Children's investment account proposed

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Mississippi State Treasurer Tate Reeves, the Aspen Institute Initiative on Financial Security, and Enterprise Corporation of the Delta/Hope Community Credit Union (ECD/HOPE) have proposed the creation of a $500 investment account for all children born in the state of Mississippi. This first-in-America program could mean billions of dollars in economic growth for the state while encouraging savings for college, home ownership, and entrepreneurship for the next generation of children.

The unique initiative would establish child accounts under a five-year public-private demonstration project. The initial endowment of $500 would be provided by the state to each newborn, and total additional state-tax-deductible contributions of up to $2,000 per year could be made by family members, friends, churches, charities, and others.

It is estimated that the program would directly benefit more than 210,000 Mississippi children. Accounts would be worth an estimated $17,000 to $56,000 at the child's 18th birthday, depending on additional deposits made over the life of the account.

The program is a unique initiative to establish child accounts under a five-year public-private demonstration project. A report written by ECD details how the five-year demonstration project will work:

  • An initial endowment of $500 would be provided by the state to each newborn child to establish a child account during a five-year demonstration period.
  • Families of the children, friends, churches, charities, or others would be able to contribute up to a total of $2,000 per year to a child's account and receive a state tax deduction.
  • The accounts would be managed by private sector financial institutions.
  • Child account holders could use the accounts for any purpose at age 18 - including a college education, home ownership, or investing in a small business.

You can read the complete report.

If the maximum is contributed each year, the child account would be worth almost $56,000, according to the report, after 18 years. The total value of all child accounts in a five-year demonstration would grow from $42 million in the first year to $1 billion in year 18. The Child Account Demonstration would directly benefit over 210,000 state children estimated to be born over the next five years if enacted in 2008.

"Child accounts represent a bold, new policy initiative that would give every child at birth a savings account with a modest start-up contribution. With monthly contributions, largely from family and friends these accounts held in the private market would grow to provide a significant investment in the success of every child," said Bill Bynum, CEO of ECD. "Available to the children upon turning 18, the accounts could provide the money needed to go to college, purchase a home, or start a small business. They would also provide a vehicle for financial education and would encourage habitual savings tools that can last children a lifetime and would ultimately contribute to the growth of Mississippi's economy."

"The rising costs of living are making it harder for many Mississippi families to send their children to college and otherwise make ends meet," said State Treasurer Tate Reeves. "A child accounts program could provide a promising avenue for Mississippi's children and families to prepare for the future by saving for purposes such as a college education, homeownership, and becoming entrepreneurs."

In Mississippi, only 30 percent of all state youth ages 18-24 are enrolled in a post-secondary institution. In addition, only 30 percent of all state residents ages 25-54 have an associate's degree or higher. Similarly, 48 percent of all the state's low-income working families spend more than a third of their household income on housing.

The model for this innovative program is the United Kingdom's Child Trust Fund which was established in 2005. David White, CEO of The Children's Mutual in the UK, one of the leading financial institutions providing these accounts is participating in the Mississippi forum.

"Child savings accounts have proven their value for families in the United Kingdom. More families are saving for their children on a regular basis than ever before which could make a huge difference to their financial future and the choices available to them when they become adults," said White. "I applaud Mississippi for their bold leadership in undertaking this important program, and demonstrating to the rest of America how beneficial it can be."

"Child Accounts provide an opportunity for long-term investment in children and their financial security. The program makes saving a universal experience and a hands-on lesson in financial literacy for all children. It also encourages those close to the child to become habitual savers, boosting the financial aptitude of adults, as well," Bynum concluded. "The Child Account Demonstration program represents a bold new policy initiative that could bridge the gap between Mississippi's working families and the savings system. It offers Mississippi's children, regardless of income, an opportunity to enter adulthood on solid financial footing. For the state, it represents an extraordinary opportunity to increase savings and to build local economies, moving Mississippi forward over the next generation."

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