Baby Bonds

A bad idea whose time has come?

Baby Bonds:  A bad idea whose time has come?

No, Baby Bonds do not refer to the offspring of James Bond or former major leaguer Barry Bonds.  “Baby Bonds” is latest welfare state proposal that is being tested, where else? the nation’s capital, to “narrow the wealth gap” in America.

Essentially, the program will make available to children of poor families up to $25,000 when they reach 18 years of age.  The Associated Press article describes how it will benefit 25-year-old woman living with her boyfriend, his 9 year old daughter and his mother in a two bedroom apartment in Washington DC.  She has student debt, works in a fast-food restaurant and is pregnant with a baby boy. 

This situation begs the question: the couple makes around $70,000 per year, is receiving public assistance but they are having a baby anyway?  In other words, a couple’s personal goals are being subsidized by taxpayers for a so-called noble purpose, provide their offspring with moneys when they reach adulthood to help pay for college, to fund a business, or help pay for a home. 

There is a better way.  I propose the following:  At birth parents would open a Super Individual Savings Account.  The funds would grow tax free and the funds withdrawn tax free.  The SISA would be funded by parents’ contributions and those of other relatives, friends, neighbors, colleagues.  Let’s say each year the account is voluntarily funded with a $1,000 for 18 years and invested in a S&P 500 index mutual fund.  Assuming the fund would earn a conservative 8 percent per annum, below the long term average of nearly 10 percent, the SISA would grow to

$ 40,446.26.  And if the annual contribution grows by 3 percent per year, at age 18, the SISA will grow to just under $50,000. 

And if another fund is created for retirement benefits, a Super Individual Retirement Account, starting with a $1000 at birth, increasing at 3 percent annually, earning 8 percent would become at age… are you ready?  just under $3.1 million!  This number would be much larger when an individual would be able to deposit thousands of dollars annually when he is in the prime working years in his life. 

There is absolutely no need for “Baby Bonds” to help children of low-income families obtain capital or have a decent retirement.  All it takes is for couples to have good skills, above average income, having children they can afford to raise without public assistance, and savings.  We don’t need more gimmicks, feel good programs out of DC.  We need personal responsibility.  But as William Graham Sumner remarked in his classic , What Social Classes Owe to Each Other

Every man and woman in society has one big duty. That is, to take care of his or her own self. This is a social duty. For, fortunately, the matter stands so that the duty of making the best on one's self individually is not a separate thing from the duty of filling one's place in society, but the two are one, and the latter is accomplished when the former is done.

Sumner’s insights are truer today as when they were published in 1883.  America needs a “great reset.”  America needs free enterprise, limited government, and personal responsibility.  The troika of a free and harmonious society