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In this paper, we examine the idea of the “Invest America Account,” an account that holds an initial government grant of $1,000 for every newborn American, invested in a broad equity index fund. We will compare this approach to “early wealth building” proposals of the past, simulate the likely impact of the accounts on the wealth of their holders, and review the academic literature to explore the likely impact of Invest America accounts on wealth creation for participating children.

Key Findings

1. Monte Carlo simulations suggest that the $1,000 accounts would grow in value, on average, to $8,000 after 20 years, $69,000 after 40 years, and $574,000 after 60 years.
2. If the policy also permitted a tax-deductible match by employers of the children’s parents, such initial matches would double an account’s value after 20, 40, and 60 years.
3. Based on studies of previous efforts to provide funded savings accounts for newborns or young children, the program should increase test scores, educational attainment, and earnings of those participating. One study suggests that minority participants from low- and moderate-income families could be three times more likely to attend college and 2.5 times more likely to graduate.
4. In addition to college expenses, the program could provide start-up capital for young entrepreneurs or down payments for first-time homebuyers.
5. The program could also increase financial literacy of participants and their parents, which in turn would likely increase savings rates and wealth creation.
6. Since all newborns would receive the grants, the program would reduce wealth inequality.