Recently, Barrons printed an opinion piece written by Zach Buchwald, the CEO of Russell Investments. For those unfamiliar with the firm, Russell Investments has about $330 billion in assets under management, with an additional approximately $930 billion in assets under advisement. They are huge players in the investment world. As a result, Buchwald is a credible voice.
His piece is entitled “The Bold Move That Would Give Americans the Retirement Security They Crave.” In it he writes:
What’s most important is that we provide it to everyone. At the start, we would create accounts for all young Americans and kick-start them with a $1,000 initial investment for every new high school graduate. The initial contribution would be restricted from early withdrawal (it’s not a handout) and will bring with it tax incentives for people to make their own contributions.
While his intentions are likely noble, there are two main problems with his approach. First, if you give every high school graduate a new account and “kick-start” it with a $1,000 grant, that is a handout.
But the bigger problem is that this is nothing more than yet another attempt at trying to get the government to solve a personal problem. That is not the government’s job. The government’s role is to protect their populace and to ensure the rule of law is followed. Everything else is the purview of personal responsibility.
Thankfully, North Carolina has been leading — and should continue to lead — the nation in teaching personal responsibility.
In 2019, the North Carolina legislature passed, and Gov. Roy Cooper signed, House Bill 924 — the “House Teacher Contract Changes” law. That law included a provision that mandates a financial literacy and economics course for every public high school graduate. The class of 2024 was the first graduating class to meet that requirement.
According to the Next Gen Personal Finance 2024 State of Financial Education Report, we now have 25 states that have adopted some form of financial education for high school students. While North Carolina’s law was somewhat of a trend-setter — being an early adopter — North Carolina’s law needs to go further.
Currently, the North Carolina law mandates that high school students be taught the following:
- The true cost of credit
- Choosing and managing a credit card
- Borrowing money for an automobile or other large purchase
- Home mortgages
- Credit scoring and credit reports
- Other relevant financial literacy issues
All of these topics are worthy topics. But, to Buchwald’s point, there is one glaring omission.
Buchwald’s opinion piece discusses the retirement crisis that is on our hands. This crisis is not new. It has been brewing for decades. One could argue that the crisis has been growing for close to 100 years.
This retirement crisis began back when President Franklin D. Roosevelt enacted the Social Security Act of 1934. According to Amity Shlaes telling of the story in “The Forgotten Man: A New History of The Great Depression,” secretary of labor Frances Perkins reported FDR as stating,
It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can’t do that. We can’t see the United States short in 1980 any more than in 1935.
Treasury Secretary Mogenthau was also adamant that he did not believe it was appropriate to put any additional demands on the United States Treasury.
The law passed anyway.
As it turns out, President Roosevelt was only one year off. On May 21, 1981, President Ronald Reagan sent a letter to Congress urging them to find a bipartisan solution to avoid the bankruptcy of the Social Security System.
Buchwald’s “national retirement savings program” idea is certainly couched with good intentions, much like the Social Security Act was based on the philosophy of helping the average American — a charitable objective. Unfortunately, both the Social Security Act and (to an arguably much-lesser extent) Buchwald’s suggestion create what economists call a “moral hazard.”
It is now widely known that the average lifespan for Americans in the 1930s was only 58 to 62 years old. As a result, a social “insurance” program like Social Security should have caused little harm to the nation’s finances when you had to be 65 years old to qualify. Today, we are living much longer. Furthermore, in 1934 there were about 30 Americans paying Social Security tax for every American receiving the benefits. Today, there are only about three Americans paying Social Security tax for every American collecting benefits.
Despite this, according to official Federal Reserve Economic Data, our nation’s Personal Savings Rate is currently only 4.6%. As a result, the North Carolina legislature should, once again, take a leading role in educating our population. The legislature should amend our state’s mandate on financial education to include — at a minimum — basic investment theories, methodologies as well as investment vehicles and investment strategies.
Our nation does not need another handout. Our nation needs to continue to push for a return to personal responsibility. North Carolina should lead the way.