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September 28, 2007

Clinton: $5,000 for Every U.S. Baby - Politics on The Huffington Post

Re: Clinton: $5,000 for Every U.S. Baby - Politics on  The Huffington Post:

WASHINGTON — Democratic presidential candidate Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 “baby bond” from the government to help pay for future costs of college or buying a home.

Clinton, her party's front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home,” she said.

This is a pretty lame, “third-way” economic policy hokum from DC think-tank/consultant types.  In aggregate, a $5,000 per baby bond would be expensive, yet the result would have limited value to the bond holder.  It assumes innumeracy of Americans to think that a $5,000 bond would have great value by the time a newborn graduates from high school.  If the bond value increases on average about 7% per year, it doubles roughly every 10 years.  So by time that baby has reached 18, it has doubled less than twice.  In other words, it would now be worth less than $20,000 ... before inflation.  In inflation-adjusted terms, at say, 3%, it would be worth about $10,000.

To put that in other terms, it would pay for less than half of a car, a year or less of health insurance, wouldn't cover half the down payment for a house, it would cover one year of room and board and plane ticket to college but no tuition, it would cover only about one third of the freshman year of school at a quality liberal arts college.

The US News and World Report College calculator estimates that, if you started with the 5,000 bond, you would need to add over $4400 per year to that bond in order to pay for college:

[For an average 4 year private college], the total projected tuition payments are $151,937 over time, assuming a 5% annual increase. In comparison, if your tuition payments began now, you would be paying a total of $61,520.
You should save $4,414 annually until Student 1 enrolls at Average 4 Year Private College in 2024. Its current tuition is $15,380.

In other words, a $5,000 bond would not be transformative for very many people; it would be a pleasant extra.


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