Trust funds shouldn’t be just for rich kids | Forum

As the UK recovered from the first wave of the pandemic, 18-year-olds whose schooling was interrupted and who were on the verge of similar hardships in college or in the job market received a welcome gift, and in some cases unexpected.

In September 2020, the so-called Child Trust Funds, government-funded endowments for British children created almost two decades ago by then-Prime Minister Tony Blair, became available to the First Cohort beneficiaries when they reach adulthood. The average tax-free investment account contained around 1,500 pounds ($ 2,035) – an amount that isn’t life-changing, but still quite practical given the economic shock caused by COVID-19. Many did not even know they had such savings, since the program ended in 2011 due to austerity cuts.

I thought of the CTF and similar endowment plans such as “baby bonds” as they are called in the United States, when a proposal calling for financial compensation for young people went viral shortly before Christmas. The idea was that they should be reimbursed for the isolation to protect the elderly during the pandemic.

To many, the premise of owing children money for their sacrifice is offensive. Unlike the 2008 financial crisis, which reduced job opportunities for millennials, older generations were not to blame for the pandemic. Indeed, it is they who were most at risk of being killed. Youth mental health was disproportionately affected, with many losing out on socialization, travel, and milestones like graduation, but they still had time on their side. The elderly were isolated. Meanwhile, parents in their 40s were busy struggling to keep their jobs and oversee home schooling.

Of course, there is a strong case for reimbursing college-age students. Their experience on campus was a shadow of what they expected, so it makes sense to recoup some of their tuition fees. Congratulations to the Netherlands for offering a 50% fee reduction for this academic year. The United States has suspended student loan repayments, but current students have had to sue to recover exorbitant tuition fees, often unsuccessfully.

However, direct financial assistance to ‘Generation C’ (the COVID Generation) for their pandemic woes would place age above other societal inequalities that COVID-19 has amplified. It would also risk further eroding generational ties by defining social obligations as purely transactional.

This does not mean that we should ignore the plight of young people today. Due to years of weak wage growth, soaring tuition fees and increasingly unaffordable housing, young people have long lagged behind in terms of wealth compared to previous generations.

Of course, some have recently made money speculating in cryptocurrencies, NFTs and the like. Young people also saved more because they couldn’t party as much. But because older people own most of the real estate and financial assets, they have been the biggest winners in the massive stimulus central banks have unleashed to protect the economy. People over 55 benefited by almost two-thirds of the £ 900 billion ($ 1.2 trillion) increase in UK household wealth during the period from February 2020 to May 2021, study finds .

Wealth disparities could worsen further: The massive cost of pandemic support measures can lead to tax increases that take a heavy toll on working-age people, as we have already seen in the UK

With the omicron variant hopefully marking a new, less dangerous phase of the pandemic, now is a good time to think about how to correct these generational imbalances. Ideas like children’s trust funds and baby bonds are worth trying. Rather than a universal basic income that critics say discourages work, imagine a universal minimum inheritance that can protect young people from economic shocks.

It is not a new idea. Over two centuries ago, the Anglo-American philosopher and revolutionary Thomas Paine proposed to give every 21-year-old a lump sum of £ 15 (the equivalent of around £ 2,000 today or $ 2,700 ), paid by inheritance tax. The reasoning hasn’t changed much: Seeding all young people with assets early in their adulthood helps them start businesses, pay for education, fund pensions, or collect a deposit for a house.

A birth endowment would increase in value over time, and to ensure that today’s teens and those 20 and older don’t lose out, governments could provide immediate capital grants to young adults. A £ 10,000 ($ 13,528) “citizen’s inheritance” for every 25-year-old Briton would cost around £ 7 billion a year and at least double the wealth of over 60% of young adults, the Resolution estimated. Foundation. Such allocations can be means tested and ring-fenced to prevent money from being spent recklessly, if politically desired.

One potential objection is that the younger generations will eventually inherit massive wealth from their parents. But that misses the point because these heirlooms will not appear until millennials themselves are close to retirement. More importantly, the proceeds will not be shared equally: The median white American household has nearly eight times the wealth of the median black family. Therefore, the baby-bond plans implemented by a growing number of US states are also a crucial tool in bridging the racial wealth gap. Senator Cory Booker, DN.J., pushed to leverage these efforts at the federal level.

Relatively modest capital endowments are not a silver bullet to correct today’s gaping financial inequalities. There is no point in giving money to young people to buy houses, for example, if you do not also build more urban housing. Otherwise house prices will go up even more, out of reach, as we have seen with UK home purchase subsidies.

Nonetheless, “trust funds for all” can help build support for capitalism among those without capital or wealthy parents and are a step towards redressing inequalities between and within generations. It is the least we can do after a pandemic which has been difficult for almost everyone.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies.

Melvin B. Baillie