The Acorn Savings Idea
Perhaps the only manifesto idea of any party that gives nothing today, but could mean everything tomorrow?
When Dale McDermott and I started the Next Round podcast, we chose the name because we thought the episodes should look forward to the next generation. It was also my turn to buy a round (cheers to that)!
Over 6 months on, we’ve covered a lot in the 30-plus episodes. Infrastructure, housing, pensions, birth rates, wars, elections, budgeting, investing, housing, interest rates and more.
As the election manifestos roll out, I thought I’d look into one idea which is the closest I’ve seen to Next Round thinking™.
It’s the Fine Gael plan for a savings account for every newborn. From page 9 of the manifesto:
Fine Gael will launch an Acorn savings account for every child from birth, inspired by successful models in the UK. This fund will help families build a financial foundation for each child’s future, promoting a lifelong habit of saving and building a nest egg to meet future needs. Lower income families will benefit more from its inception Fine Gael’s Acorn Savings.
Account will:
Establish a Savings Account for Every Newborn: The government will establish a managed savings account for each child born each year, starting with an initial contribution of €1,000, accruing via a managed fund at a conservative interest rate of 4% per annum, compounded yearly. Each child gets a gift only once, so the costs to the exchequer are contained. Each child from a family receiving child support payments gets €1,500.
Contain Costs Responsibly: The government will contribute €1,000 per child only once, keeping the programme affordable for the Exchequer.
Enable Additional Family Savings: Parents can add up to €2,000 per year to their child’s account. With this regular contribution and the government’s initial €1,000, the account could reach €53,316 by the time the child turns 18.
This fund will help tackle inequality, support future generations, and promote a culture of saving, while empowering families to invest in a better, more secure future for their children
This fund will help tackle inequality, support future generations, and promote a culture of saving, while empowering families to invest in a better, more secure future for their children.
The promise for the fund to reach €53,316 looks as follows (my calculations). Parents top up €2,000 each year (€36,000 over 18 years) and the fund earns 4% each year.
But what about without top ups, and what if the fund was invested at a higher yield? For a typical family, the seed investment of €1,000 will grow to a lump sum of €2,000, but could be €4,000 at an 8% annual return. For a family receiving child support payments, the €1,500 seed would grow to €3,000 and could be €6,000 at an 8% return.
It’s notable that the scheme awards poorer parents with the higher starting amount. The final amounts awarded will likely depend on how parents approach the top up payments. Some will turn 18 with a large 5-figure sum, others will receive the minimum. But everyone gets something, and it could become a milestone as important for young adults as the Leaving Cert or their debs.
There are of course many other ways to structure this scheme. Allowing young adults to continue investing might help with their first housing deposit. Returns as high as 8% will only come if the funds are invested in the stock market. Ireland is now doing this with the FIF/ICNF* funds, so why not this too?
One obvious problem is a market downturn. Suddenly your plan to fund a Masters is out the window. Backpacking in South East Asia can’t happen this year! We’ve already seen one group of 18 year olds get hit by COVID lockdowns. They missed their most crucial development years. Perhaps there’s a way to average the returns so the impact of a downturn is spread over several years.
But overall, this scheme is a great idea. If returned to government, Fine Gael shouldn’t stick with the safe parameters as written in the manifesto. Listen to ways of structuring the scheme to give parents flexibility that’s more than just top ups. Allowing stock market investments and savings beyond the age of 18 could make this a defining policy of the next Dáil term.
Make it something that changes what it means to grow up young in Ireland.
Do it for the next round!
*Future Ireland Fund / Infrastructure Climate and Nature Fund