WASHINGTON -
The proposal, similar to the Individual Development Accounts that are providing matching savings accounts for low- and moderate-income families, would provide federal subsidies for newborn accounts that would accumulate tax-free until the saver is 18, when the funds could be used freely. Family, friends and other parties could deposit as much as $2,000 a year into the account, while low- and moderate-income families would be eligible for matching funds up to $1,000 a year if they were qualified to participate in the IDA program.
Dozens of CUs are already participating in the IDA program, which provides matching funds for eligible low- and moderate-income savers.
"Americans are saving too little. In part, that's because they start too late and, like everything else, they should start saving when they are young," said American Airlines FCU President John Tippets, who participated in the Aspen Institute's Initiative on Financial Security, which developed the new savings idea.
The proposal was unveiled in the hearing room of the Senate Banking Committee, whose chairman, Sen. Chris Dodd of Connecticut, is supporting the Aspen Institute's savings initiative.
Tippets lamented the falling U.S. savings rate and cited the new proposal as one that could boost savings and put young Americans on the road to accumulating assets. He compared the initiative to his youthful experience buying War Bond stamps that were redeemable later on. "Child accounts have the similar opportunity as a tool for financial education to open the eyes of all young Americans about savings and about ownership, about compounding and investing," said Tippets, who plans to retire in the next year from the $5 billion CU.
"I sincerely believe child accounts can set families and children on an 18-year journey of financial literacy and a savings habit. And, with the modest initial endowment, matching contributions for low- and moderate-income families, and consistent contributions, child accounts have the potential to grow into significant financial assets for education, or down payments on a home, or as a retirement investment," Tippets said.
The concept of government-sponsored child savings accounts is already being piloted in the United Kingdom and is growing in popularity, said Lisa Mensah, executive director of the savings project. "Fundamentally, this is an opportunity to provide financial security for life," Mensah said. Tippets said the program, which seeks an initial federal funding of $2.1 billion and as much as $27 billion over 10 years, will require legislation to enact.
