R1,000 for every South African baby? Sarupen thinks it could work

Imagine every single South African child born next year, and thereafter, starting adult life with a well-stocked investment account. 

That is what Purple Group CEO Charles Savage is proposing: a South African adaptation of US President Donald Trump’s “Trump Accounts”. And the plan has the tentative backing of deputy finance minister Ashor Sarupen. 

For starters, says Savage – whose company runs the fast-growing EasyEquities trading platform – the reason he believes it can work is the success of South Africa’s tax-free savings product, which the National Treasury first introduced in 2015. 

“It’s the best gift that government has given us in the last 20 years,” he says. “The low-cost nature of it, which is mandatory, means fees just can’t feed on it, and the lifetime tax-free status means it really rewards investors who start young.” 

In the US, under proposals put forward by Trump, children born between January 1 2025 and December 31 2028 would each receive $1,000 in seed money from the federal government, invested in an index fund tracking the overall stock market until they turn 18. The idea has already attracted a $6.25bn donation from billionaires Michael and Susan Dell, who last month pledged $250 each to 25-million American children aged 10 and under. 

“We want these kids to know that not only do their families care, but their communities care – their government, their country cares about them,” Susan Dell told the Associated Press. 

Savage, who thinks South Africa should start with R1,000 per child – costing close to R1bn in the first year based on recent birth statistics – believes philanthropists would be the first donors if the state put some tax incentives in place. 

Philanthropy in action  

“It’s been incredible to watch the philanthropy that’s happened in America, and I think the same will happen here. We’ll unlock corporate and private philanthropy, targeted at empowering the youth and locking it away so their future is secure. If we shift funding towards supporting the youth, we don’t have to worry about them in their old age,” says Savage. 

The advantages, he argues, would be legion – not just for young people, but for the country as a whole. 

“A young investor is a smart employee; they educate themselves more effectively, invest better and spend smarter. It shifts the entire demographic consumption behaviour of the country and, over the long term, the economics.” 

A cynic could argue that Purple has a commercial interest; EasyEquities has helped dramatically widen access to investing for far more South Africans than before it “democratised investing”. It now has almost 1.2-million active customers after 11 years in operation. 

But, says Savage: “As a company, we’d want to be part of the architecture, not because we want to own it. Our contribution isn’t capital – we’re not big enough – but we could deliver the infrastructure that makes it accessible, affordable and relevant for everyone.” 

The money is there 

Put to Sarupen in a wide-ranging interview that Currency will publish this week, the deputy finance minister gives cautious backing. 

“If we can get the guardrails right, I think it would give many, many people a good asset base. And if we circumscribe it just to people on the childcare grant – considering how much money is inefficiently spent – building up an asset base of R190bn for poor people over the next 18 years would be remarkable,” he says. 

Sarupen, however, believes these accounts should be funded with R1,000 a year, and arrives at R190bn based on an investment horizon (and conservative growth) of 18 years. 

The state, Sarupen believes, should be able to find the money. 

That’s mainly because the government already spends about R400bn a year on what it calls “active labour market programmes”. These include initiatives such as the Gauteng Enterprise Propeller, programmes in the department of small business and, the most contested of all, the National Student Financial Aid Scheme (NSFAS), which costs the state up to R70bn a year. 

A skewed system

And yet, with all this spending, South Africa has precious little employment to show for it. Instead, it has a youth unemployment rate of 56.3% on the expanded definition. 

“If you took a portion of the money we are spending on labour market programmes – which haven’t worked, because they don’t activate people into employment – this could work,” Sarupen tells Currency. 

Not only that, but NSFAS effectively serves only a narrow cohort of South Africans. 

From birth to age 18, poor South Africans qualify for the state’s childcare grant, Sarupen explains. But when they turn 18, they “hit a cliff in terms of our social security” – except for NSFAS recipients who qualify for university. 

“The entire system is skewed,” he adds, citing an unemployment rate of about 12% among graduates. “We are taking R70bn and privileging that group. When they turn 18, fine – but everyone else hits a cliff and is condemned to long-term poverty.” 

Some could use the money from their investment accounts for university, Sarupen adds. “But there are other things that give people a head-start in life: the ability to buy a motorbike or a small used vehicle, or a laptop. It has a huge impact — the ability to find work or start a business.” 

So is this easily done? 

Ready by February? 

Apparently, yes. “I hate to say it, but if government turned around today, we’d have it ready by February. The infrastructure is all there,” Savage tells Currency. 

The plan would need co-operation from the department of home affairs to onboard beneficiaries, though Savage believes friction is unlikely given the clean-up and digitisation under minister Leon Schreiber. He is also keen to see philanthropists add to the programme.

“I don’t think Americans are more philanthropic than South Africans – it may be the other way around. We should see a strong response here relative to our market size,” he says. 

Savage says the investment accounts should be directed strictly towards the local market – creating more investors with capital for their own futures, while channelling more capital into South African businesses.

“And it must be directed fairly,” he says. “No-one should be allowed to outsize their account over someone else. It mustn’t make the rich richer and the poor poorer – and the tax-free savings allowance already does that; it’s a fair system.” 

It could be a game-changer for a country that has long struggled to harness the power of its young people. 

“This becomes a national agenda, a national legacy. People will look back and ask what changed South Africa’s demographic – and they’ll say this did. Our observed intelligence is that once you make the first investment, the rest will follow,” Savage says. 

ALSO READ:

• Why halting SA’s debt binge is a huge win for the GNU
• One sunny day for jobs doesn’t make a summer
• Want tax-free savings for your kid? Here’s what to do – and not

_{Top image: Getty; Rawpixel/Currency collage.}