What Trump Accounts reveal about time and long-term wealth

This summer, the Trump administration will officially launch its “Trump Accounts” initiative. Parents can open accounts for all children under 18; however, the U.S. Department of Treasury is making a one-time $1,000 contribution to accounts opened for all babies born to U.S. citizens between Jan. 1, 2025, and Dec. 31, 2028.

When I first heard about the program, my reaction wasn’t political, it was opportunistic. Throughout my experience as a financial advisor, I’ve learned that most families don’t struggle because they lack knowledge or access to savings tools. They struggle because they underestimate the power of time and procrastinate when it comes to building savings.

When it comes to saving for their children, most parents believe they’ll have another year to start, or they tell themselves they’ll start contributing once the next paycheck arrives. Before they realize it, their child is a teenager and they’re frantically hoping a financial professional can cram a decade’s worth of savings and compounding into their final years of high school. Trump Accounts are designed to discourage that. Regardless of where you fall politically, the real value of these accounts goes far beyond the initial $1,000 contribution. The real value is the opportunity and motivation it provides to parents to start saving earlier.

Back when my children were young, there was a program known as the Stein Roe Young Investor Fund. The goal was to expose children to the world of investing by allowing them to buy shares from companies that offered products they recognized, such as McDonalds and Disney.

My wife and I decided to open investment accounts for our children, and my son became especially interested. I remember watching him call his mutual fund company on a regular basis to check his balance at the age of 7. After making around $30, my son celebrated as if he’d just hit the lottery jackpot. Watching the account grow and introducing him to the market was exciting, but it was about more than that. Seeing the pride my son felt when he saw his name on that statement was powerful. My son had ownership and ownership breeds engagement.

Trump Accounts aren’t the only savings vehicles for children, but they are unique. Although custodial accounts, brokerage accounts held in a parent’s name, and education savings plans offer some flexibility and tax advantages, Trump Accounts operate more closely to a traditional retirement account. They provide tax-deferred growth, investment in broad U.S. equity index funds and penalties for early withdrawals. Unlike other children’s savings tools that focus on education or other short-term milestones, Trump Accounts are built for longevity. While funds in the account can be used for education or to help with the purchase of a home, they’re essentially designed to give children a head start on building wealth for retirement – specifically in a world where pensions are obsolete and the future of Social Security is unknown.

When it comes to financial planning, there are endless debates about which savings vehicle is best. However, the more important conversation we should have with our clients is the importance of developing a savings plan early enough to maximize the benefits of compounding. No program or savings vehicle replaces discipline or provides forgiveness for the years where saving was missed. In times like this when policy and opportunity align to motivate families to start saving earlier and position the next generation for financial security and success, it’s a conversation worth having.

 

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