A “leg” on the personal finances stool to help with wealth inequality, a useful adjunct to UBI, retirement income, etc.
Brad Gerstner is a billionaire VC investor.
At about the 35 minute mark, Gerstner outlines his vision for the Invest America concept.
Gerstner thinks giving every child, at birth, $1000 in a 401K type account, and allowing every child to watch her/his/their balance grow via compounding … will incentive financial literacy.
Macro economics?
This sounds to me like - idealistically - a type of national “wealth fund” … Idealistically SIMILAR to Saudi Arabia’s or Norway’s citizen support funds.
Gerstner says Invest America is in talks with US Congress critters, pushing the idea.
ralph
I found the whole interview interesting.
I listened to it at 1.75x speed, which gives a “yearning, insistent, earnest” quality to the video.
If everybody gets this, how does it close the “wealth gap”? If Edward L Norton jr and Thurston Howell IV get the same deal but Thurston already has 2 billion in his “401k”, how does this close the wealth gap? I also don’t see how it affects “financial literacy.” Rich dad / Poor Dad. Everybody knows money and its importance. Giving it to some people is casting pearls.
I can see this getting muy complicado. Are mom and dad allowed to raid it? (Hint Jr can’t vote. Mom & dad can) Can be used for education or medical or emergency needs…? Like IRAs and 401k. Rats nest of rules. I know he said you can’t trade or touch it. Great rules to start with but where there’s money American Business will find ways or pay for policies to get people to spend it.
Flag that always P’s me off. "I don’t want another government program and I don’t know anybody who does." Typically vapid Americanism. If you make money off of it of course you want a government program. There is no moral value in this Gov vs private schlock. But, somehow it must be private. This is an assertion without any basis. And you know what happens when privateers get involved. (Cue intercst)
That said, I am for anything that works or can be made to work. I am not against it in concept. “Bold, persistent experimentation.” (Actually I prefer conservative, ongoing experimentation)
Back in the 60’s, do-gooders launched a similarly intended program to level out the disparity between how ready for school the various social classes were. The results were predictable. Conscientious parents had their kids watching Sesame Street and learning their letters and numbers instead of Saturday cartoons, and those kids started school even further ahead of others.
Financial literacy is no different. If the parents are financially savvy, because their parents were, then the kids of that first group see responsible behaviors modeled in the home. Also, there’s a further factor involved. Wall Street doesn’t want to deal with smart, savvy investors, because it can’t scam them.
Fortunately, some brokers --chiefly Schwab-- are run by founders who really do think financially education is important and make concrete steps to facilitate it. https://www.schwab.com/investing-starter-kit. Fido has a some what similar program aimed at getting teens involved investing.
So it’s not as if there aren’t already good educational resources available to newbies, as well as low-dollar means to get started, none of which require yet another gov’t program done with borrowed money.
The #1 key to retiring early and becoming wealthy is minimizing the “skim” of fees, commissions, trading costs and taxes.
No for-profit investment firm, or financial advisor is going to advocate this. One person’s “skim” is another’s “basic income”.
For years Vanguard Chairman Jack Bogle championed low-cost index funds and Buy & Hold investing – “Stay the course”
Today, Vanguard is focusing on their “Personal Advisor Service” with the 0.30% annual fee. That will take about 10% of your wealth over an investing lifetime.
The Schwab and Fido programs are great for people with money (i.e., the top half of the income and wealth pyramid).
Unfortunately about 50% of the population can’t afford a $400 doctor bill or car repair without going into debt. The proposal advanced in the video appears to be aimed at that demographic.
In other news, the Washington Post has on article on an economic study showing that “free child care” returns about $6 in economic benefits for every $1 spent on the program because it would allow more parents to keep their jobs and remain employed.
Of course, it will never happen since American has traditionally celebrated racism, ignorance and innumeracy. And the big fear is that black and brown people will disproportially benefit from the program. In reality, lack of child care disproportionally hurts working middle class families. The wealthy can afford high quality private child care, while poor people have more existing resources available to them under current programs.
