Background Information on The ASPIRE Act and KIDS accounts

KIDS accounts are small savings accounts that were proposed as part of the Americans Savings for Personal Investment, Retirement, and Education Act (the ASPIRE Act), legislation introduced by Senators Rick Santorum (R-PA) and Jon Corzine (D-NJ) and Representatives Pat Kennedy (D-RI), Harold Ford (D-TN), Tom Petri (R-WI), and Phil English (R-PA) on July 22, 2004. The legislation would provide every child, at birth, a small savings account that can be used to build assets. The bill is S.2751 in the Senate and H.R.4939 in the House.

ASPIRE will provide a KIDS account for every child born after December 31, 2005. The details of the accounts are as follows.

Accounts are endowed with an initial $500 contribution. Children living in households below the national median income will be eligible for a supplemental contribution of up to $500.

Children in households earning up the national median income will be eligible to receive a dollar-for-dollar match on the first $500 contributed to their accounts each year.

After-tax contributions of up to $1,000 a year could be made by parents, grandparents, the child or friends, the account itself would remain tax-free. The program would be administered by the Treasury Department, with cost estimated at $3.25 billion the first year and $37.5 billion over 10 years. Accounts are redeemable beginning at age 18, restricted to use for education, home ownership or retirement. All funds in KIDS accounts would not be considered in asset tests for federal assistance programs such as food stamps and TANF.

The bill’s sponsors estimate that an account holder, by the age of 18, could have an account worth at least $20,000. “Every American child should grow up knowing that when they reach adulthood, they will have the ability to invest in themselves and in their own education,” said Senator Corzine (D-NJ) at a press conference yesterday, “This proposal will promote savings, enhance financial literacy and help realize the American ideal of equal opportunity.”

Why Create KIDS accounts? Upon introduction of the bill Senator Santorum (R-PA) said “this is another opportunity for us, in a sense, to eliminate poverty for the next generation of seniors.”

The KIDS accounts that are created in the ASPIRE Act are one of these strategic and effective solutions that brings politicians from across the political spectrum together to change the lives of millions of low-income families. KIDS account legislation appeals to both conservatives and liberal alike. KIDs accounts will help promote financial literacy and teach low-income Americans about the importance of savings, while providing, through a progressive policy the means for low-income children to be a part of the American dream.

Currently, two of fiveAmerican children will never complete a year of college. People with bachelor’s degrees earn 80 percent more than those with who have not attended college. Typical costs to attend a four-year college are about $4,000 annually. KIDS accounts could help to insure that all children can attend college if they so choose.

A great deal of research has been done that suggests that adequate income is only part of the solution for eradicating poverty. People also need assets to weather financial storms and keep their footing in the economic mainstream. Assets, as well as income, are crucial to ensuring that families have an opportunity to pull themselves out of poverty and stay out of poverty. Research suggests that people think and behave differently when they are accumulating assets, and the world responds to them differently as well. Demonstrated benefits include:

Improved household stability: Major illness, job loss, or marital breakup can lead to sudden income shortfalls. A stock of assets helps to bridge these periods of financial need, reducing the chances of disorder in the household.

An orientation toward the future: When people are secure in the present, they tend to look toward the future. There is considerable evidence that people who own assets are, by and large, more optimistic about their ability to succeed.

Enhanced welfare of offspring: Given that parents pass on their wealth to their children, an effective asset-based policy for the poor could effectively reduce intergenerational poverty.

Additionally, there is evidence that homeownership and asset development is associated with improved access to credit, social and political involvement, reduced domestic violence, marital stability, and higher educational attainment.

Unfortunately, the importance of asset-building has long been overlooked in anti-poverty policy. Wealth inequality outstrips income inequality by large margins — in 2001, the wealthiest 10 percent held nearly 70 percent of total net worth (assets minus debt) in this country, while the poorest 50 percent held only 2.8 percent of the total net worth. Racial asset inequality is great, in 1995 median white households held 7 times the assets of median black households.

This disparity is no accident; the government has long encouraged asset development for the middle and upper classes through tax incentives. The government spends over $300 billion per year on asset-building policies, but approximately 90 percent of those benefits go to individuals earning more than $50,000 annually. The poor, however, do not enjoy such benefits. Asset accumulation is disallowed or even criminalized by many federal assistance programs. For example, a person who has more than $2,000 in savings cannot receive food stamps. KIDS accounts are a step in the right direction.

