Saving and security

The Aspen Institute's Initiative on Financial Security is trying to build support for new policies to promote saving for those on low or moderate incomes. At a roundtable today the possibilities were discussed with a range of interested parties, including finance-industry types and Congressional staffers. (You can download a copy of the group's recent report, "Savings for Life", here.)

One idea is "child accounts", similar to those launched in Britain in 2005. At birth, each child would be given a $500 investment certificate. Deposited with a participating financial institution, the investment would grow tax-free. Friends and family could add up to $2,000 a year, and the children of low-income families would get matching contributions of up to $1,000 a year from the government. Fees and expenses would be capped. At 18, the account could be drawn down for any purpose. The hope would be to teach the habit of thrift, and to equip young adults with a modest but useful capital sum at a time when they are likely to need it.

Hillary Clinton has advocated an idea along these lines, but now appears to have backed away from it. That seems a pity. Her plan called for a much bigger initial public outlay: $5,000 per child and no mention of subsequent saving. Apparently it was too expensive to command  political support. (According to a telephone poll after she floated the idea, 60% of voters opposed it and only 27% were in favour.) Britain's plan was dismissed in some quarters, I recall, as empty-gesture politics--as a gimmick. But because it was seen as a modest proposal it was enacted without arousing much opposition. Already the idea seems quite well-entrenched and appears to be working as intended. I can imagine this little scheme being looked back on as the most important thing New Labour did. There is something to be said for reform by stealth.