THE SOCIAL JUSTICE CHALLENGE OF ASSETS:

A PROPOSAL

Britain and Europe in the Global Age: Common Challenges, New Opportunities

Policy Network, London, 18th Jan 2007

Julian Le GrandLondon School of Economics

Investing in Youth

• Almost all EU member states’ direct investment in youth goes into education and training.

• One fifth of 18-24 year-olds receive little or no investment of any kind.

• Largest investment goes to better off.• Youth have few capital assets, especially from

poor families. But evidence suggests that small amount of capital can make big difference to start in life and adult outcomes.

Assets and Outcomes

Evidence that individuals who own assets, compared with those who do not, have:

• Better health• Lower mortality• Higher marital stability• Less domestic violence• Better educational outcomes for children• Higher savings

Assets and Youth

Asset holding at 23 has strong links with:• Time spent in full time employment

between 22-33 for men and women• Earnings at age 33 for men• Health of men and women at 33

Links remain even when income, class and personality type controlled for.

Investment in youth: capital grant schemes

Tom Paine: £15 for every 21 year old paid from inheritance tax

Le Grand and Nissan: £10,000 at 18, funded from by inheritance tax

Institute for Public Policy Research: £1000 grant at birth funded from general taxation

Ackerman and Alstott: $80,000 at age 21 funded from wealth tax

Italy, Hungary, France, Canada all considering/have introduced schemes

UK Child Trust Fund

UK CHILD TRUST FUND

• Every child born in UK receives a grant of 375 euro (equivalent) to set up a trust fund account.

• Children from poor families receive 750 euro.• Parents, grandparents, friends and children can

save up to 150 euro a month into account. Income from account tax free.

• Government pays in a further 375 euro at age 7 (750 euro for poor families).

CHILD TRUST FUND

• Money can be invested in savings accounts, or shares. Can choose from funds offered by 40+ financial institutions. Government will invest it if parents don’t take it up.

• Account available for use when child reaches 18. No restrictions on use.

• Financial help and education available

Amount at Birth

(euros)

Interest rate

Amount saved

Capital at 18 (euros)

375 9% (shares)

150 p.m. 75,195

375 7% (shares)

37.50 p.m

16,860

750 5%

(savings account)

15 p.m. 7,980

Views of Parents in Deprived Areas

• Approved of the policy

Parental Approval

• Parent A: £250 is a nice little starter and £500 you can’t complain, can you?

• Parent B: Suppose, for some sad reason, I stay on benefit for the next 18 years. I’m still not going to have £250 that I’m going to be able to give my child on her 18th birthday for a present. And the Government is going to give her £500……

Views of Parents in Deprived Areas

• Approved of the policy

• Preferred it to be spent on Child Trust Fund than on education or child benefit

Preferred spending on Child Trust Fund to education and child benefit

• Parent C: I’m totally against that [spending on education] because I think we’ve paid in for years to taxes that should have gone in for education anyway

• Parent D: I prefer the voucher because my child benefit gets spent on her nappies, her clothes, her this and her that. She’s not going to see the benefit of that when she’s older, is she?

Views of Parents in Deprived Areas

• Approved of the policy

• Preferred it to be spent on CTF than on education or child benefit

• Supported the fact that it was ’locked away’

Supported it’s being’locked away’

• Parent E: I think that’s good because it would be so easy for children or parents just to dip into it. I think it’s good that it stays there for 18 years, and they can’t touch it.

• Many parents would prefer it to be locked away for longer!

Views of Parents in Deprived Areas

• Approved of the policy

• Preferred it to be spent on CTF than on education or child benefit

• Supported the fact that it was ’locked away’

• Supported its universalism. Didn’t like the means-tested addition (even the poor)

Parents approved universalism

Parent F:

I think everyone is the same at the end of the day. Why should people like me who are on income support get £500? I know it’s my child but just because I’m on a lower income shouldn’t mean you get more money. I think everyone should be treated the same.

Views of Parents in Deprived Areas

• Approved of the policy

• Preferred it to be spent on CTF than on education or child benefit

• Supported the fact that it was ’locked away’

• Supported its universalism. Didn’t like the means-tested addition (even the poor)

• Encouraged them and others to save

Encourages savings

Parent G: The first child got money for birthdays, Christmas, christening and so on. And that just went.You always found something to spend it on. For her (the second one) all that money has gone into [the child trust fund] account. And now, when her birthday comes, I’ve said to the godparents that I don’t want any more toys or clothes. Instead I’ve given them the account [number] and told them to do what they want’.

Views of Parents in Deprived Areas

• Approved of the policy• Preferred it to be spent on CTF than on

education or child benefit• Supported the fact that it was ’locked away’• Supported its universalism. Didn’t like the

means-tested addition (even the poor)• Encouraged them and others to save • Mixed views about restrictions on use

A Euro Demogrant

• A euro account set up with 500 euros for every baby born.

• Money could be invested in shares, government bonds or saving accounts

• The child could access the account when he or she was 18 (21?).

• Parents could save into the account, but not take money from it.

Challenges

• Age of receipt: at birth or on maturity?• Universal or means-tested? Targeting by member

state? (400-600 Euro)?• Restrictions on use?

– Higher education or other training– Towards house purchase– Small business– Pension fund

• Cost

Cost

• 4,792,600 births per year in EU 25 in 2004• Total annual cost at 500 euro per child:

2,400 million euro.• 0.02% of EU 25 GDP.• 2% of EU budget.• Savings to member states on other budgets,

especially higher education and social insurance

A Euro Demogrant

A way of investing in youth that:• Promotes higher earnings, employment,

health.• Helps savings and savings habits. • Helps the less well off as well as the better

off (unlike education) • A noble enterprise. Universal across

Europe. Contributes to European citizenship

Title?

• Euro demogrant

• Euro baby bond

• Euro endowment

• Euro bond

• Euro dotation

• Bambini dotie……..