I didn’t watch the video, but if I were imperator, I would require a personal financial solvency test in high school. The final exam would be pass/fail, but you would require a score 100% to pass. A successful student would have to understand and repeat the following concepts:
If you can’t pay cash, you can’t afford it. except for a house or maybe a car. You can use a credit card if you like, but you have to be able to pay cash.
Establish an emergency fund, the amount is up to you. But probably a month or two of expenses.
Always max out your 401k, if possible. If you can’t at least go up to the match.
If there is money left over, max out the rest of your tax advantaged space
If there is money left over, open and fund a brokerage account.
Invest in low-cost index funds and check the balance once a year
Investing in your own job skills almost always pays off.
Live below your means
That leaves out a lot, but is simple, easy to digest and remember, and gets 90% of the population 90% there.
Functional literacy would be my first requirement. From a decade ago (and I don’t think things have gotten better):
According to a new report, 47 percent of Detroiters are “functionally illiterate.” The alarming new statistics were released by the Detroit Regional Workforce Fund on Wednesday.
WWJ Newsradio 950 spoke with the Fund’s Director, Karen Tyler-Ruiz, who explained exactly what this means.
“Not able to fill out basic forms, for getting a job – those types of basic everyday (things). Reading a prescription; what’s on the bottle, how many you should take… just your basic everyday tasks,” she said.
“I don’t really know how they get by, but they do. Are they getting by well? Well, that’s another question,” Tyler-Ruiz said.
Some of the Detroit suburbs also have high numbers of functionally illiterate: 34 percent in Pontiac and 24 percent in Southfield.
At about age 22 in 1978, early in my career with Corning, I attended a week long management training course put on by a couple of McKinsey consultants.
They made the observation that if we define “functional literacy” to be the ability to do these 3 things.
I’ve been thinking along the same lines for quite some time, it seems to me much better than UBI which is an incentive killer but it’s not without risks, the biggest one is it being ‘captured’ by the Wall Street Financial Industrial Complex (WSFIC) that makes its money by charging fees by OVER-trading the sheep’s portfolios.
I’ve been in the market for some 5 decade but got serious around 1990. Favoring growth I looked for stocks. Comparing “tech heavy” NASDAQ vs. the S&P 500…
it was clear that I should target tech stocks. To rate these stocks I had an app that showed the 5, 10, 15, and 20 year CAGR. That was a long time ago, before I shifted to income generation via covered calls.
Realizing the high cost of trading I noticed that a bunch of the stocks I has tracking had incredibly high CAGR over 20 years, incredibly high! (These numbers have not been updated recently on account of a data sourcing issue but they are close)
Symbol ▾
Company
20 Yrs
NVDA
NVIDIA Corp.
33.3%
AAPL
Apple Inc.
29.2%
ALGN
Align Technology, Inc.
26.2%
ODFL
Old Dominion Freight Line, Inc.
26.1%
ISRG
Intuitive Surgical, Inc.
23.3%
ROST
Ross Stores, Inc.
20.9%
NEOG
Neogen Corp.
17.2%
LSCC
Lattice Semiconductor Corp.
14.9%
AMD
Advanced Micro Devices, Inc.
13.4%
^IXIC
NASDAQ Composite
12.0%
QCOM
QUALCOMM Inc.
9.3%
^GSPC
S&P 500 Index
8.1%
^DJI
Dow Jones Industrial Average
7.4%
The problem with the lump sum is that it could come at terrible times, at the top of bubbles. Long term non-trading strategy requires dollar cost averaging. The two alternatives I see is either the NASDAQ index or a group of stocks. With a 20 year dollar cost averaging program that resembles a $1,000 initial investment, the second option does not seem viable. Instead of dollar cost averaging for 20 years shorten it to 10 payments over 5 years.
Yes, Schwab makes most of its money managing the accounts of the well-heeled. But to say that the firm doesn’t care about them with tiny money is so untrue as to be a blatant attempt to misinform.
Schwab’s Starter Kit works like this. If a new account opens with just $50, Schwab will give the account fractional shares of five stocks in the SP 500 valued at $101. The account holder can immediately sell the shares or decline the shares and take the cash instead. In either case, for putting $50 at risk, he/she wll receive $101, thereby tripling their money. I know this is the case, because I talked two non-investing friends into taking advantage of Schwab’s offer and that was exactly their experience.
