Tax Deferred Investment Account Proposed As A Gift From The State To Every Newborn In Finland
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Former prime minister, MP Juha Sipilä leads a working group that has proposed among other things a stock investment account with initial capital of €300 to be gifted to every newborn. The purpose of the account would be to encourage ownership in the domestic economy. Mr. Sipilä's background is in business.
https://yle.fi/uutiset/3-11852724
The guardians of the child would make investment decisions on behalf of the child until the child turns 15 years of age when control over the investments would be transferred to the child. At that age, education on saving and investing would be offered in school. The child would gain full control over the account at the age of majority. The group proposes that the guardians be given financial advice and that every 15-year-old be required to draw up personal savings and investment plan.
The account would complement the Maternity package, an kit given to every expectant or adoptive mother by the government of Finland.
That's a brilliant idea. Time on market is the most important aspect of investing. Compounding interest has ample time to generate impressive returns in mere 18 years.
I've see news articles about the proposal but the exact details of the proposal.
A Forever HODL account
But here's what should be done in my opinion.
I think such an account should be a forever HODL account. No more of the principal should be possible to withdraw than what has been deposited into the account in cash (and only cash deposits should be allowed as is the case in the tax deferred stock investment account currently in use). In addition to that, only dividends should be possible to withdraw from the account and only after the owner of the account has turned 18. Only the dividends should be taxable and only when withdrawn from the account. Any reinvested dividends should count towards the principal.
Except for the dividends and cash deposited into the account, the account should be extremely strictly separated from the owner's other finances. It should never be possible to use it as a collateral for any loans except for a mortgage on a home bought to be occupied by the owner him/herself or his/her closest family members. At a maximum, funds able to be garnished to pay for any outstanding debts should equal the total amount of cash deposited into the account over its existence and any dividends not yet reinvested.
The reason I think this type of structure would be very beneficial is the short-sightedness and the lack of future orientation of the typical person. The purpose of this account would be to facilitate the buildup of intergenerational wealth among the general population and to ease the future financial burden of the government when structural unemployment skyrockets in the next few decades as a result of accelerating technological development.
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Turn over investment strategy to them at 15...that is laughable. Sorry but maybe 5% of 15 year olds are responsible enough to have that turned over to them.
Otherwise honestly this isn't the worst idea. Teaching people to start investing for their children's future at birth is a great idea. Better yet, why not add a matching function to this of up to $100 per year...say 25% matching. This way parents would be encouraged to add to their kids accounts.
I think the most likely scenario is just disinterest. Most 15-year-olds simply wouldn't touch their investments at all, which wouldn't probably be a bad at all. Kids that age usually have other things on their minds. This particular investment account is based on a tax deferred stock investment account introduced some years earlier. You can only own stock and not even ETFs let alone any more complex vehicles than that.
But if irresponsibility is a concern, the guardians could retain a veto right on the investment decisions.
That's a good idea.
Another point occurred to me. I think it is much better to make mistakes that hurt early and when the stakes are small and when there is plenty of time to recover from them than later on.