Trump accounts, finally a good idea from the American president?
In addition to handing us the World Cup trophy, last week we learned of another good deed by the Trump Administration: the US Treasury Department announced the official launch of the «Trump Accounts».
The so-called «Trump Accounts» («TAs») are bank accounts with tax advantages , the funds of which are earmarked for investment in financial markets, specifically the stock market . Every child born in the United States will be eligible to have an account at a financial institution endowed with $1,000 of public money from day one .
What is innovative about “TA”?
Beyond the inevitable marketing of the American president, which US Treasury Secretary Scott Bessent verbalized in his presentation, saying that the initiative «allows all children to have a share in the American dream from day one thanks to President Trump,» the «TA» are designed to help start investing and building wealth from the moment a child is born.
At its inception, there is a one-time government contribution of $1,000 for children born between January 1, 2025, and December 31, 2028. Afterward, parents, relatives, and employers, among other contributors including charitable organizations (very American and, at the same time, commendable, «giving back to society»), can contribute up to $5,000 per year per child.
That money will be automatically invested in a series of predetermined financial assets, certain ETFs and low-cost index funds that replicate the composition/behavior of the US Stock Exchange, and withdrawals of funds are, in principle, restricted until the account holder turns 18.
The great advantage of the described model is that, at a very low cost of public money (estimated at 16 billion, a tiny percentage of the enormous US public spending of around 7 trillion dollars), it will be possible to promote a culture of saving and reduce inequalities among the less fortunate social classes, as well as boost the financial education so necessary in today’s world where immediacy prevails and people tend to neglect a vision of the future, both personally and financially .
Furthermore, historically, stock ownership in the US has been unevenly distributed, and many households—especially younger, lower-income families— have little to no exposure to the stock market. Now, for those who lack a simple and reliable way to start investing in their children’s future, this formula offers a potential path to achieving that goal.
High profitability potential
This is a long-term investment option that, as the regulation governing «TAs» states, «aims to increase the proportion of Americans who benefit from the growth of U.S. companies and markets over their lifetimes.» Beyond statements like this, which may seem idealistic, the facts demonstrate that investing in the inflation-adjusted S&P 500 stock index has provided an average return of around 7% annually over the long term and, in the last decade, has exceeded 14.9% annualized thanks to the boost from the technology sector.
To these average returns, add the phenomenon of compound interest on savings over the years (remember that the account is unavailable until adulthood). This won’t end poverty in the US, a country where one of the great paradoxes of our time occurs : the richest country in the world has some of the highest poverty rates among developed nations (according to BBC News, 40 million Americans live below the poverty line). But it will ensure that its financial and social approach helps to overcome the inevitable political criticism regarding the use of public funds, which, as I mentioned, is irrelevant in both absolute and relative terms .
Not to depend on subsidies
At a time when subsidy policies prevail in Spain, initiatives like the one described here are all the more valuable, as they can allow many citizens to achieve greater financial independence from the state and face the future of many families with greater security—something that governments often try to monopolize . Therefore, for once , the initiative of Trump and his administration is welcome.