NCPA - National Center for Policy Analysis

Baby Bonds

July 23, 2003

For each British baby born after last Sept. 1, the government will deposit at least $400 into a trust fund, and up to $800 for the poorest one-third of children. The government will make smaller supplementary payments when the child turns 5, 11 and 16, and relatives or friends can contribute limited amounts tax-free over the years. With the magic of compound interest, the account could be worth $7,000 when it matures on the child's 18th birthday.

The idea is to help the 16 million Britons -- out of 60 million -- who have no savings or equity at all to join the middle class. Tony Blair's initiative is the latest example of a concept that political scientists call "stakeholding." It has been used in America and other countries to achieve a wider distribution of wealth:

  • In postwar Japan, land was redistributed to millions of farmers, laying the foundation for the country's economic renaissance.
  • Singapore has achieved one of the highest rates of savings and home ownership in the world largely because of laws requiring workers to put a portion of their earnings (with an employer match) into a trust called the Central Provident Fund.
  • And in the United States, a quarter of adults today can trace their family legacy of asset ownership to Abraham Lincoln's Homestead Act.

In the United States, the poorest 60 percent of Americans collectively owns less than 5 percent of the nation's wealth; one-quarter of white children and half of nonwhite children grow up in households with no resources at all for investment.

Such a system might work in the United States, say observers. The accounts could be restricted to higher education or technical training, a small business or a first home, or they could be put aside for retirement.

Source: Ray Boshara and Michael Sherraden, "For Every Child, a Stake in America," New York Times, July 23, 2003.


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