A new bill referred to as The American Dream Accounts Act of 2024 has been proposed with the purpose of opening a $5000 investment account for every child in the United States. This money would be invested in an index fund and run by the Social Security Administration (SSA) to encourage young Americans to start wealth creation at an early age. The child would have access to these funds after they graduate from high school, complete a GED or, in the case of a disabled child, upon reaching the certain age limit.
How It Works
The American Dream Accounts Act, which also goes by the name H.R. 9881, was proposed in Congress by, among others, Representative Dean Phillips, a Democrat from Minnesota. The bill estimates the return on investment at 10% each year pegged on rates quoted for the S and P 500 index. By the time the child is 18 years of age, the initial investment of $5,000 is likely to have matured to about $25,000 and can be used to meet the following needs:
- Making a down payment on a home
- Furthering education
- Covering living expenses
- Starting a small business
Here’s how it would work:
1. Eligibility: Every American child born after the act is passed, along with children naturalized before the age of 18, would be eligible for this account.
2. Investment Fund: The $5,000 would be invested in an index fund, which is a diversified group of stocks that mirrors the performance of a particular stock market index, such as the S&P 500.
3. Management: The SSA would be responsible for managing these accounts, ensuring they are properly invested and grow over time.
4. Access: Beneficiaries would receive their funds upon high school graduation, obtaining a GED, or qualifying for a disability waiver.
Education and Financial Literacy
In order to instill understanding of the worth of savings accounts among the children and teach them the right way to use their money, the Department of Education shall be tasked with creating financial literacy programs. Such Programs shall aim at teaching the pupils on money management, investment and even non wage income through business. An application will also be created that will enable students to monitor in real time how their investments are growing.
Rep. Phillips emphasized that future generations should be empowered not just to create wealth but to acquire financial skills useful in practical terms for a lifetime.
Benefits and Potential Impact
If the American Dream Accounts Act becomes law, it could have far-reaching effects for millions of young Americans. Here are a few of the main benefits:
Building Wealth: By starting with $5,000 invested in a diversified index fund, young people will have the chance to begin adulthood with a financial cushion.
Financial Literacy: The accompanying education programs could help students develop critical financial skills, making them better prepared to manage their money in the future.
Economic Opportunity: With $25,000 potentially available by age 18, beneficiaries could use the funds to pursue higher education, start a business, or buy a home, giving them a head start in building their financial future.
Concerns and Questions
While the idea of a $5,000 account for every child sounds appealing, there are several concerns that have been raised about the bill.
1. Where will the money come from?
With 3 million babies born in the U.S. each year, providing $5,000 for each child would require about $15 billion annually. Critics have questioned how the government plans to fund such a large initiative without adding to the national debt.
2. Oversight and Regulation:
Who will ensure that the funds are spent appropriately once they vest? Some are concerned that recipients might use the money irresponsibly, such as spending it on a luxury item rather than investing in education or a home.
3. Economic Risks:
What happens if the stock market underperforms or enters a recession? Though the bill assumes a 10% annual return, the market could experience years of losses. Critics wonder who would be held accountable if these accounts lose value.
4. Management by the SSA:
Will the SSA be able to manage these new accounts efficiently? Given their current workload, some have raised concerns about whether the SSA will have the resources and staff needed to oversee millions of new accounts.
Final Thoughts
The American Dream Accounts Act puts forward an innovative strategy to ensure that every next generation is born with a substantial asset base. Yet, there are some critical issues as to the funding, administration, and supervision of the program. Such challenges will have to be addressed as the bill progresses in order to achieve its ambitious objectives.
In case the act is adopted, it may have a dramatic influence on the lives of countless young Americans by equipping them with opportunities in terms of capital formation.
