The case for American Stakeholder Accounts.
This is less than half of Sam’s final salary. He would still need Social Security to live comfortably. But it’s worth noting that he could also end up with nearly a million dollars at age sixty-seven if the average return turned out to be just 7 percent. It is also worth noting that under current law, Social Security collects about one of every eight dollars that most Americans earn, and going forward will offer only about a 2 percent return for Baby Boomers and less than that for future retirees, according to the General Accountability Office. Where will the next generation be if it does not have another way to pay for retirement?
Along the way, stakeholder accounts would offer many other benefits, both direct and indirect. For example, abundant social science research shows that just having a savings account, regardless of how much is in it, raises the aspiration of poor children to go to college and otherwise plan for the future. (See Dana Goldstein, “The ‘Assets Effect’ ”.) Stakeholder accounts would also make it easier to reinstitute school banking programs, which, until they faded away in the 1960s, were an important means by which previous generations of Americans inculcated thrift and financial education in the young. Imagine how much more interesting it would be for an eighth grader to learn how to calculate compound interest if the question at hand were directly related to their own situation: How much more will his account be worth at age eighteen, for instance, if he doesn’t spend $40 on a video game and deposits the money instead? And surely a high school student would be more interested to learn about how the U.S. economy works if she recognized that her increased knowledge would help her decide how to direct her own savings: Should she invest in stocks, bonds, or certificates of deposit?
The existence of stakeholder accounts would also make it easier for school districts, churches, and philanthropies to graft on so-called “conditional cash transfer programs,” should they care to. These are programs, being tried in local jurisdictions with some success, that offer cash payments to students in exchange for desired behavior, such as good school attendance. A school district might, for instance, offer students a $500 deposit into their accounts if they achieved perfect attendance for a year.
Stakeholder accounts could also play a role in ameliorating the terrible damage done to the thrift ethic and finances of ordinary Americans by casinos and state lotteries. What if, when you bought a lottery ticket, a substantial portion of the sale was automatically credited to your stakeholder account? That way, if you didn’t win the big prize—the most likely scenario—you’d end up with more savings, not less. (Such a lottery has been tried in Britain, something they call “Premium Bonds.”) We could also use stakeholder accounts to turn casinos into savings institutions. All it would take is a provision that casinos divert a significant share of each bet to a gambler’s stakeholder account.
Finally, and more philosophically, stakeholder accounts could help to solve a deep dilemma of American life. We honor the principal of equal opportunity, but children are manifestly not born equal when it comes to financial inheritance. At the same time, Americans tend not to believe in equality of result, and therefore are more averse than people in most other modern nations to redistributing income.
The progressive, more politically appealing solution, as the late American philosopher John Rawls once observed, is to predistribute property, so that all children start out with an equal stake. American stakeholder accounts would do this, at least to a small degree. If we were really serious about righting the country’s growing inequality of wealth, we would entirely stop subsidizing the accumulation of wealth by people who are already rich, and use the proceeds to put more generous matching grants into the stakeholder accounts of children born into modest circumstances. Some children would still enjoy large advantages in life. But any resulting inequality of income would be easier for both winners and losers to live with if every child started out with at least some seed money. This stake, if well managed and combined with hard work and some pluck, could put the American Dream within all children’s reach.
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