Israel has a new law just taking effect this year which grants 50 shekels a month to every Israeli child for savings. That’s not much money, around $13.50 by current exchange rates, but it adds up to around 10,800 shekels by the time a child reaches adulthood. In the meantime, parents have to decide where to keep the money.
Enter the Kosher-certified investment industry, which is advertising heavily in Orthodox neighborhoods, according to Haaretz.
Most of the rabbinic specifications about kosher investment stems from the rule that Jews cannot charge other Jews interest. Banks can only get past the rule by obtaining a heter iska redefining the loan as a business partnership, but then there are still restrictions about how banks can operate with a heter iska.
There are two different Kosher classifications for investments, with the stricter “Glatt capital” version supervised by both the Badatz rabbinical court and the Jewish Law Committee and offered by only two investment houses and one insurance company.
Unfortunately, Kosher investment options don’t typically earn as much for investors, causing Haaretz’s Assa Sasson to say that “children themselves pay a price for their kosher savings.”
Although they can invest in futures contracts on stock indices, the halakhic plan invests most of the savings in Israeli government bonds, which are paying very low rates of interest. Worse still, if interest rates rise, bondholders would suffer losses on their principle. These plans don’t invest in non-traded investments, which in recent years have enjoyed higher returns.