The FAB Campaign might sound at first like a plan dreamed up by well-meaning but naïve social activists. The name stands for “Financial Access @ Birth,” and the idea is to make a $100 savings deposit on behalf of every child born. A look at the names of the plan’s founders, however, suggests there’s serious economics afoot; there’s a former finance minister of Mexico, a former chief economist of the International Monetary Fund and finance professors from the world’s best schools.

I recently spoke with Bhagwan Chowdhry, a founding member of the FAB Campaign who teaches corporate finance and microfinance (financial services for the poor) at UCLA, about the deceptively simple idea.

Jack Hough: What’s a FAB account?

Bhagwan Chowdhry: We have three billion people in the world who have no access to formal financial services. Almost half the world. The idea behind FAB is to put $100 in a savings account for each child at the time the birth certificate is created. One of the major ideas in economics is that incentives matter. If you offer $100, it will provide incentives for parents to create an identity for their children, which economists view as important to development. If we start at birth, in 20 years, all children and young adults will have access to financial services. Once you bring kids in, parents will have access by default.

Why do the poor need financial services?

When people don’t have access to financial services, even simple things like savings are impossible. When the poor give money to informal deposit collectors, they actually pay money for the right to save. They’re getting an astounding return of minus 30% in some cases. We know that a positive rate of return is important to saving, and that the poor need savings accounts. When we say three billion people in the world live on less than $2 a day, they don’t get $2 every day. The ability to save is hugely important for meeting daily needs.

How and when does the money become available to the account holder?

We’re thinking this will be integrated with electronic banking and perhaps mobile phones. Our idea is that the initial $100 deposit will be available after age 16. We want to minimize incentives for immediate consumption and fraud. The earnings on the money could be made available sooner. It could be used for things like basic health services.

Where will the money come from?

We want each country to have skin in the game, but you can’t expect poor countries to give all of the money themselves. We think each country should contribute based on their gross domestic product. Rich countries give more and poor countries give less. The effect is a transfer of aid from the rich to the poor.

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