American stakeholder accounts are an idea rooted in American history, says Ray Boshara, program director at the New America Foundation and Michael Sherraden, a professor of social work at Washington University in St. Louis.

"[I]n the United States, a quarter of adults can trace their family legacy of asset ownership to the Homestead Act that, beginning under Abraham Lincoln, awarded land in the West to those pioneers with the courage to settle it" they wrote for a New York Times opinion piece in July 2003. The Act dramatically increased membership in the landowning—or asset-holding—class.

They believe that a sort of Homestead Act for the 21st Century, focused on giving all kids and families money for investment instead of land, might be one of the best ways to combat poverty in the future. They propose a system where each of the four million babies born every year would receive a deposit in a stakeholder account that could only be spent on education costs, technical training, help with buying a first home, or starting a business when the child turns 18.

"It doesn't take an army of economists to know that society as a whole reaps huge rewards when we have more owners, savers, taxpayers and entrepreneurs—and fewer people depending on the state, their communities and others for their livelihood and well-being," they say.

American Experiment
After observing successful startups of universal children's savings intitiatives in both Singapore (2001) and Great Britain (2003), the non-profit Corporation for Enterprise Development decided to test the American stakeholder concept with a five-year initiative that started in October 2003 called SEED (Saving for Education, Entrepreneurship and Downpayment).

While Boshara calls for every American child to receive a stakeholder account regardless of prior family wealth, SEED is focused on low-income families.

The corporation has partnered with non-profit organizations in 10 communitites that have recruited participant families with children. So far, more than 100 accounts have been established with between $200 and $1000 from the corporation, which received funding from a variety of organizations, including the Ford Foundation, the Charles and Helen Schwab Foundation, the Jim Casey Youth Opportunities Initiative and the Edwin Gould Foundation for Children. Six hundred accounts are projected to be opened by mid-year 2004.

Robert Friedman, chair of the corporation, hopes that these savings will grow, while both parents and children learn through financial education. Program partners offer classes, workshops, and one-on-one counseling to participating families.

"We have some pretty good data that for each hour, up to eight hours, of basic financial education [for parents], the savings of account holders increases by a large effect," says Friedman.

The Big Idea
Friedman hopes that SEED, over the course of five years, will provide hard evidence on how asset ownership affects the lives and prospects of low-income families.

Boshara and Sherraden's bold concept of a national program is based on the idea that asset ownership will have profound sociological effects, such as reducing the transmission of poverty from one generation to the next.

They call for initial investments ranging from $1,000 to $6,000. If $6,000 were invested in a portfolio that yielded a seven percent annual return, each child would have $20,000 upon high school graduation.

But where's the initial investment going to come from? The two propose a federal source for the funds. Deposits would be made as a loan from the Social Security Administration to be repaid over ten years upon steady employment by the stakeholder. The parents and child, as well as family, friends, community organizations and parents' employers could make additional contributions.

Boshara believes it's important that the system be able to replenish itself, in contrast to the Social Security system in place today. By having the recipient repay the original loan amount, they argue that federal government costs will be reduced and hope to counter charges that the initial deposit is "something for nothing."

Mixed Reception
Not everyone is convinced that the idea will work, or is necessary. When Boshara wrote about his concept in the January/February 2003 issue of The Atlantic, detractors did not hold their tongues.

"[His proposal] is nothing but microwaved propaganda from the leftist cafeteria," responded Roger McKinney from Tulsa, OK. "No one has ever shown that inequality of wealth creates social problems; Marx said it, and journalists believe it."

Current Stakeholder Legislation The Savings for Working Families Act is a bipartisan federal legislative proposal that would create a tax credit to support Individual Development Accounts and make them available for hundreds of thousands of lower-income Americans.The IDA network has the latest info.

Boshara points out that both Democrats and Republicans have introduced or supported legislation to create and fund asset accounts for every child in America. For example, under the KidsSave program, Senators Rick Santorum (R-PA) and Charles Grassley (R-IA) joined former Senator Robert Kerrey (D-NE) and Joseph Lieberman (D-CT) in a proposal that would loan each American child $2,000 as seed money to start a retirement account.

Another criticism: "Does Boshara really believe that a family in "dire circumstances would be able—or willing—to let $6,000 (per child) simply sit in a portfolio while the family faced eviction, or starvation, or just general deprivation?" asked Barbara Maddox from New York City.

"I couldn't agree more that poverty means more than just a low income; it means having no assets—and there are at least twice as many asset-poor as income-poor households in the United States today," he responds. (One-quarter of white children and over half of non-white children grow up in households with no resources whatsoever for investment.) "Granted, money locked up in an American stakeholder account would do nothing to relieve the day-to-day pressures of poverty, but it would go a long way toward ensuring that the next generation, and subsequent generations, would not live in poverty."

Dangerous Dollars
There's also the big issue of families losing eligibility for current means-tested programs, like welfare, food stamps, child care and health insurance subsidies if they have too many assets.

"Unfortunately, the lack of adequate asset limits and the existence of other asset penalties in means-tested programs is a real issue and threat," says Friedman. "We are all very mindful of the story of the youth [Individual Development Account] participant in Oregon's Operation Reach whose mother's TANF payment was reduced dollar for dollar for every dollar her son saved."

Friedman says that SEED is preparing its partners to work with state policymakers in a number of ways to avoid penalties. "We commissioned [the Center for Law and Social Policy] to produce a legal analysis of the most likely penalties in the 10 states of the initiative, which we shared and discussed with the partners in the launch meeting."

The corporation has also conducted detailed research on penalties and remedies, including SEED-specific waivers and state omnibus protection legislation. "We will pursue 'defensive asset protection policy' at the state and federal levels at the same time we pursue more affirmative asset-building policies," says Friedman. "Often to change a law you need to confront it; this is not a risk-free strategy, but, given that the penalties exist, an unavoidable and necessary one."

All major Individual Development Account legislation to date, (including the proposed bipartisan Savings for Working Families Act) have contained broad language protecting accountholders' eligibility in all federal programs.

Overcoming Skepticism
Beyond the ideological and eligibility battles, there are practical issues. Lisa Mason, a program director of SEED at one of the ten partners, Beyond Housing, says that it's sometimes difficult to promote the importance of saving to families who are struggling today.

"They have a lot going on in their lives," she says. "They may see our flier which talks about higher education, but if they don't see this as something that's even possible for their child, they may pay no attention."

Mason doesn't want kids from low-income families to grow up with the same message. That's why, as a component of Beyond Housing's SEED partnership, she has helped develop an "I Can Save" afterschool club for the 40 participating children in kindergarten and first grade thus far. They can earn up to $1 per week and $20 per year to be added to their account by attending, which Mason hopes will help them learn how their contributions can make their investments grow for the future.

No one knows for sure if this incarnation of stakeholder accounts will win over any skeptics. But Friedman believes that by the end of SEED's five-year run, he'll have some real data. "We'd like to have program models and real testimony that shows whether this really does deserve to be large-scale policy."

Rob Capriccioso is a former staff writer for Connect for Kids.