The ASPIRE Act: A Plan to Help Parents Save for Their Kids, or More "Government as Parent?"
Some members of Congress recently decided to aspire to new heights by sponsoring a new bill to help parents save money from their children. Known as the ASPIRE Act, the bill calls for the federal government to invest $500.00 in a savings account for every child born in the United States.
The idea behind the bill is to create an account that would grow tax-free until the child is 18. Parents would be allowed to supplement the account to as much as $20,000, which could be used for education, a first home, or retirement. And, depending on income level, the government could also toss more into the pot.
"It's a vehicle for investing in every child and providing parents a platform to save on behalf of their children," says Reid Cramer, research director of the Asset Building Program at New America Foundation, a Washington, D.C.-based Think tank that is taking a lead role in promoting the legislation.
ASPIRE, which stands for America Saving for Personal Investment, Retirement and Education, is similar to the Child Trust Fund created in 2005 in the United Kingdom. That program covers every British child born on or after Sept. 1, 2002.
Support for the legislation has cut across the political and ideological spectrum. Sponsors of the ASPIRE Act range from conservatives like Senators Rick Santorum (R-PA) and Jim DeMint (R-SC) to liberal Democrats like Charles Schumer (D-NY). Sponsors of the House version of the bill include Reps. Harold Ford (D-TN), Patrick Kennedy (D-RI), and Phil English (R-PA.).
The idea of helping parents save for their children is amassing support, according to the New America Foundation.
Capitol Hill is also percolating with other child-centered savings measures including:
● The "Savings Competitiveness Act of 2006," sponsored by Sen. Max Baucus (D-Mont.) last January, who proposed expanding the Roth Individual Retirement Accounts to children.
Roth IRAs allow penalty-free withdrawals before retirement age for post-secondary education and first-time home purchases. Under today's rules, Roths can only be opened by people who have earned income.
● The "401Kids Family Savings Act of 2006," sponsored by Florida Republican lawmaker E. Clay Shaw, Jr. (R-Fla.) introduced last May, would allow parents to establish savings accounts for their children at birth. These accounts would grow tax-free and be used for college, first-time home purchases, or rolled over into a retirement account.
The proposals all share two common goals: to encourage families to start saving early for their children, and to teach families sound financial habits.
For low income families, these bills help give children more equal footing as young adults. The ASPIRE Act allows families to supplement the accounts. The government would match contributions for the lowest-income households.
For middle-income families, the program would make savings for kids a clear priority. "The savings rate in our country is so poor that people don't have savings for themselves, much less any kind of savings for their kids," says Veena Kutler of Mosaic Wealth Management, a financial advisory firm in Bethesda, Md. "Although $500 doesn't seem like much, the compounding of returns over time results in an amazing growth in money."
Kutler says that a single deposit of $500 invested over the last 25 years in an index portfolio would have grown to just under $10,000 today.
A pilot project for kids' savings programs known as the SEED initiative (Saving for Education, Entrepreneurship, and Downpayment), has been operating since 2003 in 12 sites around the country. the program has set up tax-free accounts of $200 to $1,000 for approximately 1,300 disadvantaged young children. Financial education and incentives is a key feature, with children getting additional contributions if, for example, they join their parents in a financial literacy class or get straight A's in school. SEED administrators notice that many participating families are saving more and changing spending behavior.
To learn more about the SEED program visit www.cfed.org.
Among the challenges to implementing a full-scale public savings plan are the
logistics and expense of providing $500 to each of four million American newborns a year at the taxpayers' expense.
The ASPIRE Act would require accountholders to return the initial $500 donation once they reach the age of 30, raising further questions about how the repayment plan would be administered and enforced. Other issues include how to provide adequate financial education--a key piece of the proposed legislation--to so many children.
Proponents say the returns would be worth the effort. Commentary from other conservative and liberal groups should be forthcoming by January.
The idea behind the bill is to create an account that would grow tax-free until the child is 18. Parents would be allowed to supplement the account to as much as $20,000, which could be used for education, a first home, or retirement. And, depending on income level, the government could also toss more into the pot.
"It's a vehicle for investing in every child and providing parents a platform to save on behalf of their children," says Reid Cramer, research director of the Asset Building Program at New America Foundation, a Washington, D.C.-based Think tank that is taking a lead role in promoting the legislation.
ASPIRE, which stands for America Saving for Personal Investment, Retirement and Education, is similar to the Child Trust Fund created in 2005 in the United Kingdom. That program covers every British child born on or after Sept. 1, 2002.
Support for the legislation has cut across the political and ideological spectrum. Sponsors of the ASPIRE Act range from conservatives like Senators Rick Santorum (R-PA) and Jim DeMint (R-SC) to liberal Democrats like Charles Schumer (D-NY). Sponsors of the House version of the bill include Reps. Harold Ford (D-TN), Patrick Kennedy (D-RI), and Phil English (R-PA.).
The idea of helping parents save for their children is amassing support, according to the New America Foundation.
Capitol Hill is also percolating with other child-centered savings measures including:
● The "Savings Competitiveness Act of 2006," sponsored by Sen. Max Baucus (D-Mont.) last January, who proposed expanding the Roth Individual Retirement Accounts to children.
Roth IRAs allow penalty-free withdrawals before retirement age for post-secondary education and first-time home purchases. Under today's rules, Roths can only be opened by people who have earned income.
● The "401Kids Family Savings Act of 2006," sponsored by Florida Republican lawmaker E. Clay Shaw, Jr. (R-Fla.) introduced last May, would allow parents to establish savings accounts for their children at birth. These accounts would grow tax-free and be used for college, first-time home purchases, or rolled over into a retirement account.
The proposals all share two common goals: to encourage families to start saving early for their children, and to teach families sound financial habits.
For low income families, these bills help give children more equal footing as young adults. The ASPIRE Act allows families to supplement the accounts. The government would match contributions for the lowest-income households.
For middle-income families, the program would make savings for kids a clear priority. "The savings rate in our country is so poor that people don't have savings for themselves, much less any kind of savings for their kids," says Veena Kutler of Mosaic Wealth Management, a financial advisory firm in Bethesda, Md. "Although $500 doesn't seem like much, the compounding of returns over time results in an amazing growth in money."
Kutler says that a single deposit of $500 invested over the last 25 years in an index portfolio would have grown to just under $10,000 today.
A pilot project for kids' savings programs known as the SEED initiative (Saving for Education, Entrepreneurship, and Downpayment), has been operating since 2003 in 12 sites around the country. the program has set up tax-free accounts of $200 to $1,000 for approximately 1,300 disadvantaged young children. Financial education and incentives is a key feature, with children getting additional contributions if, for example, they join their parents in a financial literacy class or get straight A's in school. SEED administrators notice that many participating families are saving more and changing spending behavior.
To learn more about the SEED program visit www.cfed.org.
Among the challenges to implementing a full-scale public savings plan are the
logistics and expense of providing $500 to each of four million American newborns a year at the taxpayers' expense.
The ASPIRE Act would require accountholders to return the initial $500 donation once they reach the age of 30, raising further questions about how the repayment plan would be administered and enforced. Other issues include how to provide adequate financial education--a key piece of the proposed legislation--to so many children.
Proponents say the returns would be worth the effort. Commentary from other conservative and liberal groups should be forthcoming by January.
posted by Michael Burns at 9:30 PM
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