The Youngstown Homestead Act of 2007 : part I

Earlier this year, Ted Halstead, the founding president of the New America Foundation wrote an article in the Harvard Business Review titled “A Homestead Act for the Twenty-First Century” in which he chronicles various programs that the American middle class has used to attain asset ownership.

The Homestead Act of 1862, for example, awarded 160 acres of land in the American West to every family who lived on the land for five years. Another example, the GI Bill, provided mortgage reduction policies for those who served in the U.S. Military.

Halstead calls for new policies to target the ownership of financial assets, as he claims the gap between the poor and the rich in the country is widening.

He proposes one such policy, that of giving to every newborn in America $6,000 at birth as a down payment on a productive life. With compounded interest, that amount could grow to $20,000 by the time the child reaches 18 years of age, which can then be used towards college tuition, a down payment for a home, seed money for a legitimate business, or retirement savings. In a single year for all children born in America, he estimates the cost to be $24 billion dollars, a much lower amount than what is spent on farm subsidies, foreign wars, or other ballooning government-funded programs.

But what really caught my eye is his article was this statement:

This program “could also offer inner-city kids a new social contract: If they play by the rules and graduate from high school, then a pot of money will allow them to invest in their own futures. Paired with financial-literacy education in schools, such a policy can turn a culture of poverty and dependency into one of hope and opportunity.”

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Let’s investigate this idea for our own city:

This gap between the rich and the poor, for both individuals and political jurisdictions, is indeed growing in the Mahoning Valley. In the latest figures from the U.S. Census’ 2005 American Community Survey, the percentage of individuals living below the poverty line in the city of Youngstown has grown to 24.3%.

This same statistical source states there are approximately 4,700 children living in the city of Youngstown less than 5 years of age. So I’m going to estimate there are about 900 children born every year that will be moving into the city limits of Youngstown. A $1,000 investment towards each child for a project like this would cost then annually about $900,000. A $2,000 investment per newborn, would cost about $1.8 million, and so forth.

Under this concept, each child in the city of Youngstown would have a corresponding account attached to their name, which they could watch increase in value as they get older. Other additional components that can be incorporated into this program include:

- The money would only be given to the student if they successfully graduate from a high school within the city limits of Youngstown by the age of nineteen. If the student does not graduate in time, the money reverts back into the system to be distributed to future newborns.

- Only one-fifth of the money in each student’s account will go directly into their pocket, for whatever purpose they choose. The rest of the money can only be used to pay for the student's tuition in universities, community colleges, and technical schools in the Mahoning Valley.

- Financial institutions, such as banks and credit unions with their headquarters in the city of Youngstown and the Mahoning Valley will be given the first opportunity to be a partner with this program.

- Students will learn about the existence of these accounts at an early age, and will be educated on the value of investing and compounding interest at various points during their schooling. If desired, students can open additional accounts with the financial institutions that administer their account, which they can have complete control over.

Of course, the details on all this are subject to change (maybe this blog for wandering thoughts will stir some additional calculations), but the central message is clear:

We need to reward students who successfully complete school, we need to support local financial institutions, we need to push students to continue their education beyond high school, and we need some programs to make Youngstown a city where families with children feel welcome to thrive.