The U.S. is the only economically developed nation that does not provide any direct monetary support to families with children. Eighty-one countries have some form of a KIDS account program. The U.S. has the resources to guarantee financial stability for all of U.S. children and yet it is the only nation that refuses to do so. There have been proposals for KIDS accounts in the United States. The first major KIDS account legislation was a program called KIDSAVE which was proposed in 1995. KIDSAVE would allow parents who were eligible for the child tax credit to put that money into an Individual Retirement Account for their children. The child could then borrow form this account without any tax penalties for a ten-year loan in for use in pursuing higher education. This proposal and others like it have failed to be put into law, meaning that the U.S. continues to under invest in its youth.

Other Initiatives Savings for Education, Entrepreneurship, and Down (SEED) payment Initiative Accounts is a program of CFED, the Center for Social Development at Washington University, the University of Kansas School of Social Welfare SEED. The program is a six-year national initiative to test the usefulness of matched savings accounts for children. The SEED accounts are long-term accounts established for children at birth and allowed to accumulate over their lifetime. SEED accounts are opened with a deposit of $200 to $1,000. The accounts are built up by donations from the children themselves or their friends and family members. The savings accumulated in these accounts may be used for funding higher education, the purchase of a home, the start of a small business, or to pay for retirement.

Links The New American Foundation has also provided additional information about the ASPIRE Act and KIDS accounts:

Transcript of Thursday’s press conference in the Senate Press Gallery, which includes statements from Santorum, Corzine, Ford, Petri, and English.

ASPIRE Act Summary Detailed, Section by Section Summary of the ASPIRE Act Frequently Asked Questions about the ASPIRE Act Joint Press Release from Sen. Santorum and Sen. Corzine, as well as Press Releases from Rep. Petri and Rep. English

Floor Statements from Sen. Santorum and Sen. Corzine and Rep. Kennedy. Opinion piece by Ray Boshara of the New America Foundation and Michael Sherraden of the Center for Social Development in the New York Times, July 23, 2003

Savings for Education, Entrepreneurship, and Down (SEED) payment Initiative Accounts

I'll admit it. I'm deeply skeptical. I'd be interesed in seeing what other Freepers thoughts are on this, and their ideas and anaylsis of it.

It is an interesting group of characters involved to say the least, and some liberals seem to be trumpeting it, so I'd like to know what or how many possible drawbacks their are in this.

Personally, I have more then a few doubts about this, and concerns. Kind of like a "good on paper, but devils in the details".

Not to mention our tax dollars going to start savings accounts for other peoples kids?? What ever happened to families supporting their own? Did I miss something?

This is a stupid idea...IMHO.

Giving a kid a $500 government handout at birth does not meant they'll have $20,000 at 18.

Only kids whose parents would have saved for them anyway will have $20,000.

The majority of kids will still have $500 plus whatever interest 500 bucks would earn over 18 years.

I didn't read the entire article, but it doesn't look to me like the parent's contributions are tax deductible.

And this is a lie:

" The U.S. is the only economically developed nation that does not provide any direct monetary support to families with children"

The US gives an addition $1000 tax credit per child to every family regardless of income.

My mistake, I misread part of this.

I thought the government would allow a tax free account starting at 500 bucks, I didn't realize the initial payment came from the government.

I should have read it more carefully, My first impression was a sort of pure tax free account, starting at 500 bucks and getting interest, and then removed tax free when the kid turns 18.

Get rid of the income tax and none of this type of social engineering will be possible.

I just sat down with a financial planner today, it's mind numbing the number of programs that are set up by the government to 'help' with retirement, save for education, etc. For the most part they just seem to be programs aimed at social engineering with plenty of strings attached. The carrot is that the tax on some income, or investment returns can be deferred.

The NRST would be a much simpler approach, if I want to save for education or retirement, I just save it. No fancy plans with pages of rules to be changed at will.

-rant off-

This is insane. Why is the federal government establishing savings accounts for kids?

Lean closer to the screen and I shall elucidate.

(whisper)It hammers the wooden spike through the dark heart of socialism (hence the Democratic Party) in America.

Look how it ties in with personal accounts for Social Security...as Newt Gingrich said "we are going to let it wither on the vine." RIP Social Security.

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