Economic policy debates in recent years have increasingly focused on how to better support children and families. One of the central proposals in these discussions is expanding the Child Tax Credit (CTC), which will be a key feature in the current debate over the Tax Cuts and Jobs Act. This tax benefit helps working parents by providing them with additional resources to cover everyday costs, which can significantly improve the lives of disadvantaged children by meeting their basic needs.
However, while the CTC provides important short-term assistance to parents, it does less to ensure children can access opportunities for long-term success. Many children from low-income families face barriers to building wealth, such as limited income or job opportunities. Additionally, a lack of financial literacy often makes it even harder for these children to make informed decisions about managing money, impeding their ability to effectively plan for the future or continue building wealth over time. Together, this combination of limited opportunity and financial capability can trap many Americans into lower economic positions, regardless of their talent or potential.
In a recent report, “Building Opportunity and Financial Capability with Child Opportunity Accounts,” PPI proposed to help increase financial resources and financial capability for children from all backgrounds by establishing universal Child Opportunity Accounts (COAs). COAs would automatically be opened at birth with a $700 contribution from the government, with the government making supplemental contributions depending on household income each year on the child’s birthday up to age 16. This progressive approach ensures that children from families struggling to make ends meet get the most help, while still offering modest support to children born in more well-off households. In addition to the contributions from the government, families are also encouraged to participate by contributing to their child’s COA.
Account balances would be automatically invested in diversified portfolios, growing over time to give each child a financial cushion when they enter adulthood. By the time they reach 18, a child from a low-income family could have tens of thousands of dollars in their account to use for wealth-building activities — including education, housing, or starting a business — and guardrails in place to ensure that the money does not go to waste.
These accounts do not just provide resources for children but also foster the skills they need to grow those resources over time. Financial education resources would be embedded into the accounts and beneficiaries would have to pass an assessment to access their account’s funds before age 25. As children grow, they would learn to manage their own finances and gain more control over their financial future.
To ensure that the burden of rising public debt doesn’t negate the benefit of COAs for young Americans, PPI has offered a comprehensive fiscal blueprint with several policy options to fully offset the program’s cost. One particularly fitting offset included in the blueprint and further detailed in another recent PPI report would be reforming the taxation of inheritances. Taxing the birthrights of the richest 1% to give every child an equal starting point would help create a more inclusive society where everyone, regardless of their background, has access to the resources and opportunities necessary for success. But PPI’s blueprint also offers several dozen potential alternatives if this offset proves politically challenging for one reason or another.
America’s economic future depends on its ability to foster talent, not just in its wealthiest citizens, but across the socioeconomic spectrum. Providing for a child’s basic needs, while important, does little to set them up for success in adulthood. Investing in Child Opportunity Accounts would ensure that every child, regardless of background, has the financial foundation and knowledge they need to pursue their full potential. This isn’t just an investment in individual families, but in our country’s future prosperity.
