As wealth inequality continues to increase sharply in the U.S., the Milken Institute, a nonprofit think tank based in California, has explored the idea of creating an “Invest in America” account—a program to provide every child with a funded investment account that would grow substantially over their lifetimes.

According to the Milken Institute’s new report, “The Economic Impact of Invest America Accounts,” the program would provide every American newborn with a $1,000 grant—funded by the federal government—invested in a broad-based index of U.S. companies’ stocks.

Wealth Inequality Growing

The Congressional Budget Office reported that the real wealth of the wealthiest 10% of U.S. households grew 270% over the 30 years from 1989 to 2019, more than four times the 65% wealth gains made by households ranked in the bottom 50% of households. As a result, the share of all wealth held by the wealthiest 10% rose to 72% in 2019 from 64% in 1989.

In addition, disparities in ownership of corporate equities are greater still. The Federal Reserve Board reported that in the first quarter of 2024, the top 10% of U.S. households by wealth held $37.2 trillion in stock and mutual fund shares, compared with the bottom 50%, which owned only $440 billion.

Several early wealth-building programs have been proposed over the years, most of which include initial deposits funded by the government and allow additional contributions by family members or employers.

Accounts’ Potential for Growth

As with most previous proposals, the Invest in America account would limit access, as funds accumulating in the accounts could not be withdrawn before the recipient reaches age 18. Once available, funds could only be used for higher education or training, starting a business, or buying a home.

Family members, friends, employers and other nonprofit organizations could make additional contributions. According to the Milken Institute, the personal contributions would not be tax-deductible, and the gains might be taxable upon withdrawal.

The accounts would be administered by private financial institutions that guarantee minimal or zero fees, and the U.S. Department of the Treasury would oversee the program.

Monte Carlo simulations found 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, according to the report.

The Milken Institute argued that the impact of these accounts could be further heightened by making tax-deductible to employers any additional contributions they make to the accounts of their employees’ children. These contributions would be subject to the same nondiscrimination rules as 401(k) plans. Congress would also have to establish the appropriate tax rules for the program, keeping in mind that a parallel construction to employer 401(k) contributions would require taxation of the entire amount of employer contribution, plus any investment gain.

How Funds Could Be Used

The accounts would help millions of young adults better afford higher education, especially those in low, moderate and middle-income families, the Milken Institute’s report argued.

Using Invest America accounts for down payments on homes could also help build Americans’ wealth, according to the Milken Institute, as studies have shown that home equity is a major asset of most American households. Federal Reserve data show that 34% of U.S. householders do not own their homes, including 58% of those ranked in the bottom 20% by income.

The greatest barrier to homeownership by younger people tends to be a lack of assets to supply down payments and other costs. Homeownership rates for younger households are also much lower among minority groups, as 46% of white households headed by people age 35 or younger owned homes in 2019, compared with 17% of Black households and 28% of Hispanic households headed by individuals 35 or younger.

Lack of access to early capital is also a barrier for young people who want to start their own businesses, and the Milken Institute advocated that Invest America accounts could help provide capital or collateral for bank loans needed to start a business and keep it afloat in its early years.

Policymakers Taking Action

According to the Milken Institute’s report, for many families, Invest America grants for newborns could be their first experience with financial matters, and the program should include online access to basic elements of financial literacy.

Senators Cory Booker, D-New Jersey, and Bob Casey, D-Pennsylvania, have each proposed separate early childhood savings legislation. Booker has proposed a federally funded Baby Bonds program similar to ones run in multiple states and cities, and Casey’s is a “401Kids” savings account that could be used for post-secondary education, starting a business, buying a house or for retirement.

The Milken Institute is exploring the budgetary impact of its proposal, which would depend on design features, like the deductibility of contributions and taxability of withdrawals.