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U.K. bestows nest eggs on babies to get them to save


Again, we hear that Americans are lousy savers.

As a group, we are spending more money than we are making, and it has been getting worse for three decades. In the early 1980s, Americans were saving about 11 percent of their after-tax income. For 2005, saving was a negative 0.5 percent.

Add to those figures data on retirement saving, and a troubling picture emerges - a retirement crisis in the making.

About 65 percent of families headed by 55-to-65-year-olds have saved no more than $55,000 in retirement accounts such as 401(k)s and IRAs, according to the Congressional Research Service. And among 45-to-54-year-olds, half have $48,000 or less.

Research by benefits firm Towers Perrin shows many Americans are deluding themselves, thinking they somehow will catch up.

A retiree with $55,000 in savings will be able to remove about $408 a month from savings. Along with the average Social Security payment of $1,002 a month, that won't cover much more than groceries and medical costs.

So the question is: What do you do to get people to save more?

The Aspen Institute, a Washington think tank, called financial and political leaders from Chicago together a couple of weeks ago to figure out how to induce people to save more. It was the first of six such meetings throughout the country.

The solutions, coming primarily from political leaders, were daunting and familiar: Increase people's wages, reduce health care cost burdens, make housing more affordable.

But a unique solution was a British program that began about a year ago designed to build a nation of savers. The United Kingdom, like the U.S., has seen its savings rate decline.

The government's solution has been to give every person a chance to have savings. When a baby is born, he or she is given money - the equivalent of $444 - for a personal account. The amount is doubled for low-income families.

Parents don't actually get cash. Each baby is given a voucher, and the parents turn it over to a financial institution and decide how the money should be invested - choosing from high-risk to low-risk options offered through the government program, but provided by private investment businesses.

Once a parent turns over the voucher to the investment business, the baby has an account that should start growing if invested well.

As time goes on, parents or relatives can add approximately $2,130 a year. The money grows without being taxed. When the children turn 7, they are to be given another lump sum. And at age 18, the children will have access to the cash - using it for college, a down payment on a house, a car to get to a first job, a retirement account, or whatever they need to begin their adult life.

If the extra money from family members and government contributions are invested in a stock-market index that performs as it has historically, an 18-year-old could have about $71,000, said David White, chief executive of Children's Mutual, one of the investment firms involved.

It's an enchanting thought - not just because it could give students a chance to go to college without the average $20,500 in debt that American students incur now, but because of the long-range possibilities.

The concept is designed to get people thinking about saving and investing: If children start with a small pot of money and see it grow, perhaps they will envision possibilities, and continue a savings habit through life.

Messages for Gail MarksJarvis also can be left at 312-222-4264.

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