'Plan to give every Israeli child a savings account will help confront inequality'

Finance Minister Moshe Kahlon announced last week the establishment of a savings account for every Israeli child, which will provide everyone who reaches age 18 with NIS 20,000.

By LIDAR GRAVÉ-LAZI
Updated: JUNE 28, 2016 09:15
Moshe Kahlon (photo credit: MARC ISRAEL SELLEM)
Moshe Kahlon
(photo credit: MARC ISRAEL SELLEM)
The new government initiative to provide a savings account for every Israeli child will help minimize inequality, according to a report released by the Taub Center for Social Equality on Tuesday.
Finance Minister Moshe Kahlon announced last week the establishment of a savings account for every Israeli child, which will provide everyone who reaches age 18 with NIS 20,000. It is set to be implemented in January.
In contrast to most policy reports critical of government programs, the Taub report seems to affirm the initiative, though the center offers a number of alternatives for long-term investments for children.
The study says research from various countries shows that programs aimed at “asset building for the entire population” while providing extra assistance to needy youth have the best chances to succeed in reducing poverty and enjoying public support.
“Findings from the current analysis indicate that although this approach requires a large amount of resources and is complex to administer, it gives young people considerable assets at the end of the program and will help confront inequality,” Taub Center researcher Shavit Madhala-Brik wrote.
The study presented four options and their implications for the implementation of the initiative.
The first option, and the one adopted by Kahlon, includes allocating NIS 50 per month for all newborn children as well as a variable lump sum at withdrawal for NIS 500. Parents who can afford to may add NIS 50 per month to the savings account.
Thus at the age of 21, each child will have NIS 20,000 (NIS 23,000 if withdrawn), and NIS 23,930 if the child’s parents were able to add the additional monthly savings (NIS 25,000 if withdrawn). The cost to the State is estimated at about NIS 2.4 billion.
The second option includes a recommendation by the Committee to Fight Poverty, which released its recommendations with a budget totaling some NIS 7 billion to combat poverty.
This option would provide grants only to children who are economically disadvantaged, and whose parents do not receive income tax credit on savings program.
In this framework, NIS 50 would be taken out of the child allowance and matched by the government. When the child turns 18, the savings would amount to some NIS 37,370, while the annual cost to the government once fully implemented would stand at NIS 580 million.
The third option is based on a program designed especially for Israel in 2010 by the Center for Social Development, at Washington University in St.
Louis. This program proposes opening a long-term savings account for all children, but allows parents to opt out should they choose.
Instead of receiving a maternity grant, the amount of the grant would be invested in an account along with NIS 50 from the child allowance, which would be deposited and matched by the government for the child’s first five years.
For low-income families, the state will put in an additional NIS 100 per month for the first five years, and will deposit NIS 1,000 at two later milestones in the child’s life.
The accumulated savings would reach NIS 22,120 for low-income families and NIS 16,500 for all other children.
The total cost to the government would stand at around NIS 355 million annually.
The final option would result in a combination of options two and three, and would grant children reaching the age of 18 NIS 13,060, and children who were eligible up to NIS 36,500.
The cost of this program is estimated at NIS 2.5 billion annually.
The report recommends that in choosing the best policy for Israel, the government should consider how much money children in the program should ultimately receive when they turn 18 and which children should be eligible. In addition, the government should take into consideration the wide gaps in the cost of the programs ranging from NIS 355 million to NIS 2.5 billion per year.