Ellington

At the level of countries, economics can be a crapshoot, with future predictions playing as much of a role as hindsight. Micro-economics, the kind where you have to balance a checkbook and pay your electric bill to keep the heat on, are easier to understand. You have to spend less than you have coming in—or that's the goal, in any case. All the experts will tell you that it's far better to save money than go into debt for major purchases and life events such as college, marriage or starting a business.

Yet, in 2006, America had a negative savings rate for the second year in a row; the lowest savings rate since 1933, in the depths of the Great Depression. The reasons behind the trend are as complex as economics themselves, but ultimately, it's a trend that bodes ill for our future. If we don't save, our children have less chance for economic advancement, and our retirement years—which grow longer every year with advances in health care—may not be so golden.

In Mississippi, 20 percent of households have more debt than savings, if they have savings at all. Median net worth is the second lowest in the country, and has actually declined by 35 percent since 1995. A quarter-million working Mississippians, or nearly 25 percent of all workers over age 18, work in low-paying jobs where savings are a pipe dream. Without savings for education or entrepreneurial dreams, low-wage work feeds the cycle of poverty that many find nearly impossible to break. And a poverty-stricken populace can do little to better the economy of the state as a whole.

In November, representatives from Mississippi State Treasurer Tate Reeves' office, The Aspen Institute, The Enterprise Corp. of the Delta and private investment companies proposed a new program designed to break that cycle while giving the state's economy a boost: child accounts. Under the plan, the state would provide each newborn child a $500 savings account, to which family and friends can make tax-deductible contributions up to $2,000 a year until the child reaches age 18. During that time, private-sector financial institutions would manage the funds. The money would be available to the children for any purpose once they reach 18, including college, buying a home or starting a business, any of which would contribute to the state's overall economic well-being.

"For so long, our state has been recognized for all the wrong things," said ECD chief executive officer Bill Bynum during a telephone press conference. "This is an opportunity for Mississippi to lead the nation not just for our children but to pave the way for smart savings policies in the United States."

Under the proposal, Mississippi would pick up 75 percent of the cost of the program, with private investors funding the balance. The estimate for the first five year's investment is $110 million, or $22 million a year, based on the state's current annual birth rate of 40,000. Collectively, the value of accounts in a five-year demonstration period would increase from $42 million to over $1 billion in 18 years—$2.6 billion if the program is permanently implemented. Individual accounts could be worth almost $56,000 with maximum investments, or nearly $10,000 with minimal investment and state matching; the plan includes a 100 percent matching provision for low-income families, up to $1,000 a year.

"We have seen this model work in the U.K.," Bynum said, a fact further delineated by David White, CEO of the United Kingdom Children's Trust Fund. "In the West, we've become spenders not savers," White said. The British government recognized that it was causing problems for parents worried about their children's future, and looked to child accounts to provide a solution.

"Every child in the United Kingdom born since the first of September 2002 has a child trust fund," White said, "and every child born in the future will get one." The promising U.K. model shows that more than 23 percent of the 3.3 million accounts opened receive regular monthly contributions through direct debits, demonstrating a fundamental shift in thinking: Citizens taking advantage of the program are now savers, not just spenders.

"Low-income families can and will save when they are incented and provided with the tools to do so," said Bernard Wilson of H&R Block. "From our prospective, the kid's account is the type of account that will spur interest in savings and will begin to develop a family relationship." For private investors, that relationship can expand their market into other savings vehicles. "There's clearly a marketing opportunity here," he said.

Of course, the program has a legislative hurdle to jump. "I don't know where they anticipate getting the money," Rep. Cecil Brown, D-Jackson told The Clarion-Ledger. Brown is a member of the Legislative Budget Committee. "The state treasurer knows the budget. There's no $15 million that I'm aware of uncommitted to go into the program."

Still, the possibility of raising future generations out of the cycle of poverty certainly has its appeal. "It's a tremendous benefit to the state," Bynum said.

"This money should be seen as a catalyst for change," White added, "and something has to change here just like it had to change in the U.K."

Download The Case for Child Accounts in Mississippi," from the ECD Web site.