30 March 2007

Credit Due (Actually, Cash)

Note: My Thanks once again to Global Voices for picking up not one, but two of My recent posts. However, in the last one, I seem to be listed as an alter ego called "Jil the Genius." They may be on to something...

Credit where credit is due: The city of Caguas will launch a new program whereby every child born there will receive a $250 "donation" which can only be used by the child when s/he reaches 18 years of age. At that point, the interest-accrued money can be used for either post-high school studies or to start a business.

First of all, I must point out that Caguas will be the first city in the world to launch this kind of effort. Based on an idea established in England, the "birth donation" is both incentive and investment, and as such, has certain elements of powerful change shared by the Kalamazoo Promise.

Second of all, though I applaud the effort, I can't help but note that the whole idea falls far short of being truly useful. Unlike the Kalamazoo Promise which covers an entire in-state college tuition and links the recipient to time-in-residency, the Caguas initiative is only a cash investment expected to generate a $15,000 nest-egg for these future young adults. If higher education costs continue to soar as they have for the past twenty years, $15,000 would pay for roughly one year of college, far less than the 4-5 years needed for basic degrees. (Even now, $15,000 won't pay for one year in many major colleges.)

And if you want to start a business in 2025 and beyond, it seems to Me you'd want a lot more than $15,000. According to the Small Business Administration (SBA) a microbusiness needs about $12,000 to be properly capitalized, with success rising sharply if $20,000 is invested at the start. What is adequate capitalization now will become paltry in the next 18 years, so instead of creating a launch pad, the Caguas plan could simply become another boondoggle.

But what if We upped the ante and allowed the families of these babies and even companies to donate to the initial "starter deposit"? I see three advantages:

1) Families would be encouraged to provide a extra money boost with long-term benefits.

2) Employers could use the donation as a perk/deduction, whatever floats their boat best.

3) We'd make more of Us aware of how powerful savings can be.

Will the Caguas "birth donation" plan work? I wish I could say "Yes," but My gut feeling is that it will fall by the wayside before the decade is out, unless it is modified along the lines I've suggested. As a first step it is a wonderful change-of-pace; as a long-term agent of change it needs help.

But it is a good start.

The Jenius Has Spoken.

No comments: