Over the course of the last two decades, a community of academics, policy wonks, and practitioners has been busy developing and testing ideas for helping ordinary people to save more and build their assets. Here are a few of the signature proposals of what has come to be known as the asset-building movement.
Make Childhood Savings Accounts Universal. Government should open a savings account for every child at birth. To promote equality of opportunity, government may also endow the accounts of children from low-income families with an initial deposit, or may do so for all children. The United Kingdom has tried one model. It issued vouchers (popularly known as "baby bonds") to every newborn, which could be redeemed for Child Trust Funds at participating financial institutions. The city of San Francisco is pursuing another model, opening an account for every kindergartner who enters the city's public schools.
Public policy should also encourage parents to contribute to their child's account, and allow relatives and others concerned with a child's welfare to do so as well. The ASPIRE Act, introduced previously with bipartisan support in Congress, proposed offering $500 to every child, and would enable others to make tax-sheltered contributions of up to $2,000 per year. Use of the funds building up in childhood accounts is typically restricted to specific purposes, such as post-secondary education, first-time home buying, or retirement income.
Get Students Savings for Post-secondary Education. Nearly half of students who enroll in college do not obtain a degree and are often trapped under a mountain of student loan debt when they drop out. Among those who do graduate, the average encumbrance of debt exceeds $25,000. A better idea is to get students savings for college ahead of time. Not only would this reduce debt burdens, but research has shown that kids who have saved up money in their own accounts to fund college are more likely to graduate. (See Dana Goldstein, "The 'Assets Effect,'" page 31.)
Currently, the so-called "529" college savings plans offer tax breaks for school expenses, but primarily benefit higher-income families. All students, regardless of how much or whether they have taxable income, should have equal opportunity to take advantage of federal support for college savings. Governments should also match the contributions low-income families make to college savings plans. Additionally, college savings can be linked to Pell...