As if we don’t have enough government programs as it is…
MSN Money posted an article over the weekend titled, Junior’s 1st Paycheck: $500 at Birth.
I wrote about this program, called ASPIRE, in the past. The goal of ASPIRE is to give EVERY newborn baby a $500 savings account to be used for college, buying a home, or retirement. Babies born into lower-income families can receive more than $500. How much more? $500 for a total of $1,000.
Regardless, let’s focus on the $500. How much could $500 be worth by the time the recipient is ready for college? Not a lot, as my math shows:
Assuming a 10% rate of return (7% after inflation)…
That’s right…$1,690! Yes, this is assuming nothing is added to the account over the years, which is a pretty safe assumption unless the government adds money to the account.
Sure, $1,690 is better than nothing I suppose but what good is it going to do for the recipient? Is it 10% down on a $16,900 house? A semester’s worth of books?
Say the account stays untouched until the recipient retires at age 65. How much will it be worth by thenagain assuming nothing is added to the account and we use the same expected returns from the above example?
The MSN Money article I referred to above mentions the reasoning behind this act:
“Having an asset has the potential to change the way people think and plan for their future, and sometimes those effects can be generated just from small asset holdings,” he says, adding that it’s possible for people to build significant savings over time. The ASPIRE Act also would pair the creation of the accounts with financial literacy programs in schools.
I looked up the ASPIRE Act and this is what it says about financial literacy:
The Secretary of the Treasury, in coordination with the Financial Literacy and Education Commission, shall develop programs to promote the financial literacy of account holders of KIDS Accounts and the legal guardians of such account holders who have the rights with respect to such accounts under section 3(h).
Not a lot of focus on financial literacy!
If we REALLY WANT TO HELP PEOPLE we need to be teaching them financial literacy, not giving them $500 or $1,000.
Not only that, with our country mired in debt that is in the trillions, what good is it to allocate roughly $2.1 billion (4.2 million kids born in 2008 × $500) to savings accounts? Doesn’t make a lot of sense to me.