier.
While this may initially seem like an outrageous plan, the fresh idea deserves credit. There is an opportunity to leverage the impressive power of compound investing and the time value of money. Making capitalism more equitable and inclusive by providing every American a share is a worthy goal.
Turning Vision Into Reality
It would take strong political leadership and public support for this plan to come to fruition, but the estimated $20 billion annual budget seems reasonable for such massive potential benefits.