The $6.25 billion philanthropic gift announced by Michael and Susan Dell, seeding children’s investment accounts, aims to help the youngest Americans put money in the stock market so they can reap the benefits of compounding returns as adults. It’s an idea that has been gaining bipartisan support for three decades.
Yet the policy creating these so-called Trump accounts, as currently written, risks leaving out many of the children who would benefit most — and many of those the Dells intend for their donation to reach.
Trump accounts were established in this year’s tax bill. Babies born during President Trump’s second term will get $1,000 from the government, and the Dells plan to give $250 to most other children 10 and under. The money will be invested in index funds, and the children can withdraw from the accounts when they are adults, for specific purposes like going to college, buying a home, starting a business or eventually retiring.
But the details matter, according to people who study these types of plans. Here are some key considerations for policymakers and philanthropists like the Dells:
Is there evidence these plans work?
Yes. It’s a relatively new idea, but some countries, a few U.S. states and many localities already have some version of government-funded children’s investment accounts (sometimes known as baby bonds, and often involving small contributions to start a 529 college savings plan).
The goal is to help more children grow wealth — which is assets that people own, like savings, investments and homes. Wealth inequality is larger than income inequality, the difference in the amount that people earn from their jobs.
Investment accounts for children have been found to shrink the wealth gap, especially for Black and Hispanic children. That’s in part because the six in 10 Americans who own stock are more likely to be white, with college degrees and high incomes. Only a minority of parents have opened — or are even aware of — 529 college savings plans.
Matt Lira, a founder of Invest America, the nonprofit behind Trump accounts, said the U.S. stock market “is undeniably a powerful wealth engine, but the wealth gap is getting worse, because not enough people are along for the ride.”
Research has shown that children who have investment accounts, including those growing up in poor families, are more likely to go to college.
They’re also more likely to take school seriously, and one reason is that parents are “talking to their child about college — ‘What are you going to use this money for? What are you going to do to prepare in high school and middle school?’” said Trina R. Shanks, a professor of social work at the University of Michigan.
Should accounts be opt-in or automatic?
The most important factor is for children to be automatically enrolled, said Jin Huang, co-director of the Center for Social Development at Washington University in St. Louis, which has led a large experiment on children’s savings accounts in Oklahoma.
Although the law gives the Treasury Department the authority to automatically enroll children, it does not plan to do that. When accounts open next year, parents will need to sign up.
“That’s a very serious policy design concern,” Professor Huang said. “It’s highly likely we’re going to miss millions of children.”
Past experiments have found that when these accounts require opting in, many parents don’t, especially those who are poor. Parents might be uninformed about them, inexperienced with investing or overwhelmed around the birth of a child, researchers said.
In the Oklahoma experiment, accounts were opened for a group of newborns in 2007. Enrollment was automatic unless parents opted out — which only one family did.
But in Maine, where a philanthropist gave newborns $500 to invest for college if their parents opened accounts, just 40 percent did. (Maine has since switched to automatic enrollment, and participation is 100 percent.)
Should rich and poor children get the same amount?
Democratic plans for children’s savings accounts, like one from Senator Cory Booker of New Jersey, generally propose giving more money to children from poor families. But Trump accounts don’t allow nonprofit and government donors to pick recipients based on family income (though individuals or employers can contribute to individual children’s accounts).
The accounts do, however, allow donations to either all account holders in a state or to all children born in a certain year, according to guidance the government released last week, as long as they all receive the same amount.
The Dells said they would determine eligibility a different way, based on ZIP code — any child who lives in a ZIP code where the median household income is less than $150,000 would get $250. It’s an attempt to exclude the richest families, though it’s imprecise, because poor families live in rich areas and vice versa.
It’s also unclear that it aligns with current government guidance, which does not mention ZIP codes. The Treasury Department and the Internal Revenue Service, which published the guidance, did not respond to requests for clarification.
The Dell Foundation is “working with other experts to finalize an approach that delivers the highest degree of accuracy and clarity,” said Dan Stasiewski, a foundation spokesman.
How much money is enough?
The Dells said they hope more donors, like philanthropists or local governments, add to their gift. But $250 alone could make a difference, research shows.
When children had even a small amount of money in a long-term savings account, they were significantly more likely to go to college, found William Elliott, a professor of social work now at the University of Michigan. The money gave them a “college-bound identity,” he wrote.
The accounts also create something less tangible, researchers have found: optimism.
“It’s about people’s thoughts about the future,” Professor Huang said. “It’s about hope.”
Should parents just get the money immediately?
Giving money directly to families with children nationwide has been done before, and child tax credits were deposited monthly for part of 2021 during the Biden administration.
Lisa Gennetian, a professor of public policy at Duke, is a principal investigator on a large study of the effects of giving parents monthly payments, which they spend on daily needs like food or rent. But she said that money to save for adulthood should be thought of differently — and both are necessary.
Children in low-wealth families had worse education and behavior outcomes than those in wealthier families, she found, even when the households had the same incomes. Wealth decreases parental stress, and protects families from financial shocks.
Wealth poverty — having less than $6,500 in savings or assets, minus debts, for a family of four — affects more families with children than income poverty, research shows, including half or more of Black and Latino families. Investment in the stock market is now the biggest driver of the racial wealth gap.
“People in my field have felt like assets and wealth have been the missing equation in trying to figure out what to do about poverty and inequality,” said Ray Boshara, a senior policy adviser at Washington University who has helped policymakers in both parties develop plans for children’s savings accounts.
“It’s more than income,” he said. “It’s resilience, so you have something to fall back on in hard times, and it’s also opportunity.”
Claire Cain Miller is a Times reporter covering gender, families and education.
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