Oct 23, 2024
A U.S. Congressman wants to give every child a $5,000 head start on their savings, one of the boldest universal income proposals yet aimed at providing fiscal security for everyday Americans.
But does the approach offer the best path toward financial security for future generations, and does it stand any chance of passing?
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The idea from Minnesota Democrat Dean Phillips is simple yet ambitious: each American-born or naturalized child would receive $5,000 at birth, invested through the Social Security Administration.
With an assumed average annual return of around 10% — a figure that reflects the historical performance of the S&P 500 — this $5,000 could grow to approximately $25,000 by the time the child is 18, offering a substantial financial boost as they enter adulthood.
The money could be used for a variety of purposes: covering college expenses, funding a down payment on a home, starting a business or other meaningful life expenses. Students would have the opportunity to track their investment performance through a mobile app, providing a hands-on way to build financial literacy.
“Fulfilling the promise of our great nation requires that everyone have a chance at the American Dream. This legislation provides every American child the opportunity to flourish and realize their full potential,” Phillips said. “Investing pays dividends, and it is time to bet on the American values of self-determination and opportunity for all by passing the American Dream Accounts Act.”
The Department of Education would also play a role by developing financial education resources to help students understand concepts like investing, saving and budgeting. As adults, they could cash out these funds to support their aspirations, with the potential for an additional $10,000 bonus if they join programs like the Peace Corps or AmeriCorps.
While Democrats are praising the bill for addressing wealth gaps, conservative Republicans are likely to line up against the bill given Social Security’s current march toward insolvency and their historic opposition to universal income.
Addressing wealth inequality
With rising costs for education, housing, and health care, having a $25,000 financial cushion could help young adults make more informed choices about their future. It’s also a step toward leveling the playing field and promoting financial inclusion, giving even the most disadvantaged children a start on the path to financial security.
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By establishing investment accounts from birth, the program emphasizes the power of compound interest and long-term investing. Young adults would be able to track the growth of their funds, potentially fostering an interest in financial planning and a greater understanding of how to manage money as they enter adulthood.
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Just one catch: It’s expensive
Phillips’ proposal lacks a clear funding mechanism, but it would likely draw on Social Security’s resources at a time when the safety net is already under pressure and headed toward insolvency in 2035.
"We already know the funding issues Social Security is approaching in the coming years, and adding to the administration a $5,000 fund per child born in the country would be a massive task, both in terms of money and manpower," University of Tennessee financial literacy instructor Alex Beene told Newsweek.
Then there’s market risk. While the S&P 500 has historically returned around 10% annually, it’s not guaranteed. Market volatility could affect the actual value of the funds by the time young adults can access them.
Meanwhile, not all children or their families have the knowledge or resources to make the most of these funds. While tracking investment performance and accessing funds through an app sounds practical, financial illiteracy or technology gaps could make it hard for many to embrace the proposal’s vision.
Politically dicey
While the American Dream Accounts Act has received attention and praise for its potential to bridge wealth gaps, its path through Congress is uncertain at best.
Many similar ideas have been proposed over the years only to fade in the legislative process, including Democratic Sen. Cory Booker’s American Opportunity Accounts Act, which aimed to provide every child in the U.S. with a $1,000 account followed by up to $2,000 annually depending on family income.
And in 2004, then-GOP Sen. Rick Santorum’s ASPIRE Act would have given each child a $500 deposit at birth, with additional contributions encouraged from family and friends.
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Chris Clark is a Kansas City–based freelance contributor for Moneywise, where he writes about the real financial choices facing everyday Americans—from saving for retirement to navigating housing and debt.
