Thread by @SahilBloom

We should give a $10,000 investment account to every newborn baby.

It's a crazy idea, but the logic and math is pretty compelling...

Here's how I see it working:

Earlier this week, I wrote a thread on the Cantillon Effect—which says that there are distributional consequences based on where new money enters the system.

It suggests that top-down monetary policy propagates inequality.

But I got a lot of questions about how to fix this...

https://twitter.com/sahilbloom/status/1460242310420123651

This thread covers one such idea: The Baby Grant.

The basic idea is as follows...

Every newborn baby has an investment account opened in their name at birth.

The account is seeded with $10,000.

It cannot be touched until the child is 65 (or for educational uses after age 18).

This idea has been mused on in a variety of circles—I’ve seen or read about it from @BillAckman & @RohunJauhar in the past—but it's generally been written off as too crazy.

I disagree.

I want to lay out (a) why I think it could work and (b) why I think we should do it…

First off, why is it important?

Since 1990, the bottom 90% of the U.S. has gone from holding 40% of the total net worth to 30%.

Over that period, the S&P 500 has achieved an 8% annualized return (adjusting for inflation).

But Gallup polls suggest <60% of Americans own stocks.

Simply put, not enough Americans are participating—as true owners—in the incredible economic expansion that has occurred (and will likely continue to occur).

The participation has been concentrated and largely benefitted the rich.

The Baby Grant is a start towards fixing that.

Some details on how it could work:

Every newborn has an investment account opened on their behalf.

It's seeded with $10,000.

The funds would be auto-invested in a low/no-cost broad market ETF.

There could be several approved plan options (including a crypto-exposed option!).

On the cost of this...

There were 3.6 million babies born in the U.S. in 2020, which would imply a $36 billion annual cost.

With the U.S. set to spend ~$6.8 trillion in 2021, this would be ~0.5% of the total expenditures.

It would be ~5% of our annual defense budget...

Past performance is not indicative of future, but based on a long-term 8% annual return, if untouched, every child would have:

Age 18: ~$40K
Age 30: ~$100K
Age 65: ~$1.5M

There is clear nuance to the returns, but the broader point is that every child would be an owner!

There's also plenty of room for adaptations to the plan:

States could supplement the $10,000.

Families could opt-in for contributions to be matched at multipliers based on income brackets to incentivize saving/investing.

Loans could be given against the accounts as collateral.

You could build an entire educational overlay to the plan.

From a young age, children would learn financial literacy with real skin in the game.

They would start developing a grounded understanding of the incredible power of compounding, investing, taxes, education, etc.

So to summarize The Baby Grant:

• Account for every newborn
• Seeded with $10,000
• Invested in broad market ETF
• Optionality at state/local level

I'm fascinated by the idea, but I want to hear from you.

Who is doing this?

What am I missing? Why shouldn't we do this?

Special note of thanks to others who have written or talked about this in the past, who got me thinking on the topic.

@BillAckman
@altcap
@rohunjauhar
@awealthofcs
@patrick_oshag

These are all exceptional follows!

Follow me @SahilBloom for more threads on business, finance, and crazy policy ideas (?!).

I write deep-dives on many of these topics in my newsletter every single week. Join the 46,000+ others and subscribe today. sahilbloom.substack.com

If any U.S. policymakers want to chat about this, my DMs are open and I’d love to discuss.

Update: We will be chatting with @alexisohanian on this idea on the Where It Happens podcast in Miami in a few weeks.

Join the conversation at TRWIH.com

https://twitter.com/alexisohanian/status/1461382620596604939