Enigma - Main Street Health - September 2023 Banner

Lawmakers Pitch Savings Accounts That Open at Birth

A group of Democratic lawmakers wants to give every child born in America a savings account.

The 401Kids Savings Act, announced Wednesday (Jan. 31), would create children’s savings accounts (CSAs) for every child in America, and comes at a time when many consumers are seeing their savings dwindle.

“A lack of income means you can’t get by, but a lack of wealth means you can’t get ahead,” said Sen. Bob Casey, D-Pa., one of the sponsors of the bill.

“As American families grapple with rising costs, they deserve a way to save not just for their future, but for their children’s future. My 401Kids Savings Act would provide every child in this nation with the cushion they need to take risks and pursue opportunities to create generational wealth,” he added.

According to a news release, the act is based on local models around the country and would create a CSA built on state 529 college savings platforms and managed by state treasurers. 

“Once the accounts are established for all newborns and kids under age 18, families, nonprofits, employers, foundations and others could contribute to a 401Kids Account which, starting at age 18, could be used for post-secondary education and training, a small business, a first home or retirement security,” the release said.

All families could contribute up to $2,500 per year to the accounts, though only lower- and moderate-income families would receive direct federal support, the release added.

Having an 18-year head start on their savings accounts might help consumers who struggle to cultivate a savings cushion. PYMNTS Intelligence research has found that consumers across financial lifestyles struggle to put aside savings, especially when dealing with major or unexpected expenses.

“More than three-quarters of consumers report using a significant percentage of their saved income on a major expenditure at least once,” PYMNTS wrote last fall. “Moreover, consumers say they deplete 67% of all available savings, on average. The average consumer faces such depletions once every four years.”

And as noted here earlier this week, the research also found that aggregate savings in the U.S. came to an average of nearly $11,200 per individual in September 2023, a number that has fallen by around 2% year over year after netting out the inflation effect.

“When it comes to consumer preferences on how to allocate these savings, the average consumer held 23% in education or retirement funds, the largest of all financial assets considered, 11% in stocks or bonds and around 2% in cryptocurrency,” that report said. “The remaining amount was allocated to a mix of forms that included checking accounts, business investments and other forms of financial assets.”