Last week, New America's children's savings account proposal, the ASPIRE Act (America Saving for Personal Investment, Retirement, and Education Act) received some major recognition from the mainstream media on the US News and World Report website. They ran an entire piece on the ASPIRE Act which focused on many of the details behind the proposal. The author of the article was also interviewed by ABC news. The reactions have been mixed, but the proposal is getting a lot of attention and hopefully some serious policy debate will result.
The ASPIRE Act would automatically provide every child in United States with a savings account when they receive their social security number. Every account would be endowed with a one-time $500 contribution and children from lower-income families would be eligible for a supplemental contribution of up to $500. Earnings in the accounts would be allowed to grow tax-free and lower-income Americans would be eligible for matching contributions. The accounts would also be used to help promote financial literacy.
A range of investment options for the accounts would be provided, similar to that for 529 college savings plans. Accountholders would not be allowed to make any withdrawals till they reached the age of 18. After that, the accounts would follow rules very similar to those for Roth IRAs. Withdrawals would only be approved for postsecondary education, homeownership and retirement.
Savings and assets are essential for getting ahead in today's society and the ASPIRE Act would help all children get started on this path beginning at birth. Children would have the means to build resources for meaningful investments such as postsecondary education and homeownership. Furthermore, research has demonstrated that even small amounts of savings can change the expectations and behaviors of both children and their parents in positive ways.
The ASPIRE Act would also ensure that all Americans have incentives to save. Currently, federal policy provides hundreds of billions of dollars each year through the tax code to encourage savings and asset building, but low- and moderate-income families are often not eligible. Lastly, over the long run the ASPIRE Act could help put the economy on stable footing and facilitate sustainable long-term economic growth. If the accounts encourage more Americans to save and increase the pool of domestic capital, this capital can be used for investment that drives economic growth.
The ASPIRE Act was originally introduced in Congress in 2004 and it has always enjoyed strong bipartisan support. It will be reintroduced in both the House and Senate later this year. For more information on the ASPIRE Act, please go to the ASPIRE Act information page on New America's website.