Yes, this is a one-time thing. But now the risk of engaging markets and making bets on the direction of asset prices has been transferred to the broker’s money and away from the account holder’s original grub stake.
If the person is being prudently guided by a parent or friend, he/she will limit subsequent bet sizes so that a series of losses of the sort any investor will suffer over the course of one’s investing career won’t wipe out the account. In time, and as experienced is gained, the account is likely to grow, so that when bigger money becomes available for investing it can be prudently deployed.
Back in the day, when I was first starting with Schwab and my account was tiny. I’d swing by their bricks and mortar office still dressed in my blue-collar work clothes and I was always treated with courtesy by the reps. In time, my tiny $2k became $25k and it became only one of several brokerage accounts, Fidelity, Firstrade, E*trade, Interactive Brokers, each of which offers differing advantages. But Schwab remains a good shop to deal with across a wide variety of financial products for a wide variety of customers, many of whom have only tiny money.
We on this board are mostly literate and numerate.
We have solid understanding of finances and compound growth/interest.
With that premise, have you put funds into a newborn baby account, expecting those to compound and give that child a financial foundation … Later in life?
No, not a 529 education thing. That’s too restrictive.
Online compound growth calculators calculate $1000, growing/compounding at 10% APR, will be $405,000 after 63 years (birth to “retirementbage”).
$2000 grows to $810k.
If the growth period is shortened, say start at age 21… And 42 years til age 63…
The initial sum has to be $16k to grow to 876k.
Probably not. Most (almost the entirety) of the demographic a program like that is aimed at does not have $1,000 to sequester in an account within 30 days of junior’s birthday and will spend the next 18 years complaining about how expensive kids are even as they have more kids. People in the other demographic already have a farago of programs to do the same thing (although many don’t know about them or use them as they live for today and to consume.)
From 1999 to 2015, Detroit Public was in the hands of Governor appointed “emergency managers”, whose one remit was to prevent the district going bankrupt, so the money interests who held bonds would be paid in full. The result: no money to maintain the school buildings. No money for books and school supplies. The EM had authority to unilaterally change contracts to financially benefit the school system, at the expense of the other stakeholders. Education was not a priority, only making the money interests whole. One of the EMs was the same bright spark who, as EM of Flint, decreed the city be cut off from the Detroit water system, and draw water from the Flint river, instead, without adequately treating the water, all to save money, to make the money interests whole.
The report, which was commissioned by the school board, found “startling mismanagement” by the state officials who largely ran the district between 1999 and 2015.
I think you’re misunderstanding or misrepresenting several things.
#1. Many individuals own muni utility bonds, not just “the big boys”. Why should they be penalized if the borrowers don’t manage their financial activities responsibly?
#2. Why is it assumed that education is the responsibility of the national or state government and not a joint responsibility of parents and the immediate community, especially in regard to financial competence, which a consequence of values and culture? Caring parents teach their kids about money, both by example and by lessons. They don’t depend on the schools to do that job, because they know it’s not going to happen.
Because the parents are all too often irresponsible and ignorant, and unfortunately live surrounded mostly by the same. A crux fundamental early advantage of the USA, now almost completely frittered away, was to understand that basic fact and require as the remedy a universal public education paid for publicly.
I will say again check out Finland, with rocks and pine tar as their major natural resources, beating out most of the developed world because they see their national security and well-being as dependent on excellent education for every child, regardless of parentage or community.
I don’t know if you live in Michigan. I do. I have seen the priorities demonstrated, repeatedly, over decades. -city water systems serving up unfit water to tax paying residents, while insisting the residents pay for the unusable water. meanwhile, water bottling companies suck millions of gallons of water, per day, out of the aquifer under the state, for nothing but a $200/year permit. State tip fee for landfills of 36 cents per ton, a tenth of what other states charge, so there is lots of business for the private landfill operators. While the state virtually gives away resources to private corporations, the people have third world grade roads, second rate education, and see their taxes raised, to pay for more corporate tax cuts. It is perfectly consistent with the “traditional values” of the state, to take away from individual taxpayers, to benefit the upper income class. That trend has reversed under the current Gov. Regime change in Lansing will probably produce a reversion to the long term trend.
