Solutions looking for problems – the case of ‘Newborn Cedi Investment Accounts’

In the last year, I have been pleasantly surprised to discover that four friends of mine have been blessed with the joy of welcoming newborns into their respective families (certainly, for our part of the world, Elon Musk probably has little to worry about). Within months, all four households will be celebrating first anniversary birthdays for these newborns.

So, before this year ends, Uncle Ken (yours truly) will be joining four households to celebrate four birthdays of four adorable infants respectively… hopefully! Of these four friends, three of them are first-timers. Their ‘cocoa baby’, as some around this neighborhood would term it. Imagine the euphoria!

I refer to these joyous moments of the recent past to serve as context for what follows.

Long before this cohort of friends, I had already noticed this trend – especially among first-time parents, wherein bank accounts are created and monies deposited into them for and on behalf of the newborn infants. Some kind of #kick-starter account of sorts for the newborn child. More often than not, the first proceeds to ever make it into such accounts come from donations and cash gifts presented at the outdooring ceremonies of these newborns.

On the face of it, it is trite knowledge and unnecessary to even question why this seemingly brilliant practice is adopted and promoted ever so willingly. When has it ever been a terrible idea and time to save money for a rainy day, right? Given the opportunity, all able and willing parents/guardians should do all they reasonably can to set their children up for a great start in the unknown future that lies ahead. Invest in the future of the children, we are told.

Such mitigation of and investment in the child’s future is by no means exclusive to cash. There are many other well-meaning parents/guardians who are breaking their backs to secure landed property, shares and other related equity for and on behalf of their offspring. Noble efforts!

However, on deeper reflection, I cannot understand how this came to be a great idea and religiously adopted as a template for many others to follow.  Particularly so in a dwelling space like my dear country Ghana. Bear with me for a moment. Take a practical yet hypothetical example of an adorable baby girl born (let’s call her Angel) to a young couple in Accra in the year 1999. At birth, Angel was blessed with total cash gifts and donations amounting to one million cedis (not Ghana cedis). This amount was deposited into an investment account held in trust for her by her mother.

Assume for a moment that this amount appreciated 10-fold over a period of 8 years. This takes us to year 2007 when we expect about 10 million cedis (not Ghana cedis) sitting in this investment account opened for Angel. In July of that same year, courtesy of the magic wand of redenomination, four zeros get wiped off Angel’s investment – leaving her with a new bank balance of GH¢1,000. By 2007 standards, Angel is still ‘in a comfortable lead’ as we in Ghana say of persons in a good place.

Fast forward from 2007 to 2023, a good 16 years later. Assume here yet again that Angel maintains the same yield trajectory on her investment account. Invariably growing her investment 20-fold to land at GH¢20,000. Incredible!

Now, it is 2023, Angel is 24 years old and looking to further her studies at the Master’s level – having already secured admission into Brunel University in London to study Mechanical Engineering. Angel’s parents have always envisaged the very best for her, and imagined this career path for their dear daughter at the time of investing a whopping 1 million cedis (not Ghana cedis) into an investment account for her as far back as 1999 when she was born.

The cost of studying Mechanical Engineering at post-graduate level at Brunel University in London is about £35,000. The pound sterling equivalent of GH¢20,000 today is just a little over £1,500.

Just so this sinks in a bit more, 1 million cedis (not Ghana cedis) #INVESTED over 24 years at a projected yield return of 30-fold (equivalent value) leaves you with under £1,500 in hand. Even without the need to convert, we have an inflation rate in excess of 40 percent staring us in the face – which effectively reduces the purchase parity value of whatever yields were registered over the nearly 2 decades and a half period.

(Notice is made of my silence on the recently activated Domestic Debt Exchange Programme understanding that to be an outlier – however remote, yet still deeply related)

I dare say if one decides to put 1 million Ghana cedis in an investment account today and leave same over a 24-year period from today, based on the current trajectory of macroeconomic indicators a similar fate awaits you at the end of that time – if not worse. So, it begs the question: where did the idea and inspiration to open an investment account willy-nilly in the name of newborns at christening come from? What have I missed?

Whatever solution this de-facto newborn investment bank accounts move provides, it is clearly addressed at the wrong problem.

Respectfully, this narrative cannot be left hanging without tabling a few alternatives propositions. Many to whom I have shared this concern explain that they do this to mitigate the risk of the most obvious ‘known unknown’ – Death. My answer to that has always been, why then not turn to Insurance? As one who cut his teeth as a career marketer in the insurance industry, I know for certain that life insurance (assurance) is the best mitigation against the risk of untimely death. Thankfully, some of the insurance companies now offer very meaningful packages that provide reasonable adjustments to correct for inflation.

As an avid and practical risk-taker, I encourage many to consider unconventional investment alternatives. Invest in stocks if you aim for the long-term. Where possible, invest in non-monetary instruments (Gold). Avoid long-term cedi-denominated investments for now; but do consider same for short- to medium-term investments (T-bills).

Above all, invest in People. Regardless of everything else (experiences, testimonies and revelations), the human being is the best alternative to all the wealth and riches of this earth. The best investments are the ones we make in and with people, especially the ones bearing no relation or lineage to us.

Take a bet on people, as you would do on a regular with investment instruments. For it is all meaningless and vanity without Human Beings.

Disclaimer: Although I hold an MBA, I do not pretend to be anywhere close to an expert on the subject of financial management, or qualify to offer any financial advice. The observations above represent the reflections of an ordinary man with access to his thoughts and a keyboard.

>>>the writer is a Consultant, Entrepreneur and Farmer. He can be reached via [email